“Savings? Ummm, I’m working on it, I guess!”
That’s exactly how most of 20-something year olds react when their parents ask about how or if they’re planning their finances! As soon as pay day comes around, it’s straight to the laptops for some click therapy at the favourite online store or out to the pub for a night out with the guys and gals. There’s hardly any thought given to building a secure and comfortable future and why would there be? Dad and Mom are sure to come to the rescue in case of trouble, right?
Thinking only about the present is a great thing to do, but sadly, this concept doesn’t apply when it comes to managing your finances.
If you’re a 20-something year old and have some luxurious retirement goals and a huge bucket list of things you want to do before you’re too old, you need to start planning your finances, right from the very beginning. It’s a great idea to start as soon as you become financially independent, which is most likely in your 20s.
Let’s analyse some common financial habits which most 20-somethings have.
The good ones
- Making a monthly budget and sticking to it.
Do you pen down a monthly budget before spending your salary left, right and centre? Not really, right? To keep your finances under control, one of the best habits to cultivate is making a monthly budget and sticking to it. Keep all your priorities and necessary expenses in mind and draft a monthly budget accordingly. Things like rent, petrol money and grocery expenses should obviously take priority over stocking your fridge with booze or shopping unnecessarily, just to make the most of that sale on your favourite brand.
- Clearing all debts every chance you get.
We often borrow money from friends. Sometimes for necessary things and sometimes unnecessarily. Although we all need to borrow money once in a while, it’s advisable to clear all debts every chance you get. The problem with debt is that it keeps piling up and we tend to develop a casual attitude towards it. Never let that happen. It’ll not only affect your monthly budget, but will also spoil your relationships with people. Your friends might not like you much if you keep asking for money, without paying them back on time.
- Building an emergency fund.
An emergency could be anything! From not getting your salary on time, to some unforeseen medical expenses. No matter what the emergency is, having some free cash handy always helps! This emergency fund could be saved in the form of a Fixed Deposit or be put into Debt Funds. Naturally, it should only be dipped into when you really need it. Whatever it is, always keep the possibility of bad days in mind before spending unnecessarily on things you won’t even use later.
- Paying off your Credit Card bills every month.
To keep your finances in control, one of the best habits to cultivate is paying off all your Credit Card bills on time. If you miss payments or pay late, you will end up spending way more than required.
- Investing right to save for retirement.
Most 20-somethings have absolutely no clue about investments and how important they are. If you’re one of those, you need to start exploring your options right away! There’re a lot of simple ways to invest! In fact, these days you can do everything online. If you’re not aware of the latest trends in finance and confused about where to invest, talk to an expert. Whatever you do, stop procrastinating and just invest wisely to get maximum returns later.
- Setting financial goals for yourself.
When you have a goal in mind, it becomes easier to save. If you have a dream car in mind or a luxurious bungalow you saw somewhere, strive towards being able to afford them one day. To see your money grow by the day, you need to have a vision of your short-term and long-term financial goals, and sitting at the driver’s wheel of your dream is enough motivation to save better, isn’t it?
- Spending according to your needs, not your wants.
Buy something only if you need it. This is a concept most of us don’t really understand! Need and want often appear to be the same, but are not. In our 20s, we often tend to buy things that we don’t need, but want to flaunt just because a friend has something similar. Understand the difference between need and want and plan your spending accordingly. Don’t be sad! This doesn’t mean that you can’t pamper yourself. Do that, but only when you know it won’t hurt your pocket.
The bad ones
- Living pay cheque to pay cheque.
One of the worst financial habits of most 20-somethings is that instead of saving some part of their salary, they live pay cheque to pay cheque. No matter how well they earn, they just can’t seem to save! Being broke and calling your parents for help at the end of every month isn’t cool, is it?
- Spending on unnecessary things.
If you lack the ability to prioritize well, you end up spending on things that are not at all important. This is precisely the reason you always find yourself broke at the end of every month and totally clueless about how that happened! So remember, savings and investments first, everything else later!
- Not keeping an eye on your expenses.
The real reason you can’t save is that you’re clueless about how much you’ve already spent and what your budget limit is. Since you’ve no idea about where the money is coming from and where it’s going, you aren’t able to plan well.
- Relying on your parents.
One big mistake that most of us make is—relying too much on our parents for financial support. Get rid of this habit and get on started on the road to financial independence by building your own finances.
- Caving-in to peer pressure.
Most of us in our 20s like to do as our friends do. Be it buying the latest gadget or going on a luxurious vacation, we want to do it all. Trying too hard to fit in, could cost you money. Weigh the odds before caving-in to peer pressure.
- Being financially illiterate.
To manage your money right, you need to have a clear idea about various financial schemes and investment options like ELSS funds, SIPs etc. If these terms sound alien to you, you might be in trouble! Start exploring your options and start saving today. The BankBazaar blog is a good place to start if you’re looking for the basics.
Additional Reading: 5 Money Mistakes The Young Make And 5 Kickass Solutions
If your habits fall under the ‘good’ category, you can afford to sit back and relax. But, in case they don’t, you need to buckle up and reform the way you spend, immediately!