One must have heard of the proverb ‘Ignorance is bliss’.

This especially holds when one is in the 20s-with new found financial freedom from a regular salary, breaking away from the shackles of student life and being part of the consumption bandwagon.

The last thing on one’s mind is to think about saving and investments!

In fact, they are only interested in thinking of the next purchase, largely driven by aspirations rather than need-based buying, a twenty-something is mostly living in a fool’s paradise, untouched by the harsh reality of inflation, escalating costs eating away one’s hard earned money.

Unaware of the importance of financial planning and most importantly, building a corpus for the future

In this article, we will look into the 9 mistakes that most people in the 20’s age group make that can have serious financial ramifications in one’s 30s.

1. Falling in Debt, Debt and More Debt!

 

You subscribe for a car loan, personal loan, home loan, credit cards etc.

But do you realize that debt is expensive money and involves repayment by way of EMIs? While it might be tempting to opt for borrowing, as an easy, instant source of funds, the price one pays is high.

Debt should not be availed just because one’s monthly income can support it. Gradually, debt becomes an integral part of one’s life, damaging ones financial position irrevocably.

Too much loan can lead to a vicious circle of a debt trap.

Consider an example of a 26-year-old, who rolls over her credit card bill after paying the minimum balance and then obtains a personal loan to repay the outstanding credit card dues.

This is plain foolish!

Firstly, the frequent borrowing habit fails to instill financial discipline of prompt payment of dues as one has access to instant credit money.

Secondly, postponement of one’s liability results in higher cost of interest. The list of woes with this kind of a debt spiral are endless. One must plan out a detailed strategy and pay of existing debt to the extent possible.

2.Failing to Invest

This is more of a blunder, rather than merely a mistake.

Investing makes money grow.

Especially when you are in your 20’s, you have fewer responsibilities (comparitively). This is when you must start off your investment journey.

Most investment plans work on the concept of systematic investment plan or SIP. This entails regularly investing small amounts for a certain period of time in return for a sizeable corpus on maturity. The money gets compounded over a period of time to generate decent returns.

One has several options to choose from with a wide range of investment management companies marketing products like mutual funds, equity, fixed deposits etc suited to the risk appetite of the investor.

With the bigtime advent of fintech, one can invest in products from the comfort of their homes. There are several online apps and websites, like Groww, through which you can invest in direct mutual funds for free.

which offer investment advisory with details of monthly premium payments, assured sum on maturity, returns offered, risk metrics etc. Armed with such extensive information, an individual can make prudent investment decisions.

Hence, one can make one’s hard earned money, work hard! The accumulated and augmented money can be utilized at a later point of time in the future.

However, many out of sheer laziness or lack of knowledge, start investing late in their life, which is an irreversible blunder. Still one can have hope. Afterall, better late than never!

3. Just ‘Saving’ Is Not Enough

A fundamental tenet of finance is high risk, high return.

Saving money can offer returns, in many instances lower than the inflation rate. This is like shooting oneself in the foot, whereby one is turning poorer each year.

Inflation is actually reducing the value of money. This is the significant difference between the real value of money and nominal value of money.

One should have a certain amount of money in saving instruments like liquid mutual funds, so as to access funds in case of an emergency.

Hence, it is advisable to diversify one’s financial portfolio giving higher weightage to investing, over savings.

4.Living Beyond One’s Means

This is plain dangerous and unsustainable in the long run.

Living a lifestyle, one cannot afford would break the bank. Further, in addition to an empty bank account, it would result in excess liability or being leveraged.

The harsh reality will catch up sooner or later and the impact would be hard-hitting. One can go bankrupt or be a financial burden to one’s friends and family.

Many times, one indulges in futile purchases just as a status symbol. This can cause financial ruin as one should cut the coat according to the cloth.

Spending needs money and money needs to be earned or borrowed. One can’t afford to be a spendthrift unless one is filthy rich!

So next time you want to buy that bag from Zara, think once again!

5. Not Being Financially Ambitious

This group belongs to the mindset of better safe than sorry. But you HAVE risks in life to be successful!

This group generally sticks to suboptimal avenues like plain insurance.

While insurance is a must, especially for the family, a high proportion of low-risk insurance is futile. One needs to take some risk in order to obtain optimal returns.

One should set ambitious financial goals in their 20s, as the risk appetite is generally highest in that age group. One is willing to experiment and learn from failures, which provides valuable monetary lessons for the future.

Ask any successful stock investor, chances are high that every profitable investment strategy has been achieved after several instances of burning one’s fingers in the stock market.

One should initially set manageable financial milestones and overtime one will be able to create considerable wealth over a period of time.

6. Perpetual Fear of Failure

 

There is a proverb that failure is the pillars of success. Hence, in order to succeed, one needs to be willing to withstand failure.

Youngsters especially like to take on challenges and push the envelope.

The recommended approach is to take calculated risks as against blind risks. This way one can also gain with a limited probability of failure. That’s how things are in life. There is no fail-proof guaranteed approach when it comes to making money.

7.Channelizing Your Interest Into an Earning Avenue

 

In today’s expensive times, it is in one’s own financial interest to develop a passive source of income in addition to one’s regular income source.

This is especially possible when one is in his or her twenties, when one can learn new skills, develop diverse talent, build upon one’s strengths and usefully channelize the same towards earning income.

The side business can even become one’s mainstay business, if the business idea clicks and revenues start coming in.

In today’s technologically connected world, one can grab business opportunities across the globe, without having to physically visit the client.

One just needs the relevant know how, which includes, a laptop and an understanding of the client requirement. Indeed, the world has become a smaller place.

8. The Side Hustle is Necessary

Warren Buffett once said, “If you don’t find a way to make money while you sleep, you will work until you die.”

A side hustle is one of the best ways to avoid such an outcome. In case the side occupation fails, since one is young, one can rebound back and try something else new.

Possibilities are truly endless in the 20s. One needs to grab them to ensure the 30s become a smooth ride, monetarily.

9. Not Consulting an Expert!

 

A 20 something often has the arrogance of believing that one knows everything.

This is not true. There are experts in every field, and it is vital to consult a financial planner to build a viable financial plan, suited to one’s needs and future financial milestones.

Many investment advisors prepare tailor-made customized financial plans based on the age group, income position and risk profile of individuals.

This can be very useful in planning one’s monthly budget and allocating one’s income as per priority of expenses. It is also prudent to take the advice of one’s parents, the in-house experts, as they have already been through the financial ups and downs of life.

One can ensure one does not repeat the monetary mistakes made by one’s elders. Time is the best teacher.

In conclusion, I would say, take full advantage of your 20s, dream and work towards achieving your financial goals, so that one day your thirty-something self will thank you for the smart money moves you made early in life.

Disclaimer: The views expressed in this post are that of the author and not those of Groww