- Your 20s can be some of the best years of your life.
- It’s important to know the 7 money traps to avoid in your 20s so that these mistakes don’t haunt you into your 30s.
- These money traps include getting into debt early, buying brand new cars and putting off your retirement plans.
Your 20s can be an incredible decade.
It’s a time to learn who you are, travel the world and make mistakes. Many people see their 20s as an extension of their teens because of a belief that 30 is the new 20. We make riskier choices in our teen years and so might continue to take those risks for longer.
However, the choices of your 20s add up.
We know that the health choices you make in your 20s impacts your heart health in your 40s. And in the same way, the money traps of your 20s can haunt you in later life. So, what financial choices in your 20s do you need to be aware of?
Here’s 7 money traps to avoid in your 20s:
1. Getting into debt
It can be very easy to slide into debt. A car loan, a credit card or an out of control buy now pay later habit can see your debt quickly add up. And compound interest can mean that debt quickly adds up.
Think of compound interest as a snowball at the top of a hill, which picks up more snow as it rolls down until it emerges as a much bigger snowball. Debt gets bigger over time if you don’t get rid of it, which makes it an important money trap to avoid in your 20s. If you’re already in debt, look at methods for becoming debt free.
2. Not investing
Investing is a great way to grow money over time because its compound interest working in your favour. There are some things we hate about investing including a lack of education around investment types and risk. However, it remains one of the best ways to build wealth in your youth. Make the effort to learn about investments so that you can start investing now while you’re in your 20s.
3. Buying a brand-new car
One of the first things people do with their first pay cheque is to consider buying a car. A car is often seen as a pathway to freedom because you can travel more easily. However, it also loses up to 58% of its value in 3 years, so is a money trap to avoid when there are better ways to grow your money in your 20s.
4. Putting off retirement planning
When you’re in your 20s, you feel invincible. Why would you think about the end of your life when you’re really just starting it? Time is on your side in your 20s because most retirement funds benefit from compound interest. Given you have longer to build your retirement income, sort out your super and take the time now to work through the issues with super. It’s all about how you want to spend your time in the retirement village and whether you’ll be wearing cashmere or acrylic.
5. Spend all your savings on a wedding
Many people still get married in their 20s or start saving for it as a priority. It can seem like you have to spend big on your wedding because it’s your big day and you only get married once. The money trap is there though because it’s an opportunity cost – the money you’re spending on one day could be put towards ways of building wealth. Make sure you only spend big on your wedding if it’s valuable to you, not because you feel pressure to.
6. Not building an emergency fund
IWhen you’re in your 20s, it feels like you’re going to live forever. However, the reason why you need an emergency fund in your 20 is that life emergencies happen to everyone. Washing machines break, you may need to travel unexpectedly for a sick family member and pets get sick without warning. Make you take steps to build an emergency fund now to support future you.
7. Spending more than you earn
One of the biggest money traps to avoid in your 20s is spending more than you earn. It’s very easy to do this when you’re at the start of your career. However, you need to be alert to this money trap to avoid sliding into debt when you could instead be saving more money. Whether it’s a budget app to help you save money or cutting back on everyday items like your grocery bill, there are plenty of ways to save money so that you don’t spend more than you earn. You could even save enough money to retire early and spend more time doing what you like.
It’s very easy to put off money choices until later.
However, your 20s can be a great decade to make some good money decisions. Being alert to these 7 money traps to avoid in your 20s means that you enjoy the happy memories of your youth rather than being haunted by bad financial choices.