Wondering what money mistakes to avoid in your 20s?
Growing up is a journey of learning and unlearning. Our experiences with life and money always help shape our future personal financial policies.
We all remember the ugly times our flawed financial decisions took a toll on our lives, and we never wish to fall back to the same situations ever again.
If you don't understand the importance of handling finances well as a teen, you'll end up paying a steep price for it.
Teenagers must learn to recognize these mistakes and find ways to counter act them. It's quite easy to get swept up in the world of shopping and socializing. But, you can learn to manage your money by learning about the common money mistakes and applying the solutions.
So in this blog post I will share some of the money mistakes I made in my teens.
The 6 Biggest Financial Mistakes To Avoid in Your 20s
1. Lending money to friends
Sadly, many people make the same money mistakes in their teens and early twenties, which is a shame, since you have only one chance to make good choices.
One of the most common money mistakes teens make is lending money to friends and family members. While it is perfectly understandable, it creates strange friendship dynamics and can result in awkward conversations about repayment. Instead, stay away from borrowing money from friends and family members, and keep your purse strings tight.
The interest rate on loans to family members and friends is extremely low, or even non-existent. It is a very risky decision to lend money to friends and family, as three quarters of people who borrow money never pay it back.
It is always better to think of it as a gift than as a loan, and lend only what you can afford to part with.
I made money mistakes in my teens by lending money to friends and family members for personal reasons, so I have a few financial lessons to share with you.
2. Impulse buying
Among the worst money mistakes teens can make is buying things on impulse. While you might think you're in control of your money, impulse buying is a dangerous habit to get into in your teenage years and can cost you your friends, jobs, or even your freedom.
It can lead to credit card debt and missed money goals. Identifying your triggers and trying to prevent them can help you make better financial decisions. For example, if your friend is a big fan of the latest
hot dog, you might feel compelled to buy it. This impulse can also be triggered by alcohol consumption or emotional feelings.
One of the best ways to preventing impulsivity is to model self-control and developing a plan.
Developing a plan for impulse buying can be helpful because it helps teenagers identify if a particular item is a need or a want; a method to help you evaluate your purchases.
The other way is to learn to use cash instead of credit cards. By withdrawing your monthly budget in cash, you can avoid impulse purchases and still stay within your budget.
When you use debit cards, you can keep your cash separate from your credit card and use them for emergencies only. This will help you develop good money habits and prevent unnecessary impulse buying.
If you must buy something, give yourself a period of time to think about it. That period could be anything from an hour to a month.
But a general rule is to give yourself at least 24 hours to make up your mind. You should also sleep on it.
This will allow your impulse to settle down and give you time to reflect on your decision. It will also make you aware of sneaky marketing tactics and help you avoid impulse buying.
Try to identify those things that make you feel anxious. If you're stressed or sad, stop and take a break instead. Listen to music or take a walk.
You may even want to call a friend if you're feeling stressed. Self-care doesn't have to involve money, but it is essential for your mental and physical health.
If you're stressed out, don't purchase something that makes you feel rushed or stressed.
Rather, take time to recognize these feelings and learn to deal with them in a healthy manner.
Another way to avoid impulse buying is to plan small purchases in advance. One new inexpensive item should be purchased once every month.
If you can't resist impulse purchases, set aside a small amount of your budget as an impulse fund.
This way, you'll have a responsible outlet for spontaneous purchases. Another way to avoid impulse buying is to cook every day at home.
Or, you can try a 60 -day “no-new clothes” challenge. If you're still struggling to curb impulse buying, start a simple budget with just enough money for the essentials.
Plan your grocery shopping ahead of time. Using low -cost and healthy ingredients in your meals and snacks will help you save money on your food bills. It's also helpful to eat before you go shopping.
By following these strategies, you can avoid impulsive spending and avoid the pitfalls of teenagers.
Not so much different to impulse buying is overspending. One of the biggest mistakes teenagers make when it comes to managing their finances is living beyond their means. They often spend more than they can afford to and don't even remember the basics.
Fighting overspending starts at the time when you learn to separate wants from needs. While a functioning laptop may be a want, it is not always necessary.
Rather, a functioning laptop is a necessary item for school or to be social. Those who struggle with the impulsivity I stated earlier may also overspend on impulse purchases, enabling themselves and others into financial hurdles.
You may also find yourself hoarding items as a form of security, including money that could be used to buy essentials instead. This, is another form of overspending.
One effective method to avoid overspending is to start a personal transaction register.
This register records every deposit and withdrawal. It also tracks automatic payments.
If you overspend, your next payment may be delayed. Also, keep an eye on ATM and debit card transactions. If they're declined, they won't charge you, but it may be a sign of overspending.
And it's always better to start with a small amount and then build from there.
As a parent, make sure your teen is aware of the consequences of their spending habits.
Often, teenagers don't realize that they're building a lifetime of debt by overspending.
In addition to limiting their purchases, parents should consider creating a cash budget for two weeks.
If this is too difficult for them, parents should set up a meeting to explain their expectations. You could as well ask your teenager to cover certain home expenses.
While you don't want your teen to spend all of his or her earnings on impulse purchases, it's better than having to cover the cost of groceries and electricity.
One other golden nugget for parents, it is important to remember that teens are still kids, so they need to experience the consequences of impulse purchases.
This means parents shouldn't bail them out for expensive impulse purchases if they can't afford them.
Even though it can be tempting to bail out a young person, it's important to remember that if you're a parent, you need to protect your kids from making costly financial mistakes.
That's why it’s important to resist the temptation to correct them early on. It's important for teens to make their own money mistakes, so parents should let them learn from their own mistakes.
