Young people have the unique opportunity of a fresh start. This doesn’t mean things are easy. In fact, they are bombarded with wrong information on social media. It is tempting to listen to gurus promising high returns with little effort.
Sometimes your financial health depends on the good decisions you make, such as saving for retirement and spending money wisely. But sometimes, avoiding money mistakes can have a bigger impact.
This is a collection of money mistakes I wish I had known when I was younger. Although I did achieve financial freedom early in life, the process would have been much faster.
1. Not paying your credit card in full every month
There is nothing wrong with having one credit card.
Hey, you could even have two or three. The important thing is to ensure they are paid off in full every month. It’s the only way to keep your interest rates low and avoid paying thousands of dollars in interest.
Credit cards carry an average of over 20% of interest, which can wreck your finances and keep you from saving for that emergency fund.
Many credit cards have enticing rewards programs; the more you spend, the more you earn.
I love my Amazon Prime card, which helps me earn points I can use towards my Amazon purchases. Another great card is American Express Blue Cash Every day, which is great for grocery shopping.
But we have always paid off our cards in full every month. This is a double win: we earn points by using them while not paying any interest for the stuff we purchase.
Developing the habit of paying your cards every month and not carrying debt will prepare you to see debt as something that must be kept to a minimum.
2. Not setting financial goals early on
There is an old saying that goes like this:
“No wind blows in favor of a ship without direction.”
– Seneca the younger.
Setting financial goals in your 20s builds the platform that you will continue developing in your 30s and 40s. Having a solid financial plan in your 20s establishes a wealthy mindset early in life..
Do you see yourself traveling much?
Being able to afford a nice house? or,
Becoming your own boss?
All of this requires preparation, goal setting. You can even start setting goals in your teens. Once you set the roadmap for your financial future, you can then strategize how to achieve those goals.
3. Not planning for a health emergency
A health emergency can wipe out your savings. Youth does not equal invincibility, and one bad fall or an accident can really hurt your wallet.
Hospitals are required to give you care in an emergency, but they won’t do this for free. They will take your name and number and eventually charge you for all the work provided.
Even cheap health insurance can help you mitigate some of the problems. The worst situation is if you don’t have any health insurance at all.
So make sure you have at least minimum health insurance coverage.
4. Not tracking your money
Young people fall for a common money trap of not keeping track of their monthly expenses. You can only change what you measure, and it will be hard to make improvements if you’re not seeing where your money is going.
Related: How to budget for busy people.
When you use a free app like Mint, you can see every expense you’ve made during the month.
Even if you just set it and forget it, you have data to examine for the future. I am amazed at how much we used to spend on groceries and eating out years ago.
Thanks to this data, we could save enough to pay for our house in less than five years.
When you want to reach financial independence early in life, tracking your money is not an option, but a requirement.
5. Time wasted watching tv or hanging out with “friends.”
Using your time wisely plays a big part in becoming financially independent.
You can only do so much, and saving money will be hard when you’re not being productive.
Getting a part-time job is a good idea to keep yourself occupied. You also need to work on something that will make you happy to enjoy your life and not spend all of your time just being entertained by other people’s lives.
Related: How to make money starting with no money.
There is nothing wrong with watching tv for an hour a day maximum.
But when this becomes a time-consuming habit where you spend half a day watching TV, it becomes a problem.
That time could have been spent acquiring a new skill that will double your income.
Being picky when it comes to choosing your friends is also important. Hanging out with people that like to go out to dinner often, for example, will keep you from saving money.
On the other hand, friendships with business-minded people will help you make more money. Especially if you can find a mentor that wants to hang out with you. They can be a helpful resource for career advice or when you want to start your own business.
6. Not enough knowledge
Failing to invest in your learning is a huge financial mistake. You can invest in two ways:
First, by dedicating time to learning how money works, such as reading this blog.
Second, paying money to acquire new skills.
Knowledge is power. But the right kind of knowledge matters also, as a young person you should work on:
- Learning how to budget
- Learning how to have a good work ethic
- Conquering your financial fears
- Learning how to negotiate
By studying these things, you can avoid the mistakes that keep most people in the rat race.
7. Too much knowledge
If financial ignorance is a problem, too much knowledge is another mistake that keeps you from achieving your full financial potential.
Spending countless hours reading books and following business Instagram accounts with motivational quotes can distract you from the real goal: working hard towards your goals.
Knowledge without action is not power; it’s just wasted time. When you put into practice the lessons you learn, only then the information becomes useful.
Sometimes we are waiting endlessly to feel like we are finally ready. Reading bestsellers so we can find out the “secrets” of achievement. This can be a huge distraction.
For example, if you want to learn how to budget. Take a week to learn about how Mint works or any other method you want to use.
Then track your expenses for a month using what you just learned. After a month, learn something new about money and then put it into practice again.
