Being in your 20’s is all about making mistakes and learning from them. By learning what mistakes to avoid early you can set yourself to be much better off financially. Because of compound interest, making good financial and investment decisions younger can set you up for life. Here are the most common mistakes I see young people make:
1.) Putting too much money in savings.
It’s good to have money saved in case of an emergency, but a savings account isn’t the best way to store money long-term. This may come as a surprise, but money left in a savings account is actually losing value! Due to inflation,-although the dollar value stays the same- your money has less buying power the longer it sits. Instead you should invest some money so you not only match inflation, but gain value over time. (How Inflation Affects Your Savings)
2.) Overusing your credit card
Many college students are enticed into getting a credit card. Credit cards are a great way of building credit, but are also a great way of building debt. Many people don’t learn how to use their credit card efficiently until they already have mountains of debt. Learn how to use a credit card before you get one. ( Should You Have a Credit Card in College?)
In your 20’s is a great time to invest in riskier investments since you will hopefully not need your money for a few more years. However, it is possible to put too much of your money at risk. The most common thing I see millennials over-investing themselves in is cryptocurrency as a get rich quick scheme. I own cryptocurrency myself, but try to keep in a set, smaller amount of your overall investing portfolio. Stocks can be just as risky, make sure to balance out your riskier short term plans with some long term investments as well!
4.) Not bringing in enough income
When you live at home, it is easy to live off a part-time job. Although you might not need the money now, it’s important to save and invest for the future. Pick up a side gig or barter for a raise to bring in more income. Funnel any extra money into an investment account.
Having your own money to spend is invigorating! The sense of financial freedom can encourage some people to overspend. Decide how much money you want to save and invest each month. Don’t be afraid to wait a few months for something you really want to buy.
If your friends are having financial trouble it can be tempting to loan them money so they don’t miss a fun night out. This money adds up overtime, and you will likely not get it back. Spend money on your friends, but know where to draw the line. Read “Are your friends using you for your money?” next!
Anything you would add to the list? Let us know!