Negligence on the financial front seems to be a general issue in most of you entering your 20s. What apprehends your lack of financial savvy is your perception of being impregnable on money matters and credit score which has forged due to a paucity of your experience, proper financial knowledge, and certain psychological triggers.
Nothing to be worried about as time is on your side when you are still young. You have time to recover from your worst money mistakes but that doesn’t mean you shouldn’t be aware of major financial mistakes which you must avoid.
Living Above Your Means Getting your first paycheck is liberating and thrilling and as soon as you'll realize that, your spending will tend to creep up as well. Always living up to the ceiling of your income will result in saving failures for emergency funds. Set up automatic savings, contribute a share of your salary to your 401(k) investment and gradually increase your contribution when you get a raise.
Unaware of Your Cashflow Cash flow is one of the most important things to be aware of and it's one of the most dangerous situations if someone is unaware of their cash flow. If you aren’t aware of how much cash is coming in and how much is going out, you won't be able to frame a proper budget. Without a proper budget, you wouldn’t be able to direct your money where you want.
Not Saving for Retirement Retirement always seems far off when you've just hit your twenties, but it's not far away and if you will not stop your bad saving habits, you'll miss the retirement boat completely. Problem with most of us is that we assume that we don't make enough money to start saving, which is the worst assumption ever made. Don't get unmotivated if your contribution is small early on, the generally smaller amount saved early and consistently grows into a large amount of money by retirement than a large amount saved later in life.
Not Establishing Saving Goals There are some big goals in life like getting married, buying a house, and having kids but the most important question is-Have you started saving to accomplish these expensive goals? Though it seems very difficult to start saving for things which are so far off, if you won't pay attention early, the cost can wreak havoc at that moment. The key towards establishing your saving goals is to prioritize those things that you want or might want down the road.
Unpaid Debts If you'll have a look on the data from financial institutions, student loan debts are particularly blamed for restricting young people from buying homes and growing their wealth and that doesn’t even touch debts like a car loan or credit cards. Therefore it's advised to pay more than your minimum payment. This will reduce the time period of your loan and the amount you pay in interest.
Feeling Invincible This is the most common pitfall for millennials. You'll feel invincible when it comes to health or to ignore the possibility of the medical emergency. This invincibility turns out costly, as medical bills are the major cause of personal bankruptcy. Try to get out of this mindset and be prepared for any sort of emergency with proper savings.
Not Paying Bills on Time Once you'll move out of your parents' place, everyday bills become a harsh reality and out of all bills, smaller ones are the most dangerous. This is because young people tend to overlook them and these bills which seem insignificant to become significant as soon as you let them fester. Most bills can be paid online so try to clear up all the bills that are fixed like cable, Netflix, Internet, credit cards and insurance. With this, you'll have a peace of mind at the end of the month and you can focus more on your saving goals.
Not Maintaining Credit A credit score is a three-digit number between 301 and 850 which is based on how you've used credit in the past, and the higher your score, it's better for you. Usually, your credit score shouldn't dip below 650 as it'll make you less trustworthy and less deserving of the best rates among potential creditors. If you've maintained your credit score early on, it'll allow you to make a big purchase that relies on credit score to prove your capability of making your payments on time. Start by selecting a proper credit card for your expenditures and make sure to clear off the full payment every month to avoid debts.
Get used to a certain lifestyle now as you won't be happy at all if you have to give it up later. Though saving may seem like a challenge to most of you but avoiding lifestyle inflation now will make your retirement less expensive and much easier to reach.
Life expectancy is also increasing which means your retirement period will also be longer compared to previous generations. Unfortunately, this means more resources to cover in that increased time period. Therefore it's really important for millennials to avoid making dumb financial mistakes and start their early savings.
