Money Management
November 11, 2024
Your twenties are a foundational decade when you try to figure out life and (hopefully) learn from your mistakes.
For many, it's the first time you're faced with dealing with finances on your own as you navigate being an adult at your first job, figuring out how to pay bills, all the while fighting the temptation to splurge on every seemingly exciting experience.
However, as exciting as the twenties might be, remember that the life choices you make in your 20s will stay with you well into your 30s and beyond. So, the sooner you master the basics of how to manage your money, the better off you'll be in the future.
For this reason, you need to set yourself up for financial success by avoiding these common money management mistakes that most make in their twenties.
One of the most expensive mistakes you can make is to go to college, simply because you're expected to. Unfortunately, this ill-advised belief suggests that you’ll figure it out when you’re in college or that things will eventually align.
Instead, if you do not yet know what you want to pursue professionally, here are three options you can consider before committing to an expensive educational path.
All in all, whatever you do after secondary school will be the biggest building block or lack thereof of your financial future. While it is possible to turn the tide later in life, would it not be much better to set yourself for success from the start?
Do not succumb to groupthink and pursue courses whose future viability you have not examined. If you get a chance to get professional career planning help, you should take it. Ultimately, be comfortable with the post-secondary training you choose and try to have a clear plan on how this choice aligns with your long term financial goals.
It's reassuring to have parents who are willing to bail you out of life's emergencies and assist you through significant money matters such as rent, buying a car and even finding employment. However, as the years go by, you should be far less dependent on your parents.
Remember, as time goes on, your responsibilities as an adult increase and that's why you should make it a priority to safeguard your future. Dependence can be one of the biggest hindrances to the achievement of one's financial goals whether it is the need for external approval, bailouts or struggling to live the financial and career dreams of your parents.
To begin the journey of independence, be intentional about your financial literacy skills such as budgeting, investing, borrowing, taxation, and financial management so you learn to be self-reliant and financially independent through different life seasons.
While external monetary help, counsel and even having an inheritance are great additions, if you depend on yo8r parents to solve your financial problems in your 20s, you are unlikely to develop the skills required to survive the storms of later years.
If you are in your twenties today, no matter what stage you are in your financial journey, you should count yourself lucky. Why? You have the benefit of time to grow whatever income you are getting today to become much bigger in the future. You are, however, not so lucky if you are not saving.
The earlier you start saving, the bigger the chances that you are going to start investing earlier and your money will start growing at a faster rate than if you are to do so much in your 30s for example. This is, in part because of the Life-changing Magic of Compound Interest.
You should also start saving now to build an emergency fund that will make sure you are cushioned from unexpected losses of income and other unforeseen circumstances such as medical emergencies.
A key and foundational money management habit to develop is to prioritise paying yourself first as the first financial priority in every budget. That means, contributing to your savings and investment fund before spending on compulsory and variable expenses, respectively.
On top of building an investment fund, you can also save separately for big purchases such as buying a new phone, laptop, appliances, or going on holiday.
Note: Remember, paying no attention to savings will most likely lead to undesirable consequences such as getting into avoidable debt and the derailment of your financial goals altogether.
Read Also: How to Automate Your Finances - Save Time, Money and Stress
Remember, we cannot predict everything about what the future holds, which makes proper financial planning key to preparing you for possible financial obligations, both the known and potential ones.
For example, start by creating or updating a budget to include an allotment of your money to save for short-term financial goals like buying a new phone, saving for an appliance upgrade, mid-term goals like student loan repayment, and long-term goals like retirement, and investment options.
This way you contribute to your financial future before spending any of your money on anyone or anywhere else.
Read Also: 5 Short-Term Financial Goals for College Students in Kenya
A dead-end job is defined as one with relatively few career prospects. That is a very low chance of career development, either in the form of promotions, more responsibilities or higher salaries.
Why would you stay at a job where you know very well there is no chance of increasing your income or skills?
Here are questions to help you determine if you're in a dead-end job.
If you answer yes to any of the above – it's time to review your current employment. The next step would be to assess and determine your career goals and your progress career-wise.
Should you determine that you're on the right track but your current job is derailing your career growth and no effort to rectify this is evident, it’s time to start job hunting for opportunities at institutions that are proactive about the welfare and professional growth of their staff.
Read Also: Me and My Money: Should I quit My Job Now?
Here’s a reality check – being young is not the same as being fit and healthy.
It’s tempting to ignore the importance of forethought when it comes to insurance but keep in mind that the unplanned expenses of a medical emergency can multiply quickly and leave you bankrupt. In such a scenario, insurance comes in handy.
