In countries like the United States, a twenty-year-old is expected to take charge of his finances, decisions taken at this stage could either make or destroy their future. Making the right financial choices is essential, so you won’t end up regretting when you are old and incapable of making money.
Some great financial decisions you could make include saving, buying a home, setting up a business, and dealing with debt. This article provides twenty useful tips that are useful for avoiding financial mistakes.
Setting Wrong Debt
It is necessary that you payoff your debts, it will help you have good credit history and avoid persistent disturbances from your creditors, but what happens when you have more than one creditor and you can’t settle them all at once? Which loan should be repaid first? and why?
The answer to these questions is simple; pay off debt with high-interest rates first. This will reduce the rate interest accumulates. Let’s say you owe a personal bank loan and a mortgage loan, paying off the bank loan first will be a wise decision, because defaulting will leave you in more debt (no thanks to it’s high interest rates).
Spending Beyond Your Income
Every individual and business owner has to ensure the money they spend is not beyond their income. Once you start spending more than your income, you’ll end up incurring debt. The secret to spending within your income is “contentment”. Don’t buy things that you cannot afford. If you cannot afford a bungalow, rent a flat, if you cannot afford a car, use public transportation. When you spend within your means, you may not get all the things that you desire, but you’ll enjoy financial freedom.
There’ll be no accumulated debt, no bad credit, you’ll have nothing to worry about, you will be free. Spending within your means will help you avoid debt because debt is bad for your personal finance. Imagine that your salary is $2500 and your expenses are $2900.
If You Don’t Have a Goal
Over the past decade, many small companies have grown into multi-million dollar companies. There’s no magic involved, the secret is simple; these companies have financial goals. The same applies to individuals; you don’t just go around spending your income randomly; planning is essential. It is essential that you draft financial goals, it doesn’t have to complex drafts, a simple outline would do, this will help you in setting parameters for your budget. That’s not all, with a financial goal in place, you’ll have a target to focus on.
Let’s say you need a new car, house, laptop, and phone, you shouldn’t just jump into purchasing all these things randomly, you’ll have first to sit down and plan how you’ll make it happen.
Not Keeping Record on Your Spending
Keeping record might feel like what a typical housewife does; however, this habit has helped them manage the house finance judiciously. Keeping record is not limited to housewives alone, every financially independent person should keep track of their spending, this will help them know precisely how they’ve spent their money, and the things they purchased.
Addiction to Credit Cards
Credit cards has lots of advantages; it also has its disadvantages. Credit cards seems limitless hence it can become an addiction; there’s always something you’ll desperately want, so long as there’s a credit card with you, you’ll find yourself buying it. If you are in such a situation, remind yourself that you’ll have to pay back sooner or later.
Absence of Emergency Fund
Many people make this mistake. At any time, you could be faced with emergencies. It could be loss of job, hospital bills, or even unexpected car repairs. If you are lucky to have emergency fund put in place, the funds will help you avoid debt, and you’ll have little or nothing to worry about. Setting up emergency fund is easy, just save a particular percent of your income into a dedicated account.
Avoiding Your Financial Reality
Most people’s nightmare is looking at what’s left in their bank account, or the extent of their debt. Shying away from your financial reality can put you into more crisis. If you don’t admit what’s on the ground, you may not be able to get a solution.
Most times we keep telling ourselves that things would get better, the big question is; when? The best time is now, so take an assessment of your finance before it is too late.
Not Earning Extra Cash
Time is money, so each free time you have could be used in earning extra cash, the time you spend in bars and in parties could be used in earning extra cash. You can do this by getting a side job or exploring the gig economy.
Failure To Save for Emergencies
We must have come across these words, “save for the rainy days”. In real life situation, you need to save for retirement.
Here’s how to go about it; once you start earning income, save a percentage into a 401(k) or other retirement accounts, once you have saved enough, you’ll be more comfortable when you eventually grow old.
Try and ensure that the savings is around 15 percent of your income.
Not Shooting Your Shot
If you want to be rich, you should be ready to take calculated risk. If you fail to shoot your shot and seize that chance or opportunity, you may end up being mediocre or worse.
