Discover the 15 finance mistakes that everyone in their 20's should avoid so they can start building wealth for their financial future.
At REIF advocate for building wealth earlier in life so that you can reap the benefits later. Implementing a financial plan in your 20’s can help you to achieve an early retirement and financial independence sooner!
15 finance mistakes to avoid in your 20’s
1. Waiting until you’re 30 or 40
There’s no better time than the present. Especially regarding the establishment of a wealth creation strategy. When you form a strategy with relevant steps to build wealth in your 20’s, it puts you in a position to achieve the dream of financial independence, sooner.
2. When you don’t live below your means
If you find yourself spending more money than you make, on a regular basis, you’re robbing yourself of early financial independence. Spending less than you earn allows you to save more of your income. Then, later, invest it into assets that generate greater long-term gains.
3. When you don’t create financial goals
In your 20’s you have a major advantage compared to later in life. You have more time to think about your future goals and when you want to achieve financial independence. Once you establish your goals you can then identify other necessary steps to help you achieve them. This includes tracking your income and expenses, investing, or creating budgets.
4. Not having a budget
Budgeting may seem like a boring and limiting practice. However, it’s necessary for reaping benefits later. As they say, all good things take time. A good budget allows you to holistically view your income and expenses and then see where your priorities lay.
There are numerous free online budgeting resources available. One of our favourites is MoneySmart. It’s important to regularly review and update your budget (at least every 3-6 months). This is because priorities change all the time.
5. Unnecessary credit card usage
Unnecessary credit card usage can be detrimental to your finances. Especially when you forget to make repayments. Credit cards often incur a high interest rate. If you do have a credit card, it’s so important to review your rate. This is because you may end up paying more than you initially intended to.
6. Not having a war chest
Also known as an emergency fund, a war chest will protect you in times of financial uncertainty (i.e., loss of income, family emergencies, and health related issues).
Establishing a war chest is highly recommended, especially earlier in life. It’s generally made up of six months’ worth of savings.
7. Not tracking your finances
If you don’t track your finances, at least weekly, you’ll not be able to measure whether you’re on your way to achieving your finance related goals. Tracking your finances is as simple as reviewing our bank account and viewing your income and expenses.
8. When you don’t prioritise paying off debts
One way to improve your credit score and put you in a clearer mindset to build wealth is to prioritise paying off your debt. More so, paying off your bad debts first. Bad debts are those that don’t benefit or boost your financial situation. Examples include car or personal loans. Other debts you may wish to start paying off first are the ones that incur a higher interest rate.
9. Being unaware of your credit score
Following tip number eight, it’s important to be aware of your credit score. Furthermore, you should be looking at trying to improve it, if it’s not healthy. There’s numerous credit score websites where you can access yours for free. To learn more about how they’re calculated, we recommend checking this article we wrote a little while back.
10. Not having insurance
If you own valuable assets, we cannot stress the importance of insurance enough! Insurance can allow you to sleep better at night knowing that should anything happen to your assets, you’ve got protection.
11. Viewing money negatively
A negative money mindset stand in the way of your wealth creation goals. Wealth creation is dependent on your positive relationship with money. If you’re looking for some resources to improve your relationship with money, refer to the following:
12. Not having money conversations with your significant other
If you have a significant other and share finances, it’s so important to converse about your money. This can help you to identify financial related behaviours and see if financial related goals and priorities align.
Discussing money isn’t easy for some. Though, there are numerous things that you can do to level out the playing-field and navigate these necessary conversations. Examples include providing a judgment free zone and listening to each other’s points and concerns.
13. Not thinking about your retirement
Your 20’s is the prime time to start thinking about your retirement and how you intend to fund it. Knowing what you want for your retirement earlier in life gives you more time and opportunities to take advantage of setting up structures to put you in a better position when that time comes.
14. Thinking that your superannuation and the government pension will be enough
One of the biggest mistakes that you don’t want to realise when you reach retirement is thinking that superannuation and the government pension will be enough.
The average superannuation balance of an Australian retiree will only get them by over a period of seven to eight years. Off the back of that, that’s if you plan to live off a mere $44,000 per annum. In addition to this, the Government pension only provides you with $22,000 each year.
It’s important to start thinking about other ways that you can add to your retirement fund. One way is investing in assets that produce steady cash flow and returns. That’s where a good property investment strategy could come into play.
15. Not looking at ways to start producing extra income
In your 20’s, you should be building your wealth creation strategy. In that, establish structures that allow you to produce extra income. Whether it be getting another job, starting a side hustle, investing, or property investment.
At REIF we’re experts in the property investment space. We’re assisting a great number of people (as young as 20) to purchase and leverage real estate to produce cash-flow for their future. You’re never too young to begin your property investment journey, especially with the right guidance and support.
To find out more, please feel free to reach out on the details below and start a conversation today. Additionally, feel free to download our free Building Wealth Through Property eBook via the link below.
Ph: 1300 130 932
Email: clientservices@reif.com.au