As such, it's crucial to consider these key insurance types while in your 20s; health insurance, life insurance and auto insurance (if you own a car).
This way, you can protect yourself, your wealth and your family legacy if you have children or have other dependents you may have under your care.
Read Also: 7 Financial Emergencies Everyone Must Be Prepared For
Many relationships end where money is involved, especially if you borrow and are later unable to pay them back.
If you find yourself in a cycle where you're constantly trying to keep up with your peers, celebrity trends, family or cultural expectations - you're on a grim path to financial ruin.
A general rule of thumb is to not get caught up in the, “Keeping up with the Joneses” hype. Instead, bear in mind that each person is going to be in a different place at a different time in life, so when it comes to money you should never compare yourself to others.
Read Also: Is Social Comparison Slowly Making You Poor? - Money Psychology
The best way to make sure you do not succumb to peer or societal pressure when it comes to your finances and even career choosing at this foundational stage of your life is to create a concrete financial plan that you can follow through with.
If you truly stay committed to the plan you have set for yourself, you will not really feel the need to compare yourself with your peers or try to please those that you respect since you have the best guide possible to your financial future.
Read Also: Strategic Financial Planning: A Guide to Planning Your Future
Like anything else in life, if you don’t have a plan, you’re just winging it. And as some motivational speaker somewhere will tell you …without a plan, you are planning to fail.
It’s as simple as that. It may sound a little cliche to insist on setting financial goals, but it is necessary to acknowledge that all important things in life will not be the most fun to do.
A financial plan includes short-, medium- and long-term goals that are to be achieved in the order in which they appear. The short- and long-term goals are all about achieving the end long-term goal. These could be home-ownership, early retirement, building a business, creating multiple passive income streams and so on.
Once you have set all the long term goals you intend to achieve, you then create the medium term and short term goals that enable the achievement of what we could now call the dream.
In your twenties today some of the most important goals to set for yourself could be earning the most marketable skills necessary to secure employment if you hope to make it in the corporate world, or the necessary business skills you need to build your entrepreneurship career. This backed with learning the basics of money management and investing.
Whatever goals you set for yourself, you have to commit to them, create an accountability mechanism and basically breathe and live by them.
Read Also: 7 Short-Term Financial Goals to Set For Yourself
A budget is the backbone of your financial life. For the most discerning person, a budget is a must - because of how ordering it can be. Most people in their 20s may find the idea of a budget a little restrictive or even old school but come to the realisation of its importance several mistakes later.
Read Also: Money, Wastage & Me: Regrets, Lessons From 10 Years of Employment
A budget goes hand in hand with your financial goals. You know what comes in, what comes out and where it goes. It gives you greater awareness of your spending habits and what is required to attain each goal.
If you are new to budgeting, consider the 50/30/20 budget where no more than 50% of your income should be spent on needs such as food and rent, 30% spent on wants such as entertainment, purchasing some luxury items etc. and no less than 20% goes to your savings.
It is your savings that are going to fuel your financial goals. If you want to own a home by the age of 35 and you are 25 today, for example, you will need to be saving a specific amount in a savings account targeted at homeownership for a certain period of time and when a threshold is achieved, you invest it in instruments that earn high interests such by age 35, you have what you need to own a home.
By tracking your expenses through a budget, you are able to identify wastage and plug those holes ensuring that all your income is utilised intelligently.
Read Also: 8 Amazing Benefits of Tracking Your Spending
In your 20s, the world is a "playground", and you want to try most, if not all, you can. But since your income will typically not be enough to achieve all the lifestyle goals you have yet, you may be tempted to borrow to live this ‘soft life’ that you may see your peers living.
One of the commonest missteps most people in their 20s make is purchasing a car on credit without sufficient planning. But even smaller purchases such as taking credit for a vacation, being dependent on digital loans, taking salary advances because one is living beyond their means can quickly add up to a distressed financial situation.
The good news is you do not have to forfeit having a quality and enjoyable lifestyle. You just need to work towards it and avoid the temptations of instant gratification.
One of the things you need to learn very early in your financial life is how to handle debt. There generally is good debt and bad debt. Good debt will generally be taken to add to your overall net worth while bad debt is associated with consumption, debt taken to fuel wants.
Read Also: How to Build Wealth Using Other People's Money
Planning and budgeting don't sound like fun, but it’s a whole lot better than finding yourself in debt, stressed about money and your financial goals in shambles.
If you can avoid these 10 money mistakes in your 20s, you’ll be setting yourself up for financial success very early in your life.
And that is the smartest money move you can make, today!
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