With great money, comes great responsibility. As exciting and adventurous the 20s might be, it is prudent to avoid these common money mistakes.
The roaring 20s is the precise age bracket when people think they are invincible. Whether you are in college or a first-time earner, the future on the horizon looks bright. Everything seems possible. It is only natural that mistakes related to managing finances, relationships, career choices would be made during this very exciting time. However, smart millennials will understand the importance of avoiding these common mistakes. In order to profit returns later in life, it is imperative that you start making financially sound decisions right at the onset of your independent, adult life.
Here is a list of 6 money mistakes you should avoid during your roaring 20s:
1. Differentiate between needs and wants
You want that expensive gadget. You need books for class. You want to take that expensive trip. The key to managing finances right when you are starting out is to make sure you prioritise. There are certain expenses which must be taken care of first.
2. Not following the 50:20:30 rule
Given by Elizabeth Warren, the golden rule of budgeting the monthly income is a productive way to avoid making money mistakes. The premise is that after income tax deductions, 50% of the amount should be spent on needs, 20% on wants and 30% should be invested or saved. This guide is easy to follow and gives you a precise guideline of how to go about managing your money.
3. Aspiring for a lifestyle beyond your reach
Peer pressure is restricted to age. However, it can be felt in a more provoking manner during the 20s. Avoid living the going-with-the-flow lifestyle where you participate in every single social activity, irrespective of whether it is affordable or not. Have a personal balance sheet which should be at the beginning of every month. This will help you to understand how much you could spend during the month with respect to outings, retail purchases, ordering in etc.
4. Not spending enough time on future planning
At the very onset, it might seem a little oblique to start savings and investment accounts during your 20s. The most common thought is that you have your entire life in front of you to figure out the investment portfolio. However, consider this. Disaster does not strike with a warning. You could have a medical emergency, your family might need immediate assistance, or you simply have to incur a lump sum cost. What do you do then? Save, invest, and prepare for eventualities, no matter how distant, from an early age. Setting financial goals from the beginning will help with fund accumulation ensured by the compounding power of interests. It will also inculcate the habit of monitoring the growth which different investments will experience over a period of time.
5. Having constant safety nets
Your parents, family and friends will always have your back in case you face a financial crunch. However, this should not be the go-to option whenever an emergency crops up. You should also avoid the debt cycle, which develops when you borrow money from friends on a regular basis. Make your savings the contingency plan. This will ensure that you keep increasing the amount going into the savings account and help you to maintain an independent and responsible life.
6. Not planning your taxes
Tax planning forms an essential part of being able to take charge of your life. Being aware of the process, the documents required and being proactive about the process ensures that you stay on top of the financial management game.
Taking a few simple steps can go a long way in avoiding most of the common money mistakes people make during their 20s. Live large and responsibly, without losing sight of the future and you will be good to go! Have a look at how to make time for your finances when you lead a busy life.