Do you ever feel like you’re way behind on every financial milestone? Maybe you want to tackle your financial future, but you’re not even sure where you should start?
Taking control of your personal finances can seem like a daunting task, but it doesn’t have to be. There may not be a personal finance 101 class you can ace, but we do have some tips to help you feel like you’ve taken a master class in managing your money well.
Whether you’re 25 or 54, today is always a good time to fix any financial mistakes you’ve found yourself making. It’s never too late to start over and master your finances.
Here are six financial mistakes to avoid in your 20s
1. Not setting financial goals. The sooner you set some financial goals, the sooner you can be on your way to become the financial person you want to be. Without goals, you are like a ship with no course to sail — drifting aimlessly. It might be a fun adventure for a bit, but then you realize you are even farther from your destination than you were when you started. By setting financial goals now, you can start heading in the right direction today.
2. Not having a budget. Once you have your financial goals, you need to set a budget to meet those goals. Living without a budget puts at risk your achieving your financial goals. You can easily pick up bad financial habits, like spending more than you have, or find yourself unable to save for the things you want like a house or paying off pre-existing debt.
3. Delaying investing. It may seem like something you can do later, but the longer you delay investing, the less potential money you have to make. Hypothetically, let’s say you start by investing $1,000 at 40 years old. You then invest an additional $1,000 each year. With a 6 percent return rate, you would have made about $3,970 in returns by the time you turn 50.
But, what if you do the same thing, but you start investing at 25 years old, instead? The total returns accrued would be a whopping $33,200! That’s a huge difference. The longer you wait to invest, the less opportunity you have to enjoy the benefits of compound returns – that is, your money, making more money. Investing even a small amount in your 20s can make a huge difference for your future.
4. Living beyond your means. It’s pretty easy to get a credit card, but that doesn’t mean you should be spending your full credit limit. A credit card can be useful for emergencies or for earning rewards, but it shouldn’t be something you use to spend money you don’t have.
Similarly, car loans and mortgages allow you to build up debt quickly. While purchasing things like a car or real estate can be great goals, make sure these purchases don’t push you to a point outside of your means.
5. Saying you’ll figure it out later. It’s easier to procrastinate, but in a few years you will be kicking yourself for missing out on the financial gains you could have had already.
Your 20s can be a fun time full of YOLOs and Carpe Diems. However, don’t let those carefree moments rob you from a financially secure future. When you find yourself pushing financial topics aside for later, remind yourself that it’s important to balance “now” thinking and forward-thinking.
You could start by learning about investing when you land a new job that has a 401(K) match program. Maybe you are in the market for a new car, but you aren’t sure where the funds will come from. Could be a great time to learn about budgeting. If you figure financial topics out as you go, you will have less learning to do at once. Your future “you” will thank you for it!
6. Living paycheck to paycheck. In the midst of a pandemic and with the constant potential for changes in the economy, it is important to have a plan beyond your next paycheck. Saving a small chunk per month can help you build up an emergency fund. A good emergency fund should cover at least three to six months of expenses. This gives you something to fall back on should you lose your job or miss work due to an emergency.
FIXING YOUR MISTAKES
Ok, so you get that managing your personal finances well matters — even in your 20s, but taking on six new financial pursuits may seem a bit daunting. Don’t worry. We don’t expect you to start managing your finances perfectly in a weekend. The great news is, you can take it one step at a time, and you’ll be on your way to financial success in no time.
Follow these steps to start mending those financial mistakes:
Assess what you are already doing. If you’ve already got a budget — woohoo! Or, maybe you have a small emergency fund saved up — perfect. If you’ve taken steps to avoid some of these financial mistakes, you are already on your way to personal finance success. Give yourself a pat on the back. Now, get up and keep steering your ship toward better financial decisions.
Make a plan for new financial tasks with a timeline. Now that you have assessed your situation, make a plan for going forward. Maybe you’ve made three of these financial mistakes, or you’ve hit on all six. No matter the damage, you can always move forward with a solid plan. Prioritize which financial areas you need to manage first. Then, craft a plan with dates and milestones so that you can keep moving towards financial boss-dom.
Work through your plan, be patient, and master your finances. Now that you have a plan in place, all you have to do is get it done. Working through a financial plan can feel daunting and boring at times. It takes patience and a good perspective to remember that good things take time. It is absolutely worth the wait to be on top of your finances and ready to tackle your future.
Take control of some common financial mistakes now, and you will bring some much-needed financial security to your future.
Neel Ganu is the co-founder and CEO of Finch, a fintech company focused on lowering the barriers to investing for millennials. This article was published at TNJ.com with his permission.