For a long time, I read dozens of books recommended by the millionaire gurus at the time and made no money. Then I paid attention to the REAL millionaire clients I was training, and they told me they didn’t even read books. All I ever saw them do was focus on their businesses and put in the work.
8. Neglecting your health.
When you neglect your health and become sick, your output is reduced. You simply won’t have the same energy, concentration, or stamina to work the number of hours you need.
You don’t necessarily have to join a gym and waste hours. But you do have to cover the basics.
Going for a walk a few times a week and doing strength training exercises at least twice a week.
You can work out at home using resistance bands only, which will ensure that your back muscles and core stay strong, especially when you have to sit all day.
The benefits of exercise will translate into financial gains the moment you start, especially if you are young. Waiting for the time when you’ve finally made it will be too late.
9. Not building good credit early on
Getting your credit report should be one of the first things on your to-do list.
Remember that a credit report is different from a credit score.
The report is a document that outlines information such as how many open accounts you have and your total debt.
Your score is basically a number that ranges depending on what credit agency is issuing the report.
Although we advise against the heavy use of credit cards. Getting a credit card or two is acceptable when you are young because you will be increasing your credit score.
Your credit score is important because it affects the interest you’ll get for these two purchases: a car and your home mortgage. If you have a good credit score, it can save you thousands of dollars in interest.
Waiting to build your credit score is a huge mistake because it takes time to build a good credit score and could take years. So working on improving your credit score should be done as soon as possible.
10. Buying a fancy car instead of a used one in good condition
After you compare the costs of buying or leasing a new car vs getting a used one, you realize that a used car in good condition can save you a lot of money.
First, you can save on insurance costs. When you have a used car, you can decide the amount of insurance you want. On the other hand, new cars or leases require comprehensive coverage even if you are a good driver with no previous accidents.
It’s not only on insurance payment you can save on, but you can also save on interest payments. Even if you get a leased vehicle, the interest amount is factored in your monthly payment.
A used car in good condition will cost much less than a new car. This means you can put all that extra money into your emergency fund.
11. Not planning for retirement
Compound interest grows exponentially when you start early because you have more years for your initial investment to mature.
Compound interest is what made Warren Buffet a billionaire.
If you have to live frugally for a couple of years in order to have more for your investment, it will be well worth it. Starting in your teens or early 20s could make all the difference in retirement.
Years go by fast. Days become weeks, and weeks become years, so make sure you are dedicating a portion of your income towards retirement.
Getting into the habit of putting some money away from your paycheck as soon as possible can make a big difference later on when you want to retire comfortably with enough funds saved up for emergencies and travel expenses.
12. Having only one paycheck
Avoid the money trap of relying on one paycheck alone by diversifying your income sources.
This can be as easy as learning a new skill that can be monetized.
Gone are the days when people stayed working for one employer for decades. Nowadays, the gig economy has proven to be an effective way for people to work on their own terms.
Places like Fiverr and upwork give people opportunities to work from home or work on projects they can feel good about.
Having more than one income source gives you peace of mind. It also gives you more confidence, knowing that if something bad happens to one job, you have another one to hold you up.
13. Money wasted on dating apps
If you are single, using dating apps to meet people can cost you long-term. Even though most of these apps are free, your time is not.
You are paying for these apps with something called opportunity cost. Meaning all the time you spent browsing around for a good catch and getting ready for dates could have been spent making money with a second job or learning new things that can help your career.
Even if you only stayed home, you would be saving more than going out.
People are attracted to others with goals and good work ethic. By focusing on your career or job wholeheartedly, the right person will come to you. You will attract the right person into your life. Just make sure you have the right booksmarts to identify a person with good financial habits..
14. Dating the wrong person
Picking the wrong person can cost you not only money, but also your home, kids, and even the dog.
There is no way to tell how a relationship will unravel in the future, but there are signs that when you look back, you wish you would have paid attention.
A good relationship starts with a good friendship, where two people like each other for who they are and not only for their appearance. Pay attention to their habits, family, and how they manage their finances.
Also, become the person you want to be dating.
- Do you have a budget for yourself?
- Do you exercise on a consistent basis?
- Are you carrying too much bad debt?
If you haven’t planned for these things, how do you expect to ask the same things from someone else?
Money mistakes can be avoided.
In brief, be sure to save enough for retirement, have a budget, and learn how to manage your money early on.
Most money mistakes can be avoided by paying attention to where your money is going and maximizing your savings.
Awareness is the first step in realizing what areas can be improved. Pay attention to how much money is wasted on dating apps or going out every weekend.
Having extra money in your bank account can give you peace of mind when making important decisions such as buying a house, paying for college, or planning a wedding (which will probably happen sooner than later).
When it comes to handling finances, take action now because most mistakes can be avoided when you start early on.