These Are The Biggest Financial Blunders People In Their 20s Make
When you’re in your 20s, it can seem like the world is your oyster: Big, important choices lie ahead when it comes to such things as employment, a life partner, living situations, and, yes, finances. But be aware that while youth affords you a wealth of opportunities and choices, money mistakes can result in a financial future that’s not as stable as it could be, or that’s fraught with monetary obligations and worry about past, present, and future bills.
Avoiding the following common pitfalls while you’re in your 20s can help set you on the path to financial stability as well as wealth accumulation.
Not Establishing Financial Goals
Establishing weekly, monthly, or yearly financial goals can help you get where you want to go financially. Having specific goals in place enables you to plan better in the present and also be better prepared for what the future might bring. Consider setting a monthly goals such as saving $100 per month or paying off your credit card balance at the end of each 30-day cycle. Think about saving your tax refund or adding it to your 401(k) as a yearly goal. Long-term financial goals could include purchasing a home or paying off student loans.
Avoiding overspending is relatively simple: Don’t spend more than you’re making from your job or jobs, or any other sources of income. People who overspend tend to put too much on their credit cards and sometimes find they’re not able to pay their bills on time. Setting up a realistic budget can help you to clearly see how much money is coming in and going out.
Increasing Your Credit Card Debt
It may be a small piece of plastic, but your credit card can do a large amount of damage when it comes to managing your finances efficiently. If you find you’re using your credit card for nearly every purchase you make, you might wind up in a financial hole for years. If you can’t pay your credit card balance off every month, you’ll find interest rates – and the debt you owe – will add up quickly.
Ignoring Your Credit Score
Seven years. That’s how long missed payments and accounts that have been sent to collections will stay on your credit report – a report that can impact all of your future financial transactions. Lenders will look at your credit report when you want buy a house or purchase a car, and some employers may consider your credit score before they decide to hire you. A good credit score conveys trustworthiness, responsibility, and the ability to consistently manage financial decisions that are part of everyday life. The Federal Trade Commission offers everyone a free copy of their annual credit report to download, which allows you to see your credit score and determine if any misreporting or fraud has occurred.
Not Having An Emergency Fund
Financial emergencies can come in many forms: a lost job, a health problem that impedes your ability to earn an income, an unforeseen major home repair, a family member who needs unexpected financial assistance. An emergency fund serves as a cushion that allows you to ride out the emergency without having to take out a bad loan or rely heavily on a credit card that carries a high interest rate.
Putting Off Saving For Retirement
Rethinking your retirement could help to stave off financial hardship down the road. Simply put, the sooner you start saving for retirement, the more money you’ll have in your retirement years to help maintain the lifestyle to which you’ve become accustomed. Plan on establishing a retirement account, taking advantage of a company-matched 401(k), or setting aside a sum of money every month or year that you pledge to leave untouched until your retirement begins. It may seem like a long way off, but time flies and you don’t want to spend the bulk of your retirement with your wings clipped because you’re short on cash.