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20 Things You Should NOT Do in Your 20s

Your 20s are an important part of your life. The knowledge and experience you gain, the habits you develop, and the people you connect with will shape your future. In this blog, we will look at 20 things you should NOT DO in your twenties.

1) You Should Not Avoid Risk

There is a big difference between not avoiding risk and being careless. There is good risk and there is bad risk. Good risk makes you stronger, bad risk makes you weaker. Hanging out with drug dealers is bad risk – it may make you richer in the short term, but in the long term it could destroy you. Starting your own business, investing in the stock market, and investing in cryptocurrencies are good risks because you are putting yourself in a position to build your wealth and become financially independent. In the world of investing, if you do not take risk, you will not earn a return. If you hide your money under your mattress or leave it in your bank, you will lose money because it will be eaten up by inflation. If you invest wisely, your returns will compound over time and you will get rich.

2) You Should Not Buy a Car

There is no love in owning a car – there is love in driving a car. Car ownership opens your life to a world of complications – pushy car salespeople, rapid devaluation, hidden fees, and costs, insurance, taxes, gasoline, maintenance, repairs, fines, and parking. In a world where there is a plethora of renting and sharing options, and public transport, who in their right mind would you want to buy? A car is not an asset – it is a liability that drags you down and holds you back in your journey to financial freedom.

3) You Should Not Buy a House

Homeownership enslaves people financially. Unless you have millions of bucks in your bank account, you will need to borrow money to buy a house - a mortgage bond. Mortgages are the single biggest obstacle to financial freedom. To make matters worse, most people believe their home is an asset. Robert Kiyosaki, in his book Rich Dad Poor Dad, says the asset/liability test is simple. Assets put money in your pocket. Liabilities take money out of your pocket. If you living in a house, and it is mortgaged, you are paying rates, taxes, and interest on the loan. It is a liability. But property prices always go up. That is a fallacy. Real estate is like any asset – its price can rise or fall and if you are banking on your house price appreciating in value, welcome to the world of speculation. Real estate is a very powerful income-generating asset, but it is only an asset when it generates income and puts money in your pocket.

4) You Should Not Get Caught in Get-Rich-Quick Scams

There is no quick and easy money. Winning the lottery is quick, but not easy. Do not be fooled into believing you can become a millionaire overnight. Getting rich takes time and discipline. Two common get-rich-quick financial scams are forex and stock trading. You may get lucky and win on some of your initial trades. This will get you hooked and the path thereafter is predictable. Nine times out of ten, you get carried out and lose large chunks of money. Trading is not going to make you rich and financially free – investing is going to.

5) You Should Not Get into Bad Debt

There is good debt and bad debt, and the quicker you learn the difference, the better. Bad debt is expensive and is not used to invest. If you use your credit card, which charges an interest rate of 32%, to buy a pair of Gucci loafers, that is bad debt. If you borrow at a 10 percent interest rate and invest in an asset that pays a yield of 15 percent, that is good debt.

6) You Should Not Mess up Your Credit Score

You have heard the saying: it takes 20 years to build a good reputation, and only 5 minutes to ruin it. The same is true about your credit score. Financial advisers tell you debt is bad and credit cards are evil. Credit, however, makes the world go round. Your access to credit is an important part of financial freedom. If you need to expand or scale your business, debt can help you do it. The best way to build your credit score is through the smart use of credit cards. There are two ways to increase your credit score with credit cards. Firstly, don’t use more than 50 percent of the limit. If the card limit is 10,000, only use up to 5,000. Secondly, pay off the full balance of the card every month. All this good work on building your score can be destroyed if you start missing credit card payments.

7) You Should Not Ignore Insurance

When you are in your 20s, you feel bulletproof but you need to be prudent. No one likes to buy insurance. We don't want insurance but we know that we need it. It is prudent to transfer specific risks to a third party. You take enough risk in life – it is not prudent to expose yourself to additional risks that can easily be covered. If you do not insure the risks over which you have no control, you are placing yourself at unnecessary risk.

