Your twenties just might be one of the most difficult financial times of your life. For most people, this is the period of time when they move out of their parents’ home, get a job, and set out for life on their own. While that can be exciting opportunity, it can also be difficult to get settled as you start to realize just how expensive life can be. Juggling all of your bills on a starting salary is often difficult, and many people struggle to find the right balance to make it work. If you happen to get married or have a child during this period, those life events can only add to the stress.
As you work on getting through your 20s in good financial condition, try to avoid making any of the following five financial mistakes.
#1 – Failing to Plan is Likely the Biggest of Financial Mistakes
Many young people simply fail to plan out their finances prior to making big purchases. For example, they may buy a new car or sign a lease on an expensive apartment without really crunching the numbers of their budget. Take your time to think ahead when it comes to spending money so you ensure that you can afford the things you are taking on.
I know I did this numerous times and have seen friends go through the same thing. While it might be a rite of passage, I believe some forethought can help soften the blow of this financial mistake.
#2 – Feeling Rich
If you’ve never really had a job before, you might feel like you are ‘rich’ when you start getting a paycheck coming in every two weeks. While it might seem like a lot of money at first, you will find that it goes out just as fast as it comes in.
Looking back I wished I would’ve taken those first few months in my first real job to see what expenses I was responsible for and implementing those in starting a budget.
#3 – Relying Too Much on Credit
There is a time and place for the responsible use of credit cards, but don’t overdo it. Using credit cards can actually be a good idea when you are in your 20s so you may be building credit from nothing, but it only works if you are making responsible purchases and paying off your cards each and every month. This also means not using credit cards as a way to rationalize spending, but only as a part of a well rounded financial plan.
#4 – Getting Tied Down
Most people are just starting to figure life out when they are in their 20s, so you don’t want to tie yourself down to large revolving payments. Focus on keeping your financial life as flexible as possible so you can make changes going forward based on the circumstances of your personal and professional life.
It might be tempting to make a series of large purchases, but you can probably do without most of those things for the time being.
#5 – Not Thinking Ahead
Just because you are young and don’t yet have too many ‘real life’ responsibilities, you should still be thinking ahead and saving your money when possible. Try to make a goal of setting aside a certain amount of money each month to start investing for retirement.
I know retirement may seem like it’s far off, and it is, but starting now is the best thing you can do in order to grow the kind of wealth you want down the road. If you have access to a 401(k) and are overwhelmed by it, consider using the free service at Personal Capital to help you find the best funds out of your plan and help you stay on track.
What financial mistakes did you make in your 20s? If there is one thing you could go back and tell your younger self to do, what would it be? What was the dumbest purchase you made just starting out?
Photo courtesy of: Betssssy