Ah, the 20s, the perfect age between childhood and adulthood! You are out of college, so you have more freedom than ever before. With your new job, you start making some money (finally). You are not yet strangled with responsibilities of marriage, late-career advancements or children. All you look forward to is enjoying this phase of life with your newly acquired freedom. While it's important to enjoy life in your 20s, it is also vital to avoid certain financial mistakes that may impact you later. Given below are few such mistakes that most people in their 20s make, and you should avoid.
1. Spending More Than You Make
Believe us; there is no fun in living from paycheck to paycheck. Much more terrible and one of the common financial mistakes is spending more than what you make. At the end of each month, when you find yourself in a pickle, it can become very stressful and cause substantial financial issues. So, if you are overspending, it's high time you learn how to stop this habit. Start by outlining and using a budget on a regular basis. This will help you track your money and give you greater awareness of your spending habits.
2. Having No Financial Goals
Most often we ignore our financial goals, especially, when we start earning. All we want to do is have a good time and not think of the future. However, you must know that setting financial goals in your 20s, ensures financial discipline right from the onset. If you don’t make a budget, write down your plans or decide what your financial goals are, you will most likely be irresponsible with your money.
The importance of having financial goals is that they provide direction to your savings and investment. For instance, if you want to buy a new laptop, pay off debt, or save for a car, you need to sit down and take a realistic look at your savings and how you can make things happen.
3. Not Maintaining an Emergency Fund - One of the most common financial mistakes
This is something that individuals of all ages struggle with. The primary objective of having this fund is to meet emergency cash requirements due to unforeseen circumstances like a medical emergency, losing a job or an unexpected car repair bill.
The absence of this fund may lead you to take loans or compromising your goals by dipping into your existing savings. Therefore, create an adequate emergency fund by setting aside your salary of at least three to six months.
4. Ignoring Life Insurance
When you are young and barely have money to pay for food and rent, having life insurance is definitely not on your priority list. But it should be. Most youngsters tend to underestimate the importance of having a life cover at this age. However, remember that you may be young, but you are not immune to life’s uncertainties.
One of the benefits of buying life insurance early on is that it will cost you less now than later. The reason is - life insurance plans, especially term insurance is cheaper when you are younger and healthier. Further, you have no idea how your health might change in the future, which could make getting a life cover much more expensive or even impossible. Ignoring this is one of the biggest financial mistakes.
Therefore, get yourself adequately covered by a life insurance plan at the earliest. Similarly, opting for an adequate health cover and insure yourself against the soaring health care cost.
5. Putting Off, Saving for Retirement
One major mistake that individuals in their 20s make is that they consider retirement planning to be a distant goal. Therefore, they often defer it for short-term financial needs or immediate lifestyle expenditures. However, spiraling inflation and rising life expectancy have increased the need for large retirement corpus. For that purpose, you need to invest in products that can generate inflation-adjusted returns and create an adequate corpus for your golden years.
Unit Linked Insurance plans or ULIPs perfectly fit this puzzle. ULIPs are investment plus insurance products that allow you to invest in equity, debt or balanced funds as per your risk appetite. Thus, along with a life cover, you also get the opportunity to build wealth by taking advantage of market-linked returns. Further, reputable insurers like Max Life Insurance provide benefits like switching facility, top-up facility, and guaranteed loyalty additions along with ULIP plans.
Remember that 20s are the perfect time to start investing in ULIPs. Starting early will allow your retirement corpus to stay invested for a longer time and therefore, benefit more from the power of compounding. Also, when you invest in unit-linked insurance plans, you become eligible for ULIP taxation benefits u/s 80C of the IT Act (up to Rs. 1.5 lakhs per annum).
Yes, the 20s is the phase of life which is meant to be for fun, carefree time, travel, experiment and even making some mistakes. After all, we only learn from our mistakes. However, making big financial mistakes at this stage can end up haunting you for the rest of your life.
Therefore, try to balance your present and future, by making the best decisions in your 20s. You will only thank yourself later!