Nobody’s perfect. We’re all going to make mistakes and in fact, they’re necessary to grow.
However, you don’t always need to learn the hard way. Learning from other’s mistakes can help you avoid making them yourself and get you going in the right direction quicker.
I’ve not only made some of these mistakes myself, but have repeatedly seen them made by others as well.
Here are 3 Money Mistakes to Avoid in Your 20s:
Mistake #1 | Spending money without purpose
For decades, the societal “norm” has been to go to college, get married, buy a house, settle down, etc.
I’m sure as you know, that cookie cutter life isn’t always possible in today’s world. Student loans are probably delaying your purchase of a house or college itself may have been too expensive to attend in the first place.
The point is, you may feel influence from several different directions on what the “right” decisions to make are - but ultimately, you have to know what’s right for YOUR situation.
Spending money with purpose is one of the easiest ways to start taking control of your finances.
If you tend to feel yourself overspending - next time you make a purchase, really ask yourself the why behind it.
Do you really need to get the newest iPhone every year? Does that new car feel as good now that you have monthly payments as it did when you drove it off the lot?
Next time you feel the urge to make a purchase out of pure want, give it a week and decide if you need it.
Mistake #2 | Not investing early
I’m sure you’ve heard your parents, a friend, or a teacher say that you should start investing early. Oddly enough, they’re not wrong.
Time is the one thing that we can’t get back and when it comes to investments, one of the few things that you do have control over is your timing.
There are unlimited articles and graphics out there that stress the importance of investing early, however many people still don’t take action and end up with that deep feeling of regret in their later years when they find out they can’t retire and have to keep working.
Investing early gives you one of the ultimate powers of investing - compounding interest
Here’s a quick breakdown of what compounding interest can look like outside of investments:
I might lose some of you here if you weren’t into computer games growing up - but if you played Bloons Tower Defense, the first levels were difficult to buy any good defensive weapons. However, as you kept going and progressing through the levels, you could buy more and more until every round, you could add several of the most expensive defensive towers. Investing is very similar.
In the beginning, it’s difficult to see any growth. Slowly but surely, you start to understand it more and your efforts keep compounding on top of each other.
“Compound interest is the eighth wonder of the world.
He who understands it, earns it; he who doesn't, pays it.”
- Albert Einstein
Mistake #3 | Not seeking financial literacy
Being knowledgeable about your money and understanding how it works is one of the best investments you can make in yourself. That knowledge can pay for itself many times over during the course of your life.
For example - you may know what a credit score is and that having a higher score is good, but what does that really mean?
How do I increase my credit score? What are the negative impacts of having a low credit score? What’s the benefit of having a higher credit score?
These are all questions you may be asking yourself so here’s a brief example of how different credit scores can affect how much you pay towards your mortgage:
If you were to buy a $250,000 house with a 30 year mortgage and had a credit score above 760 and received a 2.727% interest rate - you would end up paying $93,000 in interest.
Let’s take the same house and same 30 year mortgage but you only have a 640 credit score. In this scenario with the lower credit score, you receive a 3.77% interest rate. That same loan will end up costing you $134,000 in interest.
An EXTRA $41,000 spent just because of a different credit score.
While it does require some effort, spending some time to learn about how your money works can end up saving you thousands of dollars and will create that peace of mind you’ve been longing for.
. . . .