Your 20s can be the most vibrant phase of your life. It is when you finally step into the workforce after studying for nearly a quarter of your life, where you can get to fully experience adulthood, earning your own keep, getting your first car or even starting your own family.
However, the world of credit and finances can also be daunting, especially when you are just setting out on your own.
If you are in your 20s, here are three credit mistakes to avoid which your 30-year-old self will thank you for.
1. Not drawing a budget and sticking to it
Earning your own keep is a great feeling, especially when you see the first big paycheck as compared to the part-time jobs earnings that you used to work for in your schooling years.
It is no surprise that one would often get too excited and spend all the dollars until it is gone.
The credit limit of that newly approved credit card may look tempting too, especially for a fresh graduate who had just stepped out into the workforce.
If you do not watch how you spend, though, don’t be surprised to find yourself buried in credit debt in no time.
Draw up a budget and stick to it. While a budget may sound restrictive, it can actually give you more freedom as it keeps you from overspending. You’ll have money ready when you need it.
Always bear in mind that you should spend less than you earn. A budget helps you to understand where to spend on. For instance, on essentials like food, and where it is best to go for the more economic choice, such as purchasing a used car instead of a new one.
The last thing you want is to be buried deep in debt when you are only in your 20s, and carrying your debt over to your 30s.
2. Not prioritising paying off credit card debt
Credit card debt may not be your only debt at this phase of your life. You may be worrying about paying off other debts such as your study loan, car loan or even mortgage.
Although a credit card allows you to just make the minimum payment amount and rollover the balance, it carries a much higher interest than other debts.
Many tend to take advantage of this revolving trait of credit cards and prioritise paying down of other debts first. They unknowingly accrue high interests on their card’s balance and end up finding it hard to clear their credit card debts.
So, prioritise and pay off your credit card debt. Swipe in moderation and spend within your means so you can pay off your credit card bill in full after settling your monthly instalment and bills.
Remember, the longer you rollover your credit card debt, the longer the interest accrues and the larger your outstanding balance will snowball.
3. Not saving for an emergency fund
Saving up for an emergency fund should be a major priority. You would never know when the rainy day will come, such as losing your job or facing a major car breakdown.
An emergency fund gives you the financial buffer you need to cover for a financial emergency. That way, you do not have to resort to using credit cards or loans to settle the ‘out-of-pocket’ expenses and land yourself in a high-interest debt.
Set up an automated process such as a GIRO system to transfer a portion of your monthly salary into another bank account to save up as an emergency fund.
That would be easier than spending your paycheck first and counting on saving the remaining amount at the end of every month.
Accumulate a ‘safe cushion’ of around three to six months of your monthly expenses. It is worth doing even if you are paying off your monthly study loan or mortgage.
Of course, if you have a high-interest debt like an outstanding credit card balance, clear these debts first before setting aside money to save up.
Your 20s is the best time for you to get in the habit of managing your credit and finances responsibly. Building good credit in your 20s will benefit you greatly for the long term, so start embracing good credit habits from today!
Check out your credit score today by obtaining a copy of your credit report from Credit Bureau Singapore (CBS) at $6.42 per copy.