FOR better or worse, the decisions you make with money as a young adult lay the foundation for your financial future.
Smart decisions can pay off for decades, while mistakes can cost thousands of dollars over time.
One of the best investments you can make is financial literacy – learning how to manage your money.
The more financial knowledge you have in your twenties, the better off you will be for the rest of your life.
To that end, Los Angeles-based actress and content creator Asia Jackson shared a YouTube video in November 2021 detailing five financial mistakes she made in her twenties.
With each mistake, Asia gives advice to other young adults to improve.
Her issues are common pitfalls for young adults, and the lessons she learned can help you manage your money smarter.
1. Buy unnecessary luxuries
Far from advising against luxury shopping altogether, Asia considers it a mistake to spend a lot of money on items you won’t use often.
The example Asia cited was spending $600 on Louboutin stilettos in 2016 that she hadn’t worn yet when she posted the video.
On the other hand, Asia is not afraid to spend the money on a designer handbag that she will use almost every day.
As she points out, many young adults have the financial independence to buy their own things for the first time in their early 20s, and sometimes use that freedom to buy things they don’t need or don’t. do not want.
Evaluating purchases based on utility is a good way to eliminate unnecessary luxury spending.
2. Not Monitoring Accounts
Asia said she often lost money to overdrafts and late payment fees in her early 20s, mostly because she didn’t regularly monitor her account balances.
Gen Z and Millennial bankers pay an average of $19.13 and $15.55 in monthly fees, respectively, according to a Bankrate survey, showing Asia is far from alone in this money mistake .
Older generations pay a fraction of the cost — Gen X is the next worst-hit cohort at $4.48 per month — at least in part because of the financial experience and knowledge they’ve gained over the years. decades of money management.
3. Not investing
It’s hard to pinpoint the exact cost of not doing something, but not investing is a costly and common mistake for young adults.
“Every minute you don’t invest your money, you lose tens, sometimes hundreds of thousands of dollars,” Asia warned.
As a hypothetical, imagine a scenario where you start investing $50 per month in the market at age 25, and another where you start at age 30.
Assuming that in both scenarios you earn the historical average return of an equity investment – 10% – and that interest in your account is compounded monthly.
At age 65, you would have $316,203.98 if you started investing at age 20 and $189,831.90 if you started at age 25.
Try using an investment calculator to see what a difference a few years can make.
Going public, especially when your disposable income is limited, can be daunting, but small, recurring investments can reap huge rewards down the line.
However, do not invest more than you can afford to lose and be aware that this is not a guaranteed way to make money.
4. Overspending on rent
Asia notes that most of her income came from freelancing in her early twenties, and as a result, her salary was erratic.
Many financial advisors warn against spending more than 30% of your income on housing.
Although her rent would have been less than a quarter of her income if her earnings were stable, Asia said she regrets paying as much as she did when her cash flow was erratic from month to month. ‘other.
5. Not budgeting
The lack of a budget, coupled with the earlier mistake of not watching her accounts closely, led Asia to feel like she had poor control of her finances.
“I was looking at my account and I was like, ‘Oh, I have so much money, so I can afford this designer bag,’ but two weeks later I have to pay rent,” Asia said.
Budgeting can help you identify areas where you’re overspending and give a good visual representation of where your money is going.
Once you’ve established your budget, you’ll be able to spot and avoid many other financial mistakes you might make.
Bonus: Three financial successes
After pointing out some of her financial mistakes, Asia talks about three things she did well in her twenties, all of which were great financial decisions.
Two were savings goals: Asia saved six months of expenses before moving on her own, and over time built up an emergency fund that would cover a year.
Saving enough to cover unexpected expenses is a major step towards financial stability and a big goal to achieve in your early 20s.
Also, Asia has never bought a new car.
New cars lose value faster than almost any other product. Therefore, avoiding a major auto purchase is generally a smart financial decision for young adults.
For more budgeting tips for young adults, check out a financial expert’s advice on how to budget when moving house.
And another financial influencer shared three more financial mistakes for young adults to avoid.
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