*Article contributed by Sarah Morris.
As a twenty-something, nothing beats the feeling of finally getting to earn money that you can call your own through your first job. Your newfound independence could send you into a frenzy that compels you to make bad decisions. However, if you don’t practice money management, you might end up broke and full of insurmountable debt by the time you reach 30.
When you’re in your 20s, you should avoid these four common financial mistakes:
Four Common Financial Mistakes to Avoid in Your 20s
1. Not making your money work for you
Money doesn’t grow on trees, which is why you have to work hard to earn it. However, it would help to think of your money like seeds that you should plant and nurture through investment options. If you do it while you’re still in your 20s, it’ll grow exponentially and you won’t have to break your back from overworking at whatever job you have right now. Here are some ways to make money work for you:
- Invest in stocks
Owners of public corporations often want to expand their business so that they can obtain more customers to avail of their products or services. But as they might not easily accomplish that by merely relying on their pockets, they’ll most likely resort to selling ownership shares of their business known as stocks to other people like you.
- Get a hand at Contract for Difference or CFD
Another investment option worth looking into while you’re still in your 20s is CFD or contract for difference. Here are some of the ways to do it:
- Speculate whether a public corporation’s share price will rise or fall
- Look for a brokerage such as Plus500 or any other firm that offers online CFD trading services. Check out Plus500 review to know more about them
- Purchase a buy or sell contract from your chosen online brokerage
- Wait until the said contract closes
- The online brokerage you traded with pays you the difference between the opening and closing share price of the public corporation you speculated on if it turns out to be positive
- Invest in real estate
But if you want a less risky and more tangible option that you can see with your very eyes, you might be better off investing in real estate instead which can be any of the following:
- A plot of land that you can turn into a mini-farm, build any permanent structure on top of, or any other use that you see fit for it
- A house and lot where you can settle and raise a family
- A condominium unit where you can live
- An area you can develop as a rental unit
However, the real estate property itself should be in a prime location, preferably one that has schools, shopping malls, and offices nearby, so that its value will appreciate over time. You can also look for areas with low value real estate lots and hold on to them until there are developments in the nearby land.
2. Living beyond your means
There’s such a thing as wanting too much too soon. Out of your desire to have an expensive gaming laptop or the latest gadgets even if your monthly income wouldn’t allow for those yet, you may have applied for a credit card. But if you aren’t careful with what you spend on using it, you might end up racking too much debt that may take you years to settle in full.
If you know well to yourself that whatever amount you earn right now isn’t enough to buy something you don’t need at the moment, stop yourself from applying for a credit card so that you won’t fall into a debt trap later. Alternatively, you can get yourself a debit card instead as it lets you spend only the money that you deposit in there and prevents you from incurring any debt.
3. Not setting up an emergency fund
Even if you’re in your 20s, you shouldn’t assume that everything would be fine. You never know when you might become involved in an accident that may send you on a trip to the hospital. You can never tell as well when the company that you work for might suddenly have to downsize and lay you off as a result.
You don’t want to end up broke despite being a young adult, just because you didn’t plan for unforeseen circumstances that may happen in your life when you least expect them. So instead of opening only one savings account, make it two and set one of them as a repository for your emergency funds. Just make sure though to only withdraw from your rainy day account when a real emergency occurs to you.
4. Not planning for retirement
You’ll eventually grow old and become unfit to work. Instead of putting it off for later, you should start saving money for your eventual retirement as early as in your 20s so that you can live a comfortable life when you don’t have a job anymore, and you’re struggling to do even the simplest of tasks.
Conclusion
When you hit 30, you should ideally be well-off regardless if you eventually plan on building a family of your own with a special someone or you still want to enjoy your singlehood. However, you might have a difficult time achieving that goal if you spend your money too lavishly that you forget to save some for your future. You can change that by avoiding the four common financial mistakes listed above. You shouldn’t stop there though as you might commit more of those throughout your entire lifetime, all of which you have to also prevent from happening.
*Article contributed by Sarah Morris.