Your 20s are the best years to build up wealth…use those years wisely.
Throughout my time interviewing people on the Breakthrough Success Podcast, I’ve come across people who built their wealth in their 20s and people who didn’t think about financial independence during those years.
Unsurprisingly, the people who didn’t plan their finances in their 20s often spoke about it with regret.
It’s your 20s where your cost of living can be at its lowest. You can live with your parents, borrow one of their cars rather than buying your very own, and not have to pay for food.
Each person’s living expenses vary, but living with your parents is an easy way to cut down most of the typical expenses.
Most people don’t learn about building wealth in school. Rather, they learn through experience…for better or for worse.
This article will help you avoid some of the most common money traps that can create a serious dent in your finances.
Money Trap #1: Spending On Flashy And Unnecessary Stuff
You don’t need the new car, the bigger house, or the high end fashion.
If you have a roof above your head and an interior set-up you’re happy with, your house is good enough.
If the car moves smoothly, your car is good enough.
If the clothing fits and you like the way it looks, the clothing is good enough.
When it comes to your spending, good enough is fine. Some people prefer to make a fashion statement or drive a luxury car to get attention. If their neighbor gets the luxury car, these people can’t get outdone. They’ll get a luxury car too.
While most people in their 20s don’t have the financial flexibility to think that way, leaving this money trap unchecked can lead to that type of behavior in the future.
On each purchase, ask yourself an honest and brutal question, “Is this purchase worth derailing my efforts to building wealth?”
The $20 you spend on a t-shirt can’t go into your portfolio. Some purchases — experiences in particular — may be worth it, but most aren’t.
And you don’t have to spend a ton of money on experiences either. Building wealth now makes it easier to have incredible experiences later on because you’ll have the financial flexibility to bring those experiences to fruition.
Money Trap #2: Not Paying Off Your Debt
This one is a financial killer. Most people talk about the compounded effect of investing $1,000 (or some other amount) at an annualized 8% return.
Not as many people talk about being $1,000 in credit card debt with a 17.89% interest rate. That also compounds…but not in a favorable way.
Not all debt is bad debt. If you buy a house and lock in a low interest rate, it doesn’t make as much sense to pay off that debt.
Mark Zuckerberg of all people is still paying off his mortgage. He could have bought his house in full, but it’s a terrible investing decision that will hurt your wealth.
But a credit card debt with a 17.89% interest rate…that needs to get paid off immediately.
Debt will compound at a faster rate than typical stock market returns which means you can’t necessarily invest your way out of this mess. If you are deep in debt and pay high interest rates, you need to make some dramatic lifestyle changes to pay off that debt.
While buying a multifamily property and bringing in tenants is a great strategy for anyone, it becomes more urgent for people taking on debt. You need every possible income stream you can tap into, and your property is one place to look.
If you can’t buy a good or service without going into debt that would be difficult to pay off, you shouldn’t buy that good or service.
Money Trap #3: Not Thinking Of The Long-Term
If you fall into the other two money traps, you are guaranteed to fall into this one.
It escapes many people in their 20s that they will eventually be in their 60s. I know, not the most exciting thought activity for people in their 20s, but you’ll still have expenses to pay at that time in your life. You might also want to retire.
Have you noticed that some people work into their 70s and 80s because they can’t financially retire? Have you also noticed that some people retire in their 40s? It all comes down to planning and thinking over the long-term.
You should still enjoy your 20s. There are plenty of ways to enjoy life without burning through your cash. Stay conscious about every dollar you spend. Why are you making this purchase? Is it worth a detour on the road to wealth?
The best thing you can do is track your income and expenses. This will allow you to get clear on how you utilize your money and your total profit each month.