People in good economic standing often work hard to achieve financial freedom. More importantly, they probably carefully crafted plans early on: in their 20s.
However, without a basic understanding of spending and saving, it is frustratingly easy to make a few missteps that could impact your financial health for decades to come – when it’s much harder to correct course. That’s why having debt is now the norm for millennials as opposed to the exception.
Debt can be a major source of anxiety and can hold people back from achieving their life goals. In fact, a survey by the Celebrating Financial Freedom blog revealed that 63% of its readers tried learning about how to get out of debt but failed.
With some careful planning and budgeting, achieving financial freedom is absolutely doable. Here are the top money mistakes people make in their 20s – and how you can avoid them to set yourself up for success in your 30s and beyond.
One of the biggest mistakes by credit card owners is making monthly minimum payments instead of paying off their entire balance. Interest accumulates, so that balance can balloon and become insurmountable.
Credit card debt can be particularly devastating for first-time credit card owners because interest rates are often in the double digits, and it’s hard to dig yourself out of the hole after missing a few payments.
That said, using credit cards responsibly is a great way to establish credit and earn rewards. Just remember that you don’t need to spend your entire credit limit. Only spend what you know for certain you can pay off.
Your credit score is one of the most important numbers in your life. It offers lenders (and even rental owners) a quick look at how financially responsible you are: specifically, how likely you are to make payments on time. That’s why if you have a poor score, it can be nearly impossible to get a loan at a low interest rate.
Numerous factors affect your credit score, such as payment history, amount of outstanding loans, and credit history. A few things can hurt your credit score:
- Maxing out or opening too many credit cards
- Not having, not using, or cancelling your credit card
- Missing any credit card or bill payment
- Making only minimum payments instead of paying off the full balance
- Not keeping track of purchases, potentially missing fraudulent activity
- Co-signing to someone with poor credit, which can affect your history
When applying for a mortgage, car loan, credit card, and even a rental home, most companies will pull your credit report. The report details your financial history (your payment history, whether you have any items in collections, how much credit you have and use, and so on) and your credit score.
When used responsibly, a credit card can help improve your credit score, especially since the length of your credit history accounts for 15% of your credit score.
Buying a house is one of the most important milestones of a person’s life. And it may seem as though everyone is jumping into the real estate market – but that doesn’t mean you should blindly follow.
First, figure how much you can afford in terms of a down payment and monthly debts and bills. Then, set aside additional funds for closing costs, property taxes, homeowners insurance, maintenance, and unexpected emergencies.
Not planning with all of these factors in mind may lead to trouble after the purchase. For example, spending your entire housing budget on a $500,000 mortgage leaves little wiggle room for unexpected repairs or other monthly payments.
If buying a home is just slightly out of your budget, you can find ways to save money when purchasing property, such as by working with a realtor who offers home buyer rebates (some offer as much as 2% back).
It’s always advisable to start investing as early as possible. Earnings compound over time, so the sooner you invest, the more potential your money will have to grow. The same applies to retirement funds, too.
Some of the most common types of investments include real estate, high yield savings accounts, CDs, bonds, stocks, and cryptocurrency. When deciding the best investments for you, start by determining your risk tolerance, choosing broad-based investments, and setting a few goals. And don’t underestimate the value of professional advice, whether it comes to the stock market or real estate.
Whether at a Fortune 500 company, a startup, or a midsize agency, the youngest employees are often paid the least. Consider those younger generations are unhappy with their pay: Less than half of millennials – and less than a third of Gen Zers – are satisfied with their compensation.
If you have proven your value to your employer, don’t be afraid to ask for more money. Ask trusted colleagues and research online to understand the market rate for your position. Be mindful of timing and your company’s policies, but come prepared with your achievements.