Common financial mistakes made in your early 20s with long-term consequences!
When you are in your early 20’s, it is common to focus on todays needs and wants and difficult to allocate financial resources that will benefit your future self. More time is spent focusing on building a career, getting a new car, starting a family, getting your first apartment, or if really lucky, your first home. With so many competing priorities, it can be difficult to find time or resources to plan for the future. By ignoring the bigger picture, you could be putting your future at risk by making choices today that could have long-term negative effects.
There are a few mistakes that younger people may fall victim to, simply because they had no one to guide them, or just made choices focusing on today without considering long term consequences.
1. Never learning to budget – If you don’t have a budget in place, you are more likely to overspend, possibly not have enough money to make ends meet, or may live pay cheque to cheque. By learning how to budget, you will be able to learn how to properly divide your money between bills, debts, and savings. There are many budget tools easily available with a quick google search.
2. Ignoring Student Loans or not getting a proper return on your investment in education – For a large portion of the early 20s population, student loan repayment is something they are faced with. The larger payments can be intimidating, and some either do not earn enough to address them or choose to ignore them to focus on other priorities, facing late payments and missed payments, which take a toll on credit score. Many take advantage of the Repayment Assistance Program, either qualifying for no payments or lowered monthly payments for a six-month term. However, these options are only available for a limited amount of time. Before taking on a student loan, it is important to calculate the total you will need to borrow to complete education. The next step is to have a plan whereby higher education will definitely lead to increased income that will allow you to repay your loan within a reasonable time frame without enduring financial hardship.
3. Running up your credit card – A credit card can be an incredibly handy tool when it comes to building credit, or to have handy in case of emergencies, but when used incorrectly, it can leave you over-extended and with high interest debt. A misused credit card can have negative impacts on your credit score by having a higher credit utilization (percentage owed compared to the available credit limit) which can account for 30% of your overall score. Missed payments can also have negative effects on your credit score. Timely payment accounts for 35% of your overall credit score.
4. Living with no savings – By not having money saved, you leave yourself at risk for more debt. If an emergency arises and there is no savings, chances are you’ll likely have to rely on credit, and as mentioned above, running up a credit card can have adverse effects on your credit score. By creating a savings plan, you give yourself a level of protection against emergencies, as well as allowing you to purchase the things you have been working towards without the stress of how you will pay for them, such as new furniture, a new vehicle, etc.
5. Ignoring your retirement fund – When you’re young and starting your career, there is so much emphasis on all the things you’re able to do now, that one of the biggest considerations for your future gets put on the backburner. It’s easy to think that there’s always time to start your retirement fund, and while that is true, there are so many more benefits for starting it at the beginning of your working life. The biggest benefit is the amount of interest you will accumulate over the life of your investments will be much greater than if you started it ten years later. Another benefit to starting earlier is that you’re able to contribute smaller amounts to still reap the benefits. If you start contributing 10 years later, it will take much larger contributions to reach your retirement goals.
If the above are mistakes you may have made and find yourself with debt that is holding you back from working towards your future, it might be a good time to consider looking at your options to get you back on track!
If you are looking for advice, or a second opinion about your debt, it does not cost anything to talk about your options. Every financial situation is unique and viable options can differ from person to person. A conversation free of judgment and cost, is the first step to determine options for debt that make sense for you. For a free consultation, please call or text (506) 645-1814 or email jaime@tackledebt.ca; or visit www.tackledebt.ca.