6 Money Mistakes To Avoid In Your 20s
When we are young it’s very important that we develop good money habits so we can avoid making big mistakes and accidentally giving ourselves a tough future.
The average person lives their whole lives just getting by with their paychecks and never gives a second thought about emergency funds or budgets, the only time this thought arises is when it’s too late.
So be more prepared than the average person, here are 6 money mistakes to avoid in your 20s:
#1. Spending As Much As (Or More Than) You Earn
When you spend as much as you earn, you never give yourself a chance to build a safety net to protect you from unexpected expenses like a medical emergency or a car repair.
Ideally you should not spend 10% of what you earn and just keep it in the bank in case disaster strikes and you need quick cash fast.
Now, if you’re spending more than you earn by using things like credit cards, then you are in for a very bad time.
Most people do this because they are short on cash and think “Well I’ll just pay it off next time I get paid.”
Generally it’s okay to do this once in a very long while when you have no other choice, but if you’re accumulating debt because you wanted to go out to eat at a restaurant or wanted to take a vacation, then you shouldn’t even own a credit card.
And it’s super easy for you to get overtaken by this, a little bit of charging the card here and there, then you miss a bill or two, soon enough you have a massive ball of debt that is growing even though you are trying to pay it down.
Do yourself a favor and keep the credit card charges to a minimum, only buy what you can easily pay back, and don’t use it for things you could simply save up for.
#2. Treating Your Tax Return As A Shopping Spree
If you have all your finances squared away then fine, you enjoy that big check, but if you have some debt or don’t have a safety net of any kind then the money needs to be diverted towards that. Immediately.
Yes it’s fun to have the extra money to go out or buy a new shiny object but what’s not fun is having an emergency where you need to pay a significant amount of money and you have to use a credit card or ask for a loan.
This is how they keep the poor people poor, you aren’t smart about your money and you keep accumulating charges and fees that prevent you from growing money of any kind.
Be smart and save that tax return so you are prepared when things hit the fan.
#3. Not Having A Budget
I know this is kind of related to the first one, but there is a difference between simply not spending money you don’t have and using a system to organize your money.
That’s what a budget is, a plan for the money that’s coming in to have a place to go.
If you don’t have a budget, and you’re just blindly spending money as it comes in then every once in a while it’ll get out of hand and you suddenly find yourself broke until the next paycheck or having to bust out the Visa Card.
With a budget you can easily keep an eye on your money and adjust your spending when you see expenses on the horizon, you can also set money aside for savings and not have to think about it twice.
It’s nice to have everything taken care of and then just using money left over to spend on whatever.
#4. Getting An Apartment That’s Too Expensive
This should be a no brainer but I’m sure a lot of people have gotten themselves into a situation where they are spending half their money on the place they live.
It’s tough and you can’t really afford to get behind on the rent because it’ll be too hard to catch up.
So you might be responsible in all other aspects but what’s the point if you have to be so strict with your spending that you have no money left over to save or spend at your leisure?
Always try to find a living space that suits your needs, works fine, and is reasonably priced. The extravagance can wait until you’ve saved up for a house or get a career (or a promotion) that can significantly improve your standard of living.
A good rule of thumb is to keep your rent bill at around 1/3rd of your monthly income.
#5. Buying A Car That’s Too Expensive
A lot of people overestimate what their price range is for a car.
Just because you can reasonably make the payments for it doesn’t mean you should get it. You don’t want to buy a car you’re gonna spend over a decade paying back, it’s going to fall apart before then.
You should not spend more than 20% of you monthly take home pay on a car, a healthier percentage is around 10%.
So if you’re making barely above minimum wage, you shouldn’t own a Cadillac. I had a boss like this when I was a teenager, all his money went to his fancy car and his fancy wife (no wonder he was so mean!).
#6. Not Developing Multiple Sources Of Income
Online business is the easiest way to develop more than one extra source of income, the overhead costs are close to nothing, and you can make a very high return on it.
I would look in the direction of Affiliate Marketing as that’s the fastest way to get your foot in the door. Everything else takes a while to build up.
And you could also do freelance work online if you have experience in graphic design or software, even if you don’t there a lot of programs out there that can teach these things in a short amount of time.
It’s time to get out there and work for your future.
Originally published at https://forgefinancialfreedom.com on September 12, 2019.