We all make mistakes when it comes to our life choices and life in general. We’re only human, and often these mistakes are unavoidable.
However, whether it’s a lack of education on your finances or not having much experience with money in general, many common financial mistakes are made throughout life.
With that being said, if you’re looking to be more money-savvy and want to make changes to your financial habits, here are eight common financial mistakes to avoid in your twenties.
1. Not building up an emergency fund
Firstly, everyone needs an emergency fund. From businesses to everyday individuals and family households. If you don’t have an emergency fund right now, then you could be in financial trouble if something unexpected and financially damaging happens to you tomorrow.
We can never predict what could go wrong in life. From being made redundant in your job to having to replace an old boiler that’s suddenly given up. These are all issues that can be fixed or at least helped with the addition of an emergency fund.
How much you have in that emergency fund is up to you, but anything from $1,000 to $10,000 can give you that bit of extra comfort, should anything go wrong that wasn’t planned or predicted.
2. Debt accumulation
Debt is a danger for anyone to get themselves into. Some of the biggest debts can be accrued by purchasing a property, for example. However, it’s the smaller amounts of debt that you want to be careful of and be mindful of when paying back.
Individuals can very quickly get themselves into serious debt and might need to seek the guidance of an insolvency trustee to help them with bankruptcy.
Debt is something you can’t always avoid, but it’s certainly a financial problem that you can take control of if you can get good with your money and pay debts back as quickly as you borrow the money.
Always be mindful of how much debt you have and consider only borrowing more money once the money you owe to other lenders has been paid back.
3. Ignoring your credit score
Credit scores are something you want to think about because they can impact your ability to borrow and get good rates on any money you do borrow from a lender.
Whether you’re looking to remortgage a property or lease out a vehicle, it’s important that you have a great credit score rating in place.
Any low credit score ratings could be due to a number of factors. If you’ve never borrowed money before, then that means you’ll have a low or non-existent credit score. Try building up debt, but make sure to pay this back on time.
Other reasons for a bad credit score would be not paying a debt payment on time or not being registered to vote.
4. A lack of budget
If you’ve never budgeted before when it comes to your money, then chances are, you’re not going to be great with money management. Unfortunately, money management and budgeting in general are not always taught to you as a youngster, so it’s good to start self-teaching as soon as possible.
Creating a budget on a spreadsheet is easy enough. Make a note of everything you’ve got coming in and everything that goes out. That way, you’ll know exactly how much you have available to spend, and hopefully, you won’t go into debt as a result of overspending.
5. Not investing your money
Investing your money is a good way of making your money work harder so that you don’t have to. There are plenty of investment types and assets to put your money into, but unfortunately, not everyone invests their money within their lifetime.
The earlier you can invest your money, the more you’ll likely get out of the activity over time. Building up a portfolio and diversifying it is only going to help you make more of the money you make over time.
By not investing your money, you don’t build your wealth, and that’s something that a lot of people make the mistake of doing, especially in the earlier years of their lives, aka, their twenties.
6. Living beyond your means
How often are you living paycheck to paycheck? Do you find yourself spending more money than you can afford to? It is often the case that people in their twenties are spending more of their income than they can afford to.
At the same time, there are a lot of struggles that people will have when it comes to the cost of living. However, there are occasions where you might be spending more than you can afford, and you could be actively spending less to make your money go further.
Look at what your expenditures are; this is where your budgeting comes in handy, and make any changes you need to so that you’re not overspending as much.
7. No financial goals
Financial goals are important to have, and it’s something that not everyone sets up. Just like your life goals, financial goals should also be considered and factored in.
If you’ve not made any financial goals in the last year or so, look at setting them up now. By setting goals, you’re going to be more motivated and driven to achieve them.
8. A disregard for tax
Finally, if there’s anything you don’t do when it comes to your finances, it’s disregarding tax. Paying your tax bills is unavoidable, and if you’re trying to skirt around doing so, you’re going to get yourself into more financial and legal trouble.
Look at what taxes you might owe if you’re obligated to do so from extra earnings. Be sure to check your investments and be aware of what taxes you might have to pay on those investments, too.
Common financial mistakes happen in your twenties, so it’s always good to pay attention to what you might need to change in order to avoid these problems for yourself in the future.