As we get our first job or set up a business of our own, most of us taste financial independence in our 20s. This is also the time when we are entrusted with the responsibility to make important life decisions such as pursuing higher studies, sharing family responsibilities, getting into a relationship, marriage and children.
To be able to make these decisions, however, you need to have a strong financial backing in life. And, for that you need to start planning your finances and not just rely on earning more money. Otherwise, you may end up making significant financial and jeopardizing your future.
Here are 6 financial mistakes you should avoid making in your 20’s
Having No Control Over Your Finances
In their 20s, most people don’t have a clear understanding of the value of money and end up spending their finances on things that they don’t even need. Without planning, eventually, the money that they earned through hard work gets wasted.
On the other hand, the same money can grow over time if you invest it in the right channel. Therefore, you need to prepare a budget for every week or month and have control over your finances especially during early 20s.
Living on Your Credit Card
If you haven’t started earning in the 20s and are still living on your parent’s credit card, you are committing a serious mistake. When a person lives on credit without even thinking of repaying the same, it becomes hard to reduce the current expenses and plan for future. Therefore, you need to understand the money’s value and avoid using credit cards for everything.
No Plans for Retirement
Retirement planning may seem a far-fetched proposition in the 20s. However, if you start planning your retirement from an early age and start saving, you allow your investments to grow significantly over a long period of time. For example, you could invest in a ULIP or ELSS plan, which are some of the best long-term investment schemes available today. Remember, the more time you have for your investments, the more wealth you can accumulate by the time you retire.
Not Setting Up an Emergency Fund
Medical emergencies or cash crunch in tough times can break you if you haven’t planned for it. In the 20s, hardly anyone thinks about emergencies, let alone plan for one. However, by putting aside some money in the form of an emergency fund, you may protect yourself from a difficult situation or financial emergency such as a case of bad toothache requiring immediate surgery.
Not Buying Term Insurance
In our 20s, we often believe that term insurance is something middle-aged adults would need to buy. What we need to understand here, is that term insurance offers the lowest premium and is most beneficial if purchased before the age of 30.
As a person whose career has just took off, you may feel that term insurance is not for you, however, it is the best way possible to secure the financial future of your family, should something happen to you.
Opting for A Student Loan Just for The Sake of It
In their 20s, people often opt for higher studies even when they do not want to. They end up taking a huge loan for an expensive post-grad course program abroad, just for the sake of having a high-paying job or under peer pressure.
If you take up something that you didn’t want to do in the first place and invest way too much money into it, you will end up getting frustrated. Therefore, invest in things that you like to do, and you will see that your life would be better, both financially and emotionally.
Being financially independent is one of the most satisfying feelings you can have in your 20s. After all, not having to ask your parents for money and spending your earnings in any way you deem appropriate is both exhilarating and liberating. Soon enough, however, you will realize the importance of financial planning and financial security.
It is here that term insurance comes to the forefront as the most dependable form of financial security for your family. When you purchase term insurance at a young age, say in your 20s, you can obtain the best possible term cover for the lowest possible rate of premium.