You’ve just graduated from college, you have a good job, and your independence is within reach. This is the time to take charge of your finances and set yourself up for financial stability. Financial planning for your 20s involves understanding what you’re doing, why you’re doing it, and how to plan for the future. But many people make mistakes when they’re in their 20s that they may not realize are a mistake until much later. These mistakes can set you back financially, so be sure to avoid them.
1. Not Making “Big Money Moves”
Don’t let your financial situation hold you back from reaching your goals. There are a lot of financial moves you can make to get money now that will help you in the future. Whether you’re looking for side jobs or looking to invest, there are a lot of options available that can help you become more financially secure.
2. Not Starting an Emergency Fund
It’s imperative that you start building your emergency fund – even if it’s just a little bit at a time. It can be a great source of support in the event of an unanticipated expense, like your car breaking down or having to take time off work because of illness. It’s also important to prepare yourself for emergencies involving family members.
3. Missing Out On Credit Perks
A credit card is an excellent financial tool. You can use it to build your credit, earn valuable perks and pay right away. You can use it to improve your credit score.
Having a good credit score is important for building a strong financial future later in life. The higher your score, the more likely you’re to get access to loans and lines of credit that can help you buy things you might not otherwise be able to afford.
4. Not Having a Preserving Strategy
The world is full of opportunities to save money – by using coupons, regular savings accounts and investing in stocks or mutual funds. But some young people don’t realize that it’s also important to have a preserving strategy in place, even if you just want to save up for an upcoming vacation or retirement. The amount you save each month should be based on your needs, but it’s also important to consider your future.
5. Racking Up Debt
Debt should be seen as a tool to boost your financial independence, but some people don’t think of it that way. They use debt in their 20s to buy things they want and don’t need, which can rack up the interest fast. Plus, it can make it harder to pay off your debt once you’re out of school.
6. Buying Things You Can’t Afford
Buying things you want every time you encounter them is fun, but it can quickly become a burden if there’s not enough left over to do the things that will make your life better. You’re young and you have limited experience, so it’s easy to want to spend money on things you might not be able to afford later. However, try not to buy things that aren’t necessities.
7. Not Understanding Tax Brackets
When you’re in your 20s, it can be common to have quite a few different tax brackets. While you may be making money, you might also be going through periods where you’re not working. This means that if you don’t pay attention to your tax bracket changes, it can cost you a lot of money due to taxes. However, if you don’t change your tax bracket when you’re in your 20s, it can become a life-long problem, as you’re at least going to need to pay taxes in one of the higher brackets.
Overall, taking some time to focus on your finances during your 20s will help set the stage for what you’ll do in the future. If you can avoid these seven mistakes and mindsets that impact your 20s, then it’s more likely that you’ll have a positive financial outlook going into your 30s and beyond.