6 Financial Mistakes You Should NOT Make In Your 20’s and 30’s
Certain financial mistakes you make in your 20’s and 30’s can cost you your financial well-being for your entire life.
Here are 6 mistakes that you should avoid-
1. NOT buying health or life insurance
Not buying term insurance in your 20’s, but at a much later stage, will require you to pay higher premiums, throughout your life.
The first and foremost step you should take in financial planning should be to mitigate risk completely. Only then must you talk about savings and investments.
You might save a lot.
You might invest a lot.
But one grave event like the pandemic, and it can wipe out all your savings and investments.
Several families, during COVID’19, suffered a lot because they did not have a term or health insurance. It wiped out their financial well-being entirely.
2. Undertaking life-style inflation.
Life-style inflation simply means that you have entered the rat race of buying a bigger car, bigger house, and so on.
There is no end to buying a bigger this, bigger that and soon you find yourself to be in that materialistic race.
You go to the office, receive a salary at the end of the month and then start thinking of the next thing you should buy.
This is a completely wrong approach towards money-management.
Now, you might ask, “What is the point of earning money if you can’t spend it?”
You obviously should make purchases, but you should do it mindfully.
If you want to buy an iPhone 13, sure go buy it.
But do it only if you have enough savings for it. Don’t purchase it on EMI.
Cash back offers, no cost EMI, these are all tactics to lure you into a lifestyle inflation.
Be a mindful spender in conjunction with how much money you’re making.
If you are making a big ticket purchase like a house or a car, do a thorough analysis.
Understand why you are buying that house.
Is it from an investment point of view?
Or, is it from a living point of view?
Analyzing your purchases will help you make more well-informed decisions.
Long story short, avoid getting into lifestyle inflation for as long as you can.
3. Not creating an emergency fund.
It is generally recommended to have 6-12 months of savings intact, so that incase of an emergency (being fired), you can take that time to look for another job and again get back on the bandwagon of making money.
Again, this 6-12 months time period might not be absolutely correct.
It depends on your current lifestyle, your lifestyle inflation and the extent to which you can cut down your lifestyle inflation.
Let’s say your current expenses are around 60,000 rupees, but you know you can bring it down to 30,000 rupees.
In this case, you probably don’t need to save 12 months of your salary.
If you want to create an emergency fund in case you lose your job, saving 6 months of salary would do.
On the flip side, if you have fixed necessary expenditures, like paying fees for your children, it might become mandatory to have a larger emergency fund.
Also, do not confuse an emergency fund with a retirement fund.
The former is to deal with emergencies like loss of a family member or loss of a job. Or maybe there is a health emergency.
Retirement fund is the money you will require once you stop working.
Hence, a little money should go into each.
4. Depending on only ONE source of income
Your employer might say you are like family, but the first sign of distress, and it is the employee who takes the brunt and is fired.
Hence, it is very important to create multiple sources of income.
It could be writing an e-book.
Creating a course.
In today’s day and age, especially in today’s start-up culture, relying on a single source of income is not a good idea.
A majority of start-ups only tend to care about valuations and can fire people very easily.
In a COVID like situation, your startup is not going to support you. They have investors they are answerable to. You are responsible for your own self.
In today’s climate, creating multiple sources of income has become easier than ever.
Analyse your skills, understand what you can monetize and simply start executing.
If you depend on only one source of income, you will always have that sword hanging over your head and will end up living a very stressful life.
6. Not following the 80-20 rule.
It simply means that to generate 80% of results, you need to put in only 20% of efforts in the right direction.
For example, if you have your UG semester exams in 4 days, and you have yet not begun studying, the best thing to do would be to only solve the last 10 years papers.
Frantically going through all your notes and textbooks will do no good.
This rule can be incorporated into every activity in your life.
In summary, your financial well-being in your 20’s and 30’s depends on your habits.
Your habits of-
Mitigating risk by buying a term insurance early on
Not engaging in a high inflation life-style
Creating multiple sources of income
Following the 80-20 rule
So on and so forth. 🙂
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