It’s easy to make mistakes in your 20s. After all, you keep growing and learning. Unfortunately, many people in their twenties make poor financial choices. And these false moves of money can have a lasting impact on many areas of your life. Here are some common financial mistakes people make in their twenties. If you are a young reader looking for advice, learn from these mistakes.
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1. Accumulate credit card debt
Credit card debt is a problem that many people face. While credit card balances declined during the pandemic in 2020, many consumers still managed to rack up these high interest charges. According to Experian, the average credit card debt of Generation Z (18-23 year olds) consumers in 2020 was $ 1,963. For Millennials (24-39), the average debt was much higher at $ 4,322.
If you’re not careful, credit card debt can quickly spiral out of control. When using your credit cards, be sure to make responsible choices. Charge only what you can afford to pay in full each month. Otherwise, expensive credit card interest will accumulate.
If you have credit card debt, this credit card repayment calculator can help you calculate interest and make a debt repayment plan.
2. Ignore the need to prioritize savings
Building up savings is a must, especially since you never know when an emergency will arise. By putting extra money aside as an emergency fund, you can pay for unforeseen expenses without feeling stressed. Without savings, you could make choices that put you in debt.
Do yourself a favor and open a savings account. By setting aside up to $ 100 per month, you will save $ 1,200 after one year. Set up automatic withdrawals so you don’t forget to save. That way when you need to access additional funds, the money will be there.
3. Use a debit card instead of responsibly using a credit card
A debit card can be easy to use because it’s tied directly to your bank account, but it’s not the best option. Here’s why we don’t recommend using your debit card for regular purchases:
- You won’t earn valuable credit card rewards
- Your actions will not improve your credit score
- The dispute process for fraud or unauthorized charges can take a long time
- Most debit cards do not include additional benefits such as extended warranty coverage or return protection.
Instead, you should apply for a rewards credit card. You can use your card to responsibly build credit, earn additional benefits, earn rewards on your spending, and have built-in credit card fraud protection.
If that’s not enough to convince you, this story about a woman who was accidentally billed $ 5,700 for a latte will have you put your debit card away for good.
4. Don’t budget
Many young people don’t take the time to budget. Instead, they spend now and worry about their finances later. Creating and following a budget is a good idea. By doing this, you can better describe how you plan to spend your money each month, minimize unnecessary spending, and reach your financial goals faster.
If you’re new to budgeting, this budgeting guide is a great place to start. And if you prefer to organize your budget electronically, check out the best budget apps.
5. Say yes to expensive activities and events
If you’re in dire financial straits or prioritize saving and paying off debt, don’t be afraid to talk about it. Your friends may not have the same financial goals as you. If you’re invited to expensive activities or events that don’t exceed your budget, be open and upfront.
Don’t give in because of guilt or embarrassment. Instead, suggest other low-cost or free activities to do together. It is possible to have fun with the people you love without going into debt or spending more than you can comfortably afford.
6. Do not negotiate the salary
If you are able to increase your income, it will be easier for you to save more money. Many people in their 20s take the jobs offered to them without negotiating their salary or benefits. This is a mistake, as you might be able to increase your salary just by asking for it during the hiring process.
Even if you can’t get a raise, try asking for more benefits. Good social benefits can improve your quality of life. If you’re thinking of looking for a new job, here’s a helpful guide to salary negotiations. And if you’re in a position you love but think you deserve more money, these tips can help you negotiate a raise.
These money mistakes can create significant financial problems. But avoiding them in your 20s can help prepare you for greater financial success. For more tips, check out these personal finance resources.