One of the most important periods in your life is in your 20s. This is the stage where you learn to make very important decisions on your own. Every decision at this stage is crucial. Whatever you do in your 20s will go a long way to affect you in the future, especially in your finances. In this blogpost, you’ll see 10 easy money mistakes you should avoid to retire a millionaire.
10 Easy Money Mistakes You Should Avoid To Retire A Millionaire
Mistake 1: Not having any financial goal
One of the greatest mistakes that most young people make at this stage of their life is not having any financial goal. There is no way you’re going to retire a millionaire if you don’t set financial goals in your 20s. Living without financial goals but wanting to become a millionaire is like trying to hit a target that you cannot see.
Although goals in themselves are not what helps you achieve financial freedom, people who have a goal are more likely to succeed than others who don’t. Financial goals give you a sense of direction and purpose and motivate you to attain financial independence.
So how do you set a financial goal?
Your financial goals should be divided into long-term goals and short-term goals. Long-term goals may last for several years while short-term goals are usually what you want to achieve within the next few months. Also, you need to know that your goals must meet the following requirements. It must be specific, measurable, achievable, realistic, and time-bound. The acronym for these requirements is SMART which is an easy way for you to remember it.
Mistake 2: Not saving for retirement
Another mistake that people often make in their 20s is not saving for retirement. Many young people often think that retirement is so far on the horizon that there is no reason to plan for it. However, the truth is that time moves faster than you can imagine. Before you know it, you’re already in your 40s and retirement is just a few years away. Additionally, time is such an important thing when talking about saving and investing. Compound interest is also called the 8th wonder of the world.
Therefore, the best way to retire as a millionaire is to start saving and investing now that you are still in your 20s. One of the benefits of saving and investing very early is that your money grows faster through compound interest.
You can start investing money towards retirement in your 20s by contributing to your employers 401k account or open an individual retirement account also known as IRA. Also, investing in either a 401k account and IRA has some tax benefits that are not available in any other form of investments.
Mistake 3: Not having an emergency fund
Emergencies are part of life and you can never predict when they will happen. However, you can always prepare yourself for emergencies to avoid unnecessary financial problems. Although there is no specific definition for an emergency fund, it is usually recommended that you should have at least 3 to 6 months of your monthly expenses saved in a savings account.
You might be active and vibrant in your 20s, but that doesn’t mean you are invincible so start building your emergency fund now. One of the ways to save easily for an emergency is to have a separate savings account where you keep your money. Also, having a financial goal will help you build an emergency fund before an emergency happens.
Mistake 4: Neglecting insurance
The next mistake that you must avoid in your 20s is neglecting insurance. Just like the way you may not see a need for an emergency fund because everything is going fine, you may make the mistake of thinking that you don’t need an insurance policy in your 20s. However, having insurance, especially a health insurance policy can help you avoid a serious financial catastrophe in case of an emergency.Â
A medical emergency is one of the most expensive things that can happen to anyone. Before you know it, you’ve already spent all your life savings on treatment and it may not even be enough. Also, do not neglect regular medical check-ups with your doctor in your 20s. It is better to find out what is wrong with you earlier than waiting for the time it becomes serious before attending to it.Â
Medical insurance is not the only insurance you should consider. If you own a house, don’t forget to get a homeowner insurance as well.
Mistake 5: Living off credit cards
Your 20s also exposes you to one of the things that can help you build a good credit history or damage your financial life. Another mistake that you must avoid in your 20s is living off credit cards. Many young people do not understand that a credit card is not free money even though you can use it to buy something now and pay later. Some financial experts like Mark Cuban and Dave Ramsey even believe that you should not use a credit card at all.
However, a credit card can be a good thing if you learn how to manage it well. Only use your credit cards when you have to and always repay your balance before the due date. This takes us to the next mistake you should avoid in your 20s.
Mistake 6: Missing credit card payments
One of the words that you will have to learn the meaning of as you become an adult is responsibility. You are now responsible for making important financial decisions including paying back your debts. Don’t make the mistake of missing credit card payments because it can affect your finances and stop you from retiring as a millionaire.
One of the disadvantages of missing credit card payment is that you will be penalized with a late payment fee, which will eventually add up and affect your finances. Another disadvantage of missing a credit card payments is that your debt continues to accumulate because of the interest rate and this can hurt your credit score.
Mistake 7: Spending more than you earn
The pressure to show off your wealth is greatest at this stage but you must avoid spending more than you earn if you want to retire early and achieve financial independence. No matter how much you make, you will always be in debt if you spend everything or even more than what you earn. Always remember that true wealth is not in what you have but in your mindset so resist the temptation to spend more money to impress others. Don’t keep up with the Joneses!
According to Mark Cuban, one of the ways to become rich quickly is to live like a student even when you are making more money. This will allow you to save more and invest for retirement.
Mistake 8: Not having a budget
The number one reason why most people spend more than they earn is because they do not have a budget so they just spend their money as it comes. A budget is a financial plan on how much money you are expecting to earn and how you’re going to spend it. It is always better to have a plan for how to spend your money before it arrives because it is easier to avoid temptations.
A budget helps you allocate money for the most important things while avoiding unnecessary spending. Also, a budget helps you identify where you are spending more money than expected and how to reduce these costs. In case you’re wondering how to start creating your budget, check out my latest blog post What Is A Budget And Why Is It Important?
Mistake 9: Buying a house you can’t afford
Buying a house is one of the greatest expenses that you’re going to make in life. Although buying a house can help you build wealth, it can also wreck you financially. Many people are often surprised to find out that they qualify to buy a house that is more expensive than they had plans for. However, you shouldn’t buy a house that you cannot afford just because you qualified for the mortgage.
The true cost of owning a house is more than just being able to pay for the mortgage. The bigger the house, the more the running cost. Therefore, you should focus on having a modest house that meets all your needs at this stage.
Mistake 10: Spending too much on your wedding
Finally, your 20s is when you will probably find someone you love and want to spend the rest of your life with. While this is a good thing, you must be careful not to spend more money than necessary on your wedding. Financial challenges are one of the leading causes of divorce and if you focus too much on an event that will last for just a day, your marriage may not last. What I consider shocking: the average marriage in the United States costs around $35’000 for just one day! Am I the only one who thinks this is insane? I’d rather have a very beautiful day with just our closest friends and family than to spend $35’000 on a wedding. What do you think about that? Write me in the comments down below 🙂
Do you find yourself making any of these mistakes?
It is not too late for you to change and fix them if you want to retire a millionaire.
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