Financial literacy is something that seems very complicated, especially for those that are in their 20’s. Since this is not something that is widely discussed, we tend to make mistakes that end up costing us a lot of money and prevent us from creating better habits. So, here are some of the most common mistakes I’ve seen during this time.
Not having a Budget
The first mistake to avoid is not having a budget. I’ve noticed myself and others often spend more than we should and then have to cut costs in other areas. I started a budget when I was at university, but I wish I would’ve done it sooner.
Schools don’t teach you how to budget, avoid bad debt, and if you have it, how to make a plan to pay for it. Setting it up to meet your financial state can take a little bit of time, but trust me, if you have 40 minutes to watch a series on Netflix, you can set time aside to create a budget.
There are many ways to set up a budget, so you should find the one that works for you, and it doesn’t have to cost you anything! YouTube has countless videos that show different methods. I’ve seen people use their bullet journal to track their expenses, while some divide their income and put it into envelopes, and there are others a little more tech-savvy that prefer to use apps or create tables on Excel.
To start, I recommend Aja Dang’s channel. She has a ton of videos on personal finance and how she managed to pay off her student loans—also, Patricia Bright’s channel, The Break, for everything finance.
In my case, I started by writing my monthly allowance, how much I wanted to save, and my expenses in a notebook. That method worked well for a while, but since I’m now in charge of the finances at home, I’ve found that Excel is a great tool for me.
Buying things you don’t need
I want you to be honest with yourself and answer, how many times have you bought something and never used it? In my case, this has happened plenty of times. I’ve purchased a lot of clothes that never left my closet and still have the price tag hanging on it. So, if this is your case as well, you may want to declutter your closet. And while you do that, you can even get some of that money back! One of my friends used to sell items she never used or no longer wanted. Apps like Poshmark and Depop make it easy to sell your items.
This advice is not only limited to clothing or makeup but can also apply to other aspects of life, such as groceries. I’ve seen people buy things to make one specific recipe and never used those ingredients ever again! Ultimately, they end up with a bunch of expired products in their cabinets. On other occasions, people tend to buy more than what they need, and that money goes to the trash. We should be mindful of this since there is so much food waste on our planet by creating a well-thought-out grocery list and sticking to it!
Paying for Subscriptions you Don’t use
With the increase of subscription-based companies, paying for subscriptions you don’t need is a common mistake 20 years olds make. Whether you forget to cancel your subscription on time or miss one of those emails saying that your annual subscription is about to auto-renew, It is a nightmare that can end up costing you a lot of money in the long run.
My best advice when it comes to keeping your finances in check is to look at all the subscriptions you are currently paying for to see which ones you genuinely use. If you have a workout streaming service, see how many times a month you are using it. Are you paying 30 dollars monthly for something you use once or twice a week? If that is the case, you should evaluate whether it is bringing value to your life or if that money could go to something that you want even more-maybe save up for a trip or if you are working on a business reinvest it.
Additionally, before committing to any subscription, opt-in for the free trial- companies offer anywhere from a 14 day to a 2-month trial, so take advantage of that time to see if you like it. If you use it during that time, you can keep paying for it or buy a plan that works for you. However, if that’s not the case, make sure to cancel it before they start charging. Also, keep in mind that some companies can change the dates in which they start charging for their service without notice, so be aware of that.
Paying a credit card with another credit card
To be quite honest, I don’t like credit cards very much. I’m very old school and prefer paying in cash because I can see when I’m running low on money. I use this strategy because I’m a visual person-but you have to do what works for you! I personally like my money where I can see it.
Credit cards can be beneficial when used correctly, but if you are not careful, you can end up spending more than you can afford on things that you may not need. It’s crucial to be honest with yourself. Do you genuinely have the money to back up the purchases you put on your credit card?
If not, that’s when the loop of very poor financial decisions starts. I’ve seen people open a credit card to pay for another that is maxed out. Most use this strategy but end up paying way more because they inevitably use both credit cards and have to pay not only the monthly payments but the interest rates as well. At that point, you’ve dug yourself in a hole. Paying for multiple cards when you can’t afford them is an unstable and uncomfortable situation, so save yourself from this and don’t buy more than what you can pay. And before having a credit card, check which bank offers you a card that works for your specific needs.
Going cheaper can be more expensive
In our 20’s we tend to believe that more is better, but with time, you realize that most things come down to quality over quantity. I’m not trying to say that you should buy designer clothes (unless you want to), but sometimes cheap clothing is poor quality and involves other social implications.
My approach to this matter is buying less clothing but of better quality. In my experience, brands like Zara offer amazing quality when it comes to coats, knits, and jeans. There are staples of clothing that you should invest in, including good pairs of shoes (maybe one for different seasons), a good coat, and a nice pair of jeans you can wear all year round and style in many different ways.
In conclusion, our finances are fundamental, not only do they teach us how to be more mindful of the things we want, but also help you be more organized. Managing money becomes easier with time and can even become something you like. Just remember to save the coin if you can, don’t spend more than what you can afford to avoid debt. If you have any other tips when it comes to managing finances, let me know.