In your 20s, financial decisions can have a lasting impact on your future. It’s a time of newfound independence and exploration, but it’s also crucial to lay the groundwork for financial stability. Avoiding common money mistakes during this pivotal decade can set you up for success later in life. From overspending to neglecting savings, understanding and steering clear of these pitfalls can help you build a strong financial foundation for the years ahead. Make the right decisions and you’ll be set for life; make the wrong moves and you’ll spend the rest of your life paying for them.

We’re glad that you stumbled upon this article because, by the end of reading it, you’ll know some of the worst financial decisions you can make if you’re in your 20s. Avoid these decisions, and you’ve solved majority of the financial headaches that you might face.

– Mistake 1: Spending More than You Make

If you’re in the habit of spending your paycheck the second it hits your bank account, now’s the time to reevaluate that plan for the long term. Some spending habits can lead you to financial insecurity, especially if you’re spending more than you make and going into debt to make ends meet. Try to look for opportunities to cut back on spending and put that money towards paying bills or building your savings instead.

– Mistake 2: Spending Without a Budget

A budget is the breakdown of your income and expenses. It gives you a comprehensive view of your liquid financial situation and helps you make informed decisions. Not many people have a budget. The few that do, have one thing in common: they’re more organized.  Think of a budget as the power to tell your money where it goes rather than wondering where it went. Think of it also as a reflection of what you value and aspire to achieve financially. If you never take control of it, you’ll never attain financial security.

– Mistake 3: Not Setting Financial Goals

If you don’t set specific or measurable goals for the future, then it might be more difficult for you to budget, save, and manage your money in the present. This mistake could cost you more in the long run, such as ignoring your long-term savings, overspending on items that only offer instant gratification, or not paying down on any existing debt you may have, which can accrue interest over time. Financial goals can vary from person to person—the future looks different to everyone depending on their needs and desires. Take the time to write down your goals and make an action plan to achieve them in a realistic time period.

– Mistake 4: Dependence on Credit Cards

Having a few credit cards can help you build up your credit score, but too many can lead to a cycle of compounding interest and debt. If you can’t pay off the amount you spend every month, you’ll be buried in the snowball effect. Financing vacations or a new wardrobe on credit card debt is an unhealthy financial habit.

– Mistake 5: Not Taking Advantage of Free Time to Earn Extra Money

A side hustle is a term for the hobbies, crafts, and other projects you undertake in your free time to earn extra cash. It’s a fun way to make money using your talents and spare time. If you’re a painter or a jewelry maker, consider selling your creations online or at a craft fair. Turn your passion for fashion into a tailoring business out of your home. No matter what type of side hustle you choose, taking advantage of your free time to make a little extra cash can go a long way to boosting your savings.

– Mistake 6: Going into Debt for Luxury Items

Avoid impulse purchases on luxury and high-ticket items. A better plan is to save up over time so that you can afford the item without blowing up your budget or going into debt. Luxury items are just that—luxuries, an expensive splurge that you should only consider purchasing if you already have the excess cash to pay for it in full. So, if you’re desperate to own a pair of designer shoes or a sleek new car, make it a savings goal for the future instead of a risk to your financial security today.

– Mistake 7: Going into Debt for a Wedding

It can be tempting to put off costs by maxing out credit cards, taking out loans, or borrowing money from friends or family to fund your wedding purchases. Instead of borrowing money to fund a wedding, set a realistic budget early on. There are plenty of options out there to help you save money on a wedding rather than going into debt.

– Mistake 8: Ignoring the stock market

Investing in the stock market is an intimidating idea that often feels reserved for suits and full-fledged “adults.” People in their 20s should begin investing in a low-fee, diversified equity fund and continue to invest consistently whether the market is up, down, or sideways. Starting early is the key to successfully building wealth and that time is the greatest ally for the investor because of compound interest.

Suppose you earn Rs. 50,000 monthly salaries and decide to invest Rs. 10,000 monthly towards Equity mutual funds (assuming a 13% rate of return for the next 20 years), you can amass nearly Rs.1 crore by doing so consistently. If you keep increasing this amount as your salary increases and decide to diversify your investment, your corpus could be large enough to support all your long-term plans.  

– Mistake 9: Postponing Retirement Savings

When you’re young, it’s easy to dismiss retirement savings as something you can do later. Then 20 years go by, and you suddenly realize you’re actually getting old, and you start rushing all over trying to salvage the situation. The earlier you start saving for retirement, the lesser amount you’ll have to save in the long run.

Let us taken an example where an individual wants have a retirement corpus of Rs.10 crores at the age of 60: Age when starting to invest: 25 vs. 35

By postponing retirement savings from age 25 to age 35, you end up paying more than twice the required amount to generate same amount of corpus. This demonstrates the power of compound interest and the significant impact of starting early.

– Mistake 10: Failing To Diversify Your Income Sources

Another big mistake many young adults make is having only one source of income or investment. What if you lose that source of income? What happens next? Will it be a typical grace-to-grass story? To avoid such a scenario from happening, start diversifying your income early. And there’s no limitation to opportunities today with the internet’s existence.

CONCLUSION:

As you navigate your 20s, remember that financial literacy and smart money management are essential skills for building a secure future. By steering clear of these common money mistakes, you’re not only safeguarding your finances in the present but also laying the groundwork for long-term success. Take control of your financial journey, prioritize saving and investing, and make informed decisions that align with your goals. Your future self will thank you for the financial discipline and foresight you demonstrate today. We at RichVik Wealth, are always here to help you in every step of your journey.

To understand more on the topic as well as to start investments please feel free to contact us:

Phone: +91-9324609115

E-mail: team@richvikwealth.in

This article was authored by Ms. Varsha Patwa from Team RichVik.