The twenties are an exciting period in life. You’ve finished college and you’re excited to get out into the world, make your mark, and start living! You don’t have much money now, but you plan to acquire a lot and make it work for you so that by the time you retire, you’ll be able to travel the world or simply split your time between Florida and Hawaii. However, your lack of knowledge where money matters are concerned could be your undoing if you make mistakes early on. Here are 10 to avoid when it comes to managing and investing your capital.
- Risky investments. We can’t all be Gordon Gekko and storm Wall Street. While it can be tempting to invest in hot stocks and then swoop in to take your cash before the bottom drops out, you’re equally apt to lose it all.
- Lack of diversity. You certainly don’t want to put all your money into high-risk stocks, but you could put a portion in as part of a diverse portfolio. By spreading your money around, you’re much more likely to see sustained growth over time, if not from one area, then from another.
- Loaning to family and friends. Have you ever heard the saying “don’t mix business and pleasure”? Never a truer phrase was spoken. Nothing but bad blood and damaged relationships can come from this type of investment, no matter how solid their business plan appears.
- Renting instead of buying. Some people claim that by renting a home and setting up a savings to purchase one down the line you will actually spend less in the long run. This is great if you actually save the money (most of us never will). Instead, shell out for the down payment and when it comes to the interest, just suck it up. In 30 years you’ll have an asset that’s worth more than you paid for it.
- Ignoring your budget. Setting up a budget is an absolutely essential element of money management. By neglecting to do so or ignoring the budget you have, you’re only hurting yourself.
- Entrusting your capital blindly. You can (and should) pay someone to manage your investments (unless you plan to become a stock broker). But you should always keep track of where your money is going and how it’s being invested. The wisdom of keeping yourself apprised of your own affairs cannot be overstated.
- Not saving for retirement. Whether you’re contributing to a 401K or putting extra cash into a Roth IRA, you need to shoot for time in the market rather than timing the market. In other words, you need to contribute regularly from an early date (you should start in your twenties) rather than waiting until the market is good to start.
- Counting on inheritance. You never know when it might show up or how much it’s going to be, so don’t wait for Great Aunt Gerty to kick the bucket before you start your own life. Build up wealth now and your inheritance will be icing on the cake.
- Over-spending on life insurance. Buy term and invest the rest. In the culture of fear that invades our society, it’s all too easy for insurance brokers to talk young people into investing in whole or universal life insurance (which is the most expensive option). However, you can get the same amount of insurance for a fraction of the cost if you choose the term option (which will expire within a number of years). The thing is, by the time 20 or 30 years have gone by and your insurance policy expires, if you’ve been putting your extra cash into mutual funds, you’ll have enough capital on hand to cover the amount of the insurance (and you’ll have total control of your money).
10. Foregoing savings. Whatever else you do with your money, sock some of it away for a rainy day. While a savings won’t earn you nearly as much as some other options, you’ll be grateful to have it should you lose your job, suffer a house fire, or get struck with unexpected medical bills. The standard is a minimum of 3 months’ worth of bills payments.
Sarah Danielson writes for Ask Deb, where you can find Pizza Hut coupons, Chuck E. Cheese coupons and tons of other great deals on your favorite eating and shopping establishments.
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