You’ve just entered your twenties and it is a time in which you are figuring out your life. What are your life goals? What career do you want? At the same time, your twenties are when you’ll make mistakes and hopefully learn from them. For many, this is also the first time in their lives where they are faced with handling their own finances. Learning to be financially responsible is important for everyone as the choices you make with your money, good and bad, can follow you for the rest of your life. Paying off or taking out loans, paying bills, spending habits and the debt you build up can all follow you into and beyond your thirties. Living within the constraints of a budget can be limiting and not at all fun, but it is better than living under a mountain of debt when you are in your thirties or older. With that in mind, here are some personal finance mistakes you should avoid to set yourself up for financial security and money management for teens‘ tips.
Pitfall #1: Spending more than you make.
The first pitfall to avoid on the road to financial stability is spending more than you make. One of the easiest rules to accumulating wealth is to live within your means. When you’re just starting out in your career, this rule can be a killjoy. So often it seems that you’re having to go without while your friends and colleagues are all living the good life. Depriving yourself is never fun, but continuing to live within your means and obtaining financial freedom is far more gratifying than trying to keep up with everyone in your social circle.
To avoid this, you need to know how much you make and how much you make. Try putting together a paper budget or a Google sheets budget and add all of your income and expenses. You’ll be surprised at what you learn!
Pitfall #2: Living off of credit cards
Pitfall number two to avoid is living off of credit cards. Have you ever wanted something really bad, but haven’t been able to afford it? With credit cards, there’s a piece of plastic in your wallet that says you can have that item you really want right now. After all, with a credit card, you can pay for it later. Well now, later has arrived and you still can’t afford to pay for all of the things you have purchased on your credit card. This habit is a foolproof way to accumulate lots of debt in a short span of time. Even worse, this debt can take years to pay off in full. Financial wizards agree that it’s not a good idea to use credit cards to get by and advise making purchases in cash as often as possible.
Thankfully, there are things that you can do when your credit card debt is out of control.
Pitfall #3: Not having an emergency fund
Pitfall number three: not having an emergency fund. Your day is going great when out of nowhere, life attacks and suddenly, you’re stuck with a costly expense such as an expensive car repair bill. How are you going to be able to afford to pay it? If you had an emergency fund, you might have been able to. An emergency fund is an important safety net to have to protect yourself from crippling debt when life attacks. It’s advised by financial experts that you have at least three month’s salary or more saved for emergencies. Make room for the fund in your budget each month until it’s topped off.
Not having an emergency fund can cause you financial ruin if a financial hardship occurs, driving many to need a Chapter 7 Calculator or Chapter 13 Calculator to potentially declare bankruptcy. It may also ruin your credit, which can take a while to rebuild your credit.
Pitfall #4: Borrowing too much money for a car
The fourth pitfall to take notice of is borrowing money for a car. If you’re in your twenties, then you don’t really need a fancy ride. At all. What you actually need is a car that is reliable and gets great gas mileage. If you can’t get a car right away, look for transportation alternatives. Consider public transportation if you live in an urban area and ride share options if you’re in a rural area.
Pitfall #5: Putting off saving for retirement
Pitfall number five! Putting off saving for retirement. Here’s the truth about saving for retirement: the sooner that you start putting money into a 401k or other retirement account, the longer that money is going to have to accumulate interest. This means that when you are ready to retire, your retirement account is healthy and able to support you in your old age. The general advice is to invest ten to fifteen percent of your earnings in retirement. This is important after all, you’re making an investment in your future.
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