4. Not having a budget
This is a cousin to overspending. One of the worst mistakes you can make in your teens is not having a budget.
Without knowing how much money you have left after wages, fixed expenses, nights out, and cell phone plans, it's easy to overspend.
Not having a budget also makes it difficult to plan a vacation, and other such things as social causes. Using your budget to make decisions can help you save money for your next vacation, solve your next financial problem, etc.
You should be able to explain where all your money goes every month and how much you will need to spend on different things. Make sure you know what you're paying for now and what you're willing to spend money on later. Encourage yourself to bargain shop and not to spend the entire budget on one item.
Do not forget to include utility costs and housing costs in your budgets. Most teens don't have to worry about these expenses yet.
However, if you will be responsible for paying for your own utilities, please include them as a necessary spending expense, not forgetting entertainment expenses, such as movie tickets, etc.
Remember as a teen, this is a time of financial independence, and you have the chance to develop a sound money management habit before you are ready to make big decisions.
If you can learn from the mistakes you've made, you'll be able to do better in life. So, don't wait to start saving money and building your future today. If you don't have a budget, start creating one today!
5. Buying a car
This is not a car vs house debate but one of the biggest money mistakes teens make is buying a car (too early).
Although most teens have access to a car through their parents or friends, buying a car is a major mistake. Teens are often obsessed with cars and even after purchasing one, they continue to spend money on it.
Consider a fifteen-year-old student who just got admitted into the 11th grade and has a few thousand dollars left over.
He or she may be considering getting a car, but you should ask yourself: Can I afford that?
6. Unnecessary credit cards
It's important to avoid credit card charges, especially when you're a teen. There are several reasons why this is important. While it may be tempting to get multiple credit cards, this can cause confusion and lead to missed payments.
And store credit cards can be particularly harmful for your credit score.
Instead, limit yourself to one credit card, which you can manage well and understand the importance of paying off the card in full each month.
You can check out my article on how many credit cards you should have here.
Teens should be taught about money basics. It's a good idea to teach your teen how to track their expenses before they open their first credit card.
You should also make sure they have a checking account before allowing them to open one.
Teaching them about tracking expenses before they start using a credit card is important, so that they'll understand how important it is to have the money on hand to make the payments.
Parents should only give their kids a credit card with a linked parent account.
This way, you can keep an eye on their usage and help them learn how to use credit responsibly.
Limit the amount they can charge and make sure they understand the terms and conditions of the card.
Once they've become responsible, you can add them to the card as an authorized user.
But you should never let them use the card on their own.
So these are some of the money mistakes I made in my teens. Now everyone has a unique experience and perhaps the money mistakes you made in your 20s are different from mine but we can all learn from each other’s mistakes.
You can also watch this awesome video by Ali Abdaal as he shares some of the money mistakes he made in his teens.
I could see a lot of myself as a teenage in him since I literally made almost all of the money mistakes he did.
Addressing financial mistakes
Parents, talk to your teens about money
Not talking to your teen about money can be a minefield. While discussing money issues with your teenager can be difficult, it will help them gain a sense of financial responsibility and help them develop a positive relationship with money.
In addition, regular discussions about money issues will build your teen's confidence and make them more likely to face challenges when they grow up. Here are some ways to start the conversation.
Make sure you talk about your budget. Explain to your teen that while you're living in a modest apartment, you're still paying for the bills and expenses of the household.
While you may not be able to afford everything your teen wants, it's important to let them know that your money isn't unlimited.
Coach your teen to be sensitive to the limitations of their budget and to think of alternative ways to entertain their friends without spending a lot of money.
Make sure you acknowledge when your teenager offers to help a friend with their expenses. Try to stay calm and show appreciation.
Offer to help negotiate to resolve the sticky situation. Remember that your child has the right to ask for help, so don't be shy about it.
If your teen wants help with finances, be sure to remember to check in with them when the time is right. You don't want your teen to get angry.
Giving your teen more control over his/her finances is equally a great way to help your teen learn about money management.
It’s never too early to start discussing finances. Start off small and go as far as your family allows.
For example, you may want to let your teen decide which items are more important, and where they can stretch the budget.
This will teach them not to go overboard with expenses and help themselves avoid getting in debt in the future.
1. Keep a budget
It's never too early to start learning how to budget, especially if you're in your teens.
The first step in creating a budget is to know exactly how much money is coming in each month.
If you're a teen, categorize all of your income into categories and decide how much money you'd like to allocate to each category.
This can be as simple as categorizing expenses by what they cost – food, clothes, gas, cell phone plan, gym membership, and anything else your parents pay for. It's also helpful to use a budgeting app to help you make a realistic plan.
The next step in creating a budget is to know exactly how much money you earn every month. If your income is unpredictable, try sticking to a smaller monthly total instead of aiming for the maximum amount of money in one month.
Next, you need to develop a budget that breaks down your monthly expenses into categories and helps you stay on track. By creating a budget, you can save money for emergencies and enjoy yourself.
In my adolescent years, I learned how to budget for my spending, and I haven't looked back. Using a budget can make you more mindful and responsible with your money.
By following a budget, you’ll eventually be able to become financially independent.
In addition to limiting your spending and establishing a budget, you'll also learn how to set goals and stick to them.
2. Save early
One way to avoid making a common teen money mistake is to start saving early. Saving $20 a month while you are still young will grow to $11k by the time you are 62.
In addition to saving for college education, teens should be saving for retirement. Saving just a bit each month will make a difference in their financial future.
Aside from saving money early, teens should also set up a savings account for emergencies. This will help them build a positive money mindset and avoid making bigger mistakes in the future.
Saving money early is an essential skill for teens to master in order to avoid financial disasters later.
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