- Date : 16/07/2020
- Read: 5 mins
Your 20s are a time to make mistakes and learn. But isn’t it better if you can avoid some of the money mistakes that can cost you a lot later?
You may have heard of the basics of personal finance a number of times – make a budget, save regularly, don’t spend more than you earn, diversify your investments, etc. While all these are essential, they aren’t the focus of this article. When you’re just starting out with this whole adulting thing, your relationship with money undergoes a significant change from when you were younger. At such times, many people make some common financial errors and don’t realise it until much later.
Here are some common money mistakes you need to be on guard against.
1. Imitating other people’s financial philosophy
It’s essential to realise that once you start working, no matter how close you are to your friends, you can’t imitate their financial philosophy or goals. That’s because everyone’s income, career progression, higher education plans, home situation, etc. are very different. For instance, your friends who are engineers or corporate lawyers may have a much higher starting salary, unlike those who are freshers in a creative field.
Similarly, some friends may have to contribute to their household expenses, while others may be lucky enough to have parents who still fund their vacations. With such varied lives and situations, you can’t have the same spending or investing habits as those around you. You have to think for yourself and consider what your income is, what your future goals are, and where you are at right now in life.
2. Not having a debt repayment plan
When you get your first credit card or realise how easy it is to get a personal loan to pay for your dream vacation, it’s natural to be swayed by debt. It’s something every 20-something goes through. Though debt isn’t evil in itself, how we approach it can make it so. Taking a loan for something as unnecessary as a vacation isn’t the only mistake. Taking on debt without having a repayment plan is worse.
Debt by nature is not your money, and you will have to pay it back at some time, and with interest at that. If you can’t afford something right now and don’t see an increase in your salary or a second source of income or certain investments fructifying, you won’t be able to pay back this money. So, it’s best to draw up a repayment plan or come up with an alternative before you apply for a loan.
3. Keeping a large amount in your savings account
There’s no denying that having a lot of money in your savings account feels good. But you know what feels better? Optimising that money by investing it and letting it earn more money for you! Even if you’re intimidated by figuring out investing at this point, you can always open a fixed deposit account with your bank. Eventually, you can consider an SIP to invest in mutual funds and go on from there.
There’s another problem with having a lot of money lying in your savings account. It can play mental tricks on you. You’ll think, “Oh, I have a lot of money at my disposal”, and you’ll be tempted to keep buying things unnecessarily and swiping your card until your balance has depleted.
4. Planning an extravagant wedding
Since you were a child, you may have been made to believe that the wedding day is the most important day in a woman’s life. Of course, when you graduated from college, went on that first solo trip, or did many other things, you may have realised that there are many other things to look forward to in life.
However, this idea of having a big fat Indian wedding – where you spend more money than you have and not compromise on a single thing – is still around. A lot of people, when they look back, realise that they could have approached their wedding budget and planning a lot more strategically and used that money for smarter investments, such as a down payment for their new home.
5. Making financial choices out of fear
This is something you may have experienced in these times – from hoarding groceries in the initial few months because of the lockdown or stopping all your investments due to the fear of the market crashing. Panic, fear, and public opinion should not pressurise you into making financial decisions.
Despite the pandemic, continuing with your SIPs would have been a smart choice and so would investing in digital gold. When it comes to making financial decisions, you have to think for yourself and not let fear or anxiety drive you into making poor choices.
6. Not getting adequate insurance
When purchasing a new smartphone, we usually buy a screen guard and a phone case to protect our precious investment. Insurance works a lot like that; it offers financial protection, at a minimal cost, for things that matter the most to you – such as your health, car, etc.
You may think that getting health insurance in your 20s is not needed, but that’s a misconception. Just as you wouldn’t want to wait for six months after buying your phone to get a phone cover, you shouldn’t wait until you’re older and your health starts acting up before you think of getting a health insurance policy. The earlier you get it, the lower the premium you’ll have to pay.
Now that you know about all these mistakes, make sure you don’t make them! As with everything else, you have to approach money pragmatically and think long-term. Read this to know how financial literacy can empower women to develop a financial identity