Financial Mistakes to Avoid in Your 20s
Your twenties are a great time to learn how to plan for both the short-term and the long-term. Developing financially sound routines now can help you save time and money in the future by preventing you from making typical mistakes.
Here, we outline the most crucial financial mistakes to avoid in your 20s so that you can set yourself up for a lifetime of financial well-being.
Spending more than you earn
It’s time to reassess your short-sighted practice of spending as soon as your salary is deposited. If you consistently spend more money than you bring in and have to resort to borrowing money to make ends meet, you may find yourself in a precarious financial position.
Find places where you can reduce expenditure so that the extra funds can be placed towards debt repayment or savings. Analyse how much you’re spending on things like food and entertainment. Then, break down your spending habits to help you identify each one of your money leaks.
Not tracking your financial spend
Young adults often make the mistake of not keeping track of their finances. How often do you log into your bank account? How much do you typically spend weekly on food? Have you checked how much your monthly electricity bill averages? It’s crucial to your financial well-being to be able to answer queries like these.
Creating and sticking to a monthly budget can be an effective money management tool.
Not having financial goals
Budgeting, saving, and managing your money in the here and now can be more challenging if you don’t have concrete, long-term financial goals.
If you fail to save for the future, waste money on things that provide no lasting satisfaction, or neglect to reduce any outstanding debt, you may end up paying more in the long run.
Every person has a unique set of priorities when it comes to their finances, and their visions for the future can look very different. Spend some time putting your aspirations on paper and developing a strategy to reach them.
Being too dependent on your credit card
It’s now simpler than ever to slap arbitrary charges onto a credit card. You can use your credit card anywhere you go, including coffee shops, petrol stations, and bars for after-work drinks.
A bad credit score, interest fees, and debt are all possible outcomes of being dependent on credit cards for day-to-day spending.
Try to avoid using your credit card for little purchases and instead use cash or other forms of payment. A R20 latte, for instance, can just as readily be paid for with cash as it can with a credit card.
You can avoid using your credit card and instead use a debit card to make direct purchases. If you choose to use a debit card, exercise caution to avoid developing destructive patterns of behaviour. Overdraft fees may apply if you use your debit card frequently for small purchases throughout the day.
Not creating an emergency fund
Anyone can be the victim of an accident, so it’s best to be ready for anything. The fridge could stop working at any time. The car you’re driving could be destroyed in an accident. Perhaps you or a loved one will soon require hospitalisation due to illness. You should prepare for the unexpected by setting aside money in an emergency fund.
Not being honest with yourself
Avoid the common pitfalls of poor money management. It’s easy to convince yourself that you don’t have a debt problem if you avoid collection calls or get a short reprieve from making loan payments.
However, if you don’t take charge of paying off your debt, it will just continue to accrue interest and worsen your financial situation.
Not having a side hustle
Earning money through hobbies, crafts, and other activities in one’s spare time is commonly referred to as a “side hustle.” It’s a great opportunity to put your skills to use while having a good time.
Think about selling your paintings or jewellery at an art fair or on Etsy if you’re creative. Start your own tailoring business and indulge your inner fashionista. Weekend babysitting is a viable option for earning extra cash.
Making use of your spare time to earn some extra money will help you save significantly more money, regardless of the type of side hustle you pick.
Not saving for your retirement
When mounting debt hangs over your finances, it can be tempting to tell yourself that saving for retirement can wait. Don’t treat retirement like some far-off utopia you’ll reach if you just save enough money.
Save money every month for retirement by setting aside a portion of your income. If you don’t save for your retirement, you can miss out on the chance to increase your earnings through compounding over a longer time period. It’s important to save for retirement, even if it’s just a few bucks here and there.
Not taking clever risks
Taking some small risks in your twenties can be an invigorating and healthy experience that will serve you well in the future. Taking a loan to start a small business or investing some of your savings in the stock market are both instances of calculated risks that can feel risky at the time but pay off in the long run.
You should only invest money that you are willing to lose in the stock market or a new business, and you should carefully assess the risks and advantages before making any investment.
Frequently Asked Questions
Yes, you can invest in EASYInvest using an OTT Voucher. Your investment will be added to a unit trust overseen by Momentum.
If your credit card debt is too much for you to manage, you should consider undergoing debt review.
An emergency fund is crucial in case of an accident, illness, or breakage.
It’s never too early to start saving for your retirement, even if it’s just a few bucks a month.
A side hustle will set up an extra income stream that can make all the difference in your 20s.