10 Financial Mistakes to Avoid in Your 20s & 30s
It’s almost the end of 2020, so you know what that means. Time to start seriously thinking about finances! This year has been a tough one and lots of people suffered financial setbacks due to covid. Hopefully 2021 is the year you get back on track! If you are recovering from a financial setback, or just want to learn more about managing you finances, I partnered with personal finance blogger Prisca Benson to share 10 Financial Mistakes to Avoid in Your 20s and 30s. Even if you are older (or younger) these tips will come in handy for anyone looking to take charge of their finances and get closer to hitting their financial goals!
10 Financial Mistakes to Avoid in Your 20s & 30s
Our inexperience as young people makes it easy to make mistakes that could make your financial journey more difficult than it has to be. Let’s take a look at 10 mistakes you could be making right now that you can fix.
You don’t have a money saving a routine
Automate, automate, automate. If you use direct deposit at your job, then divide your check between your checking account and your savings. Most jobs allow you to pick a certain percentage or amount to go to each account. Another option is scheduling bank transfers to occur on the same day you get paid. If your job makes a retirement account available to you, you can have them take a certain percentage or amount every check to invest. If your job doesn’t have one, then you can open an individual retirement account (IRA) and schedule transfers from your bank account to occur on the day you get paid. Automating your savings will help you reach your financial goals.
You don’t track your spending
I don’t know why this is not taught in high school. It’s fundamental to your financial success as an adult. If you do not track your spending, you are likely spending more than you think you are. You don’t have to examine each purchase individually as there are apps, like Mint, that categorize your expenses. This makes it easy to adjust your spending habits as you see fit so you can reach your financial goals.
You live above your means
It is tempting to buy a new car because the monthly payments are so reasonable. Or going shopping to get the exotic ingredients recommended for this fantastic recipe you saw made on Youtube. A new version of your phone is out so it’s definitely time for an upgrade. Treating a group of friends to a meal when you have credit card debt racked up. Who wants to look like they have limited funds? I’ve done every single one of these things before. Simply put, if you don’t control your money, then it controls you. You spend money on things just for the sake of spending it, instead of focusing that money on the things that matter to you.
You Spend More Money on Rent Than You Can Afford
For many, getting your own place is synonymous with adulthood. Some of us reach an age where we feel it’s childish to live at home and look for our dream place to live with little to no savings in the bank. It’s not long before your new home begins to feel like a burden. First, I encourage you to consider whether or not moving out is necessary. If it’s important for you to do so, try to build up 3-6 months’ worth of savings first. Secondly, find housing that is within your means. Remember, your necessary expenses should account for 50% or less of your income. If your income won’t make that possible, consider searching for something more in your price range or getting a roommate.
You Don’t Have a Budget
Budgets are usually perceived as restrictive. Yet, they are critical to your financial success. They can be as flexible or as strict with one as you would like. Let’s take, for example, the 50/30/20 rule. This says that 50% of your income should go towards necessary expenses, such as groceries, housing, transportation, child care, etc. 30% goes towards your wants, like shopping, eating out, etc. 20% goes towards your savings goals. To figure out how much you have to put in each category, multiply your take-home pay by the percentage of the category you are looking to address. You don’t have to stick to this rule. You can vary the percentages so that it fits your goals. But it is important that you have a guide aka a budget.
You Are Incurring Unnecessary Debt
Consumerism, especially in America, makes consumer debt so seemingly normal. Every commercial has an ad on how you can afford low monthly payments over a period of time. Every store you visit has its own credit card that encourages you to shop by giving you coupons and discounts. Credit cards can be used responsibly. This means paying each card in full by the time it is due every month, without cleaning out your bank accounts. While credit used responsibly is a great financial tool, it can become a trap if you don’t manage your spending.
Car dealership ads can easily convince you that you need the vehicle being advertised. Of course, you can afford it! There are sales, rebates, and discounts at every twist and turn that you might feel you’re missing out on even though there’s nothing wrong with the car you have.
While not all debt is avoidable, rather than let a brand decide your purchasing power, make that decision ahead of time. Consider your needs and look over your finances to see if taking on this debt will be manageable and realistic.
You Don’t Take Student Loans Seriously
More often than not, people consider school loans a necessary expense. As a result, some do not go out of their way to avoid or even reduce it. If you fail to count the cost of obtaining school loans, you may be overwhelmed by the monthly payments you face once the bill comes due. Instead, look into scholarships, grants, and community programs that can assist in reducing college costs. Some people stop searching for these opportunities once they start school but that is a mistake.
If you are working while in school, consider jobs that have tuition assistance as a benefit. Minimize cost by getting your education as cheaply as reasonable. If your plan includes a four year school, then this might include a plan to take community college courses for transferable credits.
Finally, make sure your degree is worth the cost. What will be your annual starting salary once you graduate? You can search online for this number on sites such as Salary.com. Ideally, you want to graduate with less debt than your presumed annual salary. For example, if you will make $60,000 a year once you graduate, you want to aim for $60,000 or less of student loans. This will make your payments manageable and get you further on the path of debt freedom.
You Don’t Have Friends That Inspire Your Growth
Simply put, you can’t progress in life if all the people you interact with are in the exact space in life as you are or behind you. This applies in all areas of life but we’re talking about finances here. If your friends are not working toward paying down debt, you also will not see the importance of it. If your friends shop at every department store sale, you are likely to go and buy things you don’t need. Even worse, if your friends think it is okay to make fun of you for doing the things you feel you have to progress on your path to improving your finances, then you will lose your motivation.
This doesn’t mean you should dump your best friend since elementary school because she’s irresponsible with money. It is said that you are the average of the people you spend the most time with. So diversify the people you surround yourself with. Find friends with similar financial goals at school, work, religious services, community events, etc. You can also find online communities, like Facebook groups, that connect you to like-minded people that encourage you to achieve the goals you set for yourself.
You Aren’t Investing Right Now!
It is said that the best time is to invest was yesterday. The next best time is today. Investing can be very intimidating to some. People find the concept difficult to understand or feel like you have to be well-off financially before you start. There are no rules or minimums to investing but to answer these concerns, many financial institutions are working hard to making investing knowledge accessible to all. You can start to invest with just $5 in some places. If one of the benefits of your job is a retirement account, then choose how much you want taken out of each paycheck to be invested. Investing is a long-term savings vehicle so don’t put money that you expect you will need in the next 5-10 years.
You Don’t Advocate for Yourself Financially
Have you ever called the bank after getting charged an overdraft fee to ask if they’ll reverse it? You ever call a credit card company to see if they’ll make a payment arrangement with you that’ll save you in interest and save your credit score? How about calling a medical office because the bill you received didn’t make sense? If you haven’t done any of these things before, then it is possible you missed out on an opportunity to put money back in your pocket. Knowing that most anything is negotiable is a powerful tool. Don’t just assume you are powerless to change your circumstances.
If you find yourself making one of these mistakes, don’t get discouraged. In order to make progress, it is important to identify where you are and where you want to be. Take the time to tackle these issues one at a time in order to get you on your way to a better financial future. You can do it! Want more specific, actionable tips? Head over to Our Green Life for more and follow us on Instagram!
About the Contributor - Prisca Benson
I’m a nurse by day, personal finance & health blogger by night. I love to empower people by teaching them ways they can take control of their lives. I do so by sharing my struggles and wins so as to inspire others to reach their goals, especially for people who are disadvantaged and underrepresented.