At 20, you should take more risk, and grab more opportunities before you reach your 30 were when serious responsibilities set in, Mark Zuckerberg and Bill Gates both used their twenties to take risks that would eventually change their lives forever.
Calculated risk is not just about starting a business; it also involves getting an education, pursuing a career, and moving to a new city or country.
Reduce the Cost of Education
Getting educated is necessary, but it shouldn’t be a reason why you will be entangled in a web of debt. The cost of getting a degree has increased drastically when compared to the 80’s, so you have to be wise about spending on education.
Also, take part-time jobs, and work during summer.
Having Bad Credit History
Having bad credit history means lots of trouble. You find financial transactions very difficult, little things like renting a house, and applying for credit cards will become hard, and you’ll be subjected to scrutiny.
If you have a credit score below 600, it’s crucial you build it to at least 750, it not easy building your credit score, it takes time and diligence, but it is worth it.
Not Checking Your Credit Score Regularly
Many people ignore simple financial details like their credit score; they consider keeping track of their credit score a waste of time; some people don’t know how to calculate their credit score. With proper follow up of your credit score, you will easily create a roadmap for better financial health.
Once you know your financial status, you will know how to improve it and make better financial decisions.
Purchasing Cars That are too Expensive
There’s nothing wrong with you taking public transportation, especially if your city has an excellent public transportation system if you must buy a car, buy according to your income.
If you are an average income earner, a modest car should do. You’ll be making the wrong decision buying a Lamborghini while earning less than $1000 monthly. Buying a fancy car on an average salary will only put you in trouble. Also remember that cars are liability and their value depreciate rapidly.
There’s a reason why most lottery winners end up being broke after a year of two, it is because they remain in their euphoria for too long. In real life purchases are cautiously made, no matter how rich you are, try and purchase goods and services only when they are necessary, and ensure you don’t spend above your income except when you are left with no other choice. Cut expenses on clubbing, alcohol, and avoid random shopping spree, entirely.
Not Having Insurance Coverage
Many people shy away from the insurance, it may feel like a waste of money. But what if a disaster eventually occurs? Nobody knows when he could be burgled or when there could be a fire outbreak, or any other accident if it eventually happens and you are not covered by insurance coverage, you’ll have to start all over again.
If there’s a fire outbreak without insurance coverage, you will have to renovate the house and buy a new set of furniture. If you find yourself in this condition, you will realize that the little percentage deducted from your income is worth it.
Not Having Health Insurance Coverage
Most times, we feel health insurance is unnecessary, especially when we are young and agile. People between twenty and forty years, fall sick (except for terminal illness) so they rarely visit the doctor. To them spending all that money on health insurance seems absurd. However, a single health emergency can drain all your finance. Staying years without health insurance is a risk you don’t have to make, because once you have an emergency, you may end up in huge debt.
Not Understanding Your Spouse Financial Views
Before you get married or start a committed relationship, part of what you should discuss with your spouse is finance. Because once you get committed their financial lifestyle will significantly influence yours. Let’s say you are prudent and you spend wisely, while your spouse is extravagant, as a couple you may end up spending extravagantly.
If you have an extravagant spouse, you’ll have to agree on how the money will be spent; you’ll also have to discuss investments and savings.
Many people fantasize of a fairytale wedding, a big cake, expensive wines, food, your favorite band, fireworks by the beach, probably in Hawaii. What happens if you can’t afford all these things? After the one day event what next?, it wouldn’t make sense if you spend the next year paying a debt incurred for a one-day event. Your wedding ought to be unique; at the same time, it shouldn’t leave you broke and in debt.
Not Having Financial Plan Before Setting Down.
There’s going to be a time when you will feel like settling down and having children. This decision is not something that you’ll do without proper planning. With the current economy, it’s expensive to raise a child, so you’ll have to plan for all these things starting from baby things to college fee before you start a family.
A single mistake can ruin your finance and leave you broke, you have to be careful, struggle to earn more, spend less and owe less.