With so many new and exciting things going on in your 20s, it’s easy to put your finances on the back burner. And that could lead to big mistakes – unless you have some tricks up your sleeve.
When you’re in your twenties, it’s hard to understand the saying: “start getting your finances in order now, time goes quickly”.
With all the things going on in your life, how are you supposed to think that far into the future? Well, remember when you couldn’t wait to be old enough to drive… go to college… get a job? If you think about it, that time went pretty quickly, didn’t it?
Today, money matters like debt, insurance and retirement might be at the bottom of your priority list. But they shouldn’t be. Remember how quickly time has passed already? The financial mistakes you make in your 20s could catch up with you before you know it.
5 Common Money Mistakes
From student loans to credit cards, debt can add up. The biggest mistake is to ignore it. Debt won’t magically disappear, and owning the same debt for too long can have a negative impact on your FICO® Score and credit options.
Start paying off your debt as soon as possible and try to pay more than your minimum payment. This should help reduce the length of your loan and the amount of interest you’ll pay. To help ensure you pay your debt on time, you should include your debt payments into your monthly budget. And this leads us to the next common 20-something mistake…
Abandoning a Budget
Budgeting is a way to manage your monthly income and expenses to ensure your money is being used in the most cost-effective ways. Without a budget, it’s almost impossible to identify ways to reduce debt or wasteful costs.
To create a budget:
- Determine where you want your finances to be a year from now.
- Track your income and expenses so you know where every penny is going.
- Separate your needs from your wants to help reduce costs.
- Make sure expenses don’t exceed revenue and debts are getting paid
Once you’re happy with your budget, put it into action and keep track of what’s working (and what’s not),
Need help putting together a budget? Use any of the budget calculators here.
No Savings/No Emergency Fund
You might be asking, “Why would a 20-something-year-old need to save money now?” It doesn’t matter if you’re 20, 30, 40 or older, you never know what the future holds. Everything from a car breakdown to a sick pet can consume money you weren’t planning on spending. And if your budget is tight, it could start (or add to) a debt problem.
Put together an Emergency Account for yourself with liquid funds so you’ll be prepared for unexpected occurrences. You might not know exactly what those occurrences will be, but one thing you can be sure of: they can happen anytime.
No Health Insurance
You’re young, healthy and feeling great… why would you need health insurance? Things happen, no matter how old – or how young – you are. Sports injuries, a bike accident, or a bad case of the flu. Medical bills are a major cause of bankruptcy. It’s important to be prepared.
Go online or check with a reputable insurance broker or the HR department at work and discuss health insurance options and which would be the best for you. Pay for the optimal coverage you can afford realizing that at some time in the future it could more than pay for itself.
Not Saving for Retirement
“Why do I need to start saving for retirement now?” you might be asking. The earlier you start saving for retirement, the more prepared your finances will be when you stop working and start living off your savings. No matter how small your monthly investment, it will be worth it as you watch your money grow over the years.
You might feel as though your retirement is a lifetime away, but it’s not. It will occur during this lifetime and it’s not as far away as you might think. If you’d like to ensure that you have enough money to live on when it’s time to retire, it’s important to start thinking differently about money – and that new way of thinking should start in your twenties.
See how other myFICO customers worked to avoid such major money mistakes, no matter what their age. Visit myFICO forums to find some good tips and advice.