8) You Should Not Sign Personal Guarantees

The moment you sign personal guarantees for your business or a third party is the moment you place your personal assets in danger. However, avoiding personal guarantees is easier said than done. If you are starting a business, your business has no credit track record. For the banks, you are a rookie at business although you may have a strong personal credit record. Bankers, therefore, require that you pledge your personal assets to guarantee your business credit. The strategy you need to pursue is the following. You need to build a solid credit record of accomplishment in your company. You then need to start fighting with the banks to release those personal guarantees.

I know businesspersons who have signed personal guarantees when they start their businesses and then forget about them. Do not forget about them – this is not like your wedding anniversary. You need to fight with the banks to release them as soon as the company's credit can stand on its own two feet.

9) You Should Not Invest in What You Don’t Understand

There is no shortage of fancy investment vehicles out there. There is a simple rule that can be applied – if you cannot explain the investment of a five-year-old in one sentence, it is probably too complex. Another rule that can be applied is counting the number of “ifs” in the product description. For example, if x happens, you will receive y. However, if z happens, then you lose w. Binary options are becoming popular – these are complex derivatives that should only be traded by professionals.

10) You Should Not Buy Products on Installments

“Buy this big screen TV on 36 easy monthly installments”. It is very tempting to fall into these marketing scams. The problem is that these in-store deals are normally financed at extremely high-interest rates. The TV may cost 5,000 outright, or 36 monthly payments of 300. On the surface, this looks like a great deal, but if you do the simple maths, you will see that it is a rip-off. You will end up paying more than double the price of the TV in 3 years.

11) You Should Not Make Money Your Why

If money is your why, it will become an endless source of anxiety. The thirst for money is insatiable. If money is your why, you will never be satisfied. Money becomes your master. It rules your mind, your actions, and your desires. You need to flip this relationship. You must become the master of your money and it must work for you. You are in control. Money works for you and you in turn work for a higher purpose. You need to find that higher purpose. It could be to provide for your family or give back to your community.

12) You Should Not Have No Idea How Your Spend

Most people are clueless how they spend their money. They may know how much they spend on rent and other big item monthly expenses, but they don’t know how they spend on groceries, entertainment, medical, transport etc. If you have no idea how you spend, that ignorance means that you have little or no financial discipline, and without financial discipline, there can be no financial freedom.

13) You Should Not Spend More than Your Earn

This is a habit cannot be sustained in the long term. It is simple mathematics. The only way it can happen in the short term is if you borrow from a bank or your parents. Over time, it becomes more and more difficult to change this habit because that habit has become more natural to who we are and how we act. And research shows that we automatically favor what is familiar to us—even if we know it's not to our benefit. The challenge is creating a new normal, which involves behavior change. Think about dieting: if you've spent years and years eating the same way, it's obviously very tough to change that pattern. That's true even if you want to change, know you should, and understand what the new pattern would look like.

14) You Should Not Ignore the Importance of Small Changes

Getting rich does not require you to make dramatic and radical changes. You need to make small long-term changes and compound them over time. Let me explain with a simple example. Let’s say you live in Cape Town buy a coffee every morning from your corner coffee shop that costs R30. Let’s say you decide, instead of buying that coffee every day, you go to your grocery story and buy coffee pods that cost you R5 per day, and you invest the R25 in the stock market that pays a return of 10 percent per annum. After 30 years, you will have R1.7 million!

15) You Should Not Go to University*

This comes with a big caveat. There are certain career paths where a university degree is an absolute necessity, for example, becoming a brain surgeon. There are others in which employers are more flexible. In 2018, job-search site Glassdoor compiled a list of top employers who no longer required applicants to have a college degree. The list included Google, Apple, and IBM. In 2017, IBM’s vice president of talent, Joanna Daley told CNBC that 15 percent of their U.S. company hires do not have a four-year degree. Technology companies, however, were not the first to recognize the limitations of a university degree. In May of 2015, Ernst and Young, one of the big four accounting firms, announced something that surprised everyone. It would remove the degree classification from its entry criteria because it found 'no evidence of a positive correlation' between academic success and achievement at the company. The market value of a university degree has declined while the cost of that