5 Financial Mistakes To Avoid In Your Early 20s | FinCalC

The other day when I turned 25, I decided to list down the Financial Mistakes I made in my early 20s. I was amazed to realize how dumb I was to commit such mistakes.

Following are some of the mistakes that you must avoid:

1 - Buying Motor Vehicles On Loan
The cost value of vehicle depreciates over time. The moment you take your brand new vehicle out of show room, it's cost value decreases by 25-30%.

Nobody would want to buy your new vehicle at the same price you bought, on the same day.

"Motor Vehicle is a Liability. Don't buy it on Loan. It's a Bad Debt."

It's not just about buying a vehicle. You need to pay for Taxes, Insurance and Fuel, the accumulated cost of which is much more, than just buying a vehicle.

If you really need a motor vehicle, then save appropriate amount and buy it on cash, instead of buying on Loan and paying the EMI.

2 - Spending Before Saving
I was an out of control spender. My pay cheque wasn't enough for me due to my spending habits. At the end of the month, I used to eagerly wait for my pay cheque to spend on unnecessary things.

"You need to know the difference between your needs and wants. Most of our life, we spend money that we don't have, on things that we don't need, to impress people we don't like."

Example? The above point. Buying a motor vehicle, with money that we don't have, to impress others.

I realized this late in my life. Better Late than Never.

Follow the 50/30/20 rule:
"50% of your pay cheque goes into Saving.
 30% of your pay cheque goes into Spending.
 20% of your pay cheque goes in an  Emergency Fund."

3 - Not Using Credit Card Wisely
Credit Card is like a well, that Banks wants us to jump in to.

If you are not aware about How Credit Card works, then please educate yourself before opting for one.

Credit Cards can be used to Buy Things, for which you Pay Later. So you get an interest free period for things you buy.

But there is a catch. If you don't pay your full outstanding balance by due date, interest money starts getting accumulated at high interest rates.

Banks want Credit Card owners to pay for such penalties and it takes time to come out of Credit Card Debt.

"So use your Credit Card Wisely. Buy things only if you need them. Never withdraw cash using Credit Card. Pay your Credit Card Bills in full."

4 - Buying Liabilities instead of Assets
Asset is something that puts Money in your pocket. Liability is opposite. Liability takes Money out of your pocket.

Fresh graduates aren't much aware to categorize things in to Assets and Liabilities.

If you want to live a Financially Independent life, focus on increasing Assets and decreasing Liabilities.

Buy or create things that will put Money in your pocket. 

Don't buy Liabilities. They have recurring costs. Motor vehicle is a Liability. Buy only if you need it, for convenience.

5 - Not Tracking Monthly Expenses
Since I was an out of control spender, I never used to realize where I spent my pay cheques month after month.

I didn't have a Budget. No Tracking of Expenses.

"Tracking your expenses is important to realize where exactly your money is going. This will make you avoid unnecessary spendings."

There are majority of Apps available these days to Track your Expenses. Use them to avoid buying unnecessary things.

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