When you are in your twenties, making financial decisions that you will regret may be the last thing on your mind, but the personal finance choices you make in this period, and before you reach the age of thirty, may affect your future life for decades.
In order to avoid this fate, it is advised to avoid 7 common mistakes at this stage of life, identified by an article published on the well-known American “Invested Wallet” website for investment education.
1- Living on loans
It's easy to get as much credit as you can, but applying for more money than you need, so you can buy a car for example or live in a big house, is a bad idea at the age of 20.
Depending on how much you borrow, you can spend up to 10 to 25 years repaying these loans.
Therefore, it is better for you at this age to completely stay away from spending loan money in order to obtain a better lifestyle, and instead deposit this money in your savings account.
2- Ignore your credit score
Delaying credit card payments by more than 90 days can drop your credit score, which is the score that creditors review before credit is extended.
3- Choosing bad friends
Your best friend may be a lot of fun for a day, but is he able to help you achieve your financial goals?
For example, if you pick out a dodgy roommate, you'll pay the price later with your credit score.
4- Neglecting emergency savings
When you collect money, in an emergency savings account, you have money to cover auto repairs, medical bills, veterinary costs, home repairs, and other unexpected expenses you might have to charge credit cards.
To avoid paying interest on accumulated debt in an emergency, save at least a thousand dollars, and preferably more so that credit card debt does not spill over into the next decade of your life.
5- Fund your life with credit cards
Sure, going out for a drink, having dinner every night with friends, buying fancy furniture, taking frequent vacations, and getting the latest electronics can all be fun, but if you put all of those things on credit cards you'll pay for them later.
When you live beyond your means by financing everything you want with credit cards, you can end up in debt and high interest rates that will follow you well into your twenties.
6- Ignoring the opportunities of the retirement fund
It's smart to start saving for retirement in your 20s, because you have decades to build your own retirement account.
For example, if you contribute $5,500 annually to a retirement account and earn 7% annually, you will have about $31,000 after 5 years, and if you save the same amount for 15 years, you will have $138,000.
Keep the job going for 35 years and you'll make about $760,000.
7- Complacency in achieving goals
Setting financial goals in your 20s motivates you to turn dreams into reality.
Then it's time to start saving for a down payment on a home, contributing to a retirement account, building emergency savings, and building your professional skills to earn a higher income.