Four Money Mistakes that You Will Make in Your 20s that are Sure to Land You in Debt by 30
Every 20-something who steps out into the real world for the first time has to learn how to manage their money. It’s a tool that can help you live a stress-free and comfortable life, but unfortunately, colleges aren’t teaching people how to budget their money in a beneficial way. There are four major mistakes that many 20-somethings make that can land them into debt posthaste. Are you making these mistakes?
Using Credit Cards to Make Ends Meet
Credit card debt is a serious problem for young adults. While some regulations have taken aim at the credit card industry, it is still far too easy for young adults to utilize credit to live the lifestyle they’ve always dreamed. If you’ve been using your credit cards to make ends meet, it’s time to stop. This habit can land you in serious debt by the time you are 30.
You should set a goal to only use credit cards for emergency purchases and necessary items. Some people prefer to use a credit card for all of their expenses, then pay it in full at the end of the cycle. This is acceptable if you are gaining a benefit from using your card, but credit shouldn’t be used as a way to stretch your paycheck.
Forgoing A Budget Entirely
It probably seems like a budget isn’t necessary if you are the only person you are responsible for, but crafting a budget is definitely the way to go. Not only can creating a budget help you better understand where your money is going each month, but it can set you up for future financial success.
As a young adult, your budget should include savings, necessities, and discretionary spending. Keep tabs on what you are spending weekly, so you can tally everything up at the end of the month. Once you have budgeting down, you can even add goals (like saving for a dream vacation) to your budget to make the entire chore a bit more fun.
Spending Too Much On Your Living Accommodations
No one wants to live in a less-than-ideal apartment, but luxury accommodations in a sought-after area also come with a hefty price tag. It might seem acceptable to trade more of your weekly paycheck for luxury accommodations, but you might be setting yourself up for disaster.
Instead of springing for the luxury pad, stick to the old-school rule of thumb—your rent should be no more than 30% of your gross monthly income. If you make $50,000 per year, your monthly gross income is $4,100 per month, and you can comfortably pay $1,250 per month in rent.
Forgetting To Save Some Cash
During your 20s, you are likely a bit more brazen with how you spend money. As a newcomer to the world of adulting, it might seem like you should spend money on the things you love. While everyone should enjoy the fruits of their labor, it’s important to set money aside.
Experts suggest earmarking about 20% of your income toward savings. You can choose to break that savings up into a rainy-day fund, retirement fund, or any combination of savings you like, as long as you are putting the necessary money aside.
Avoiding these major monetary pitfalls can set you up for a comfortable life going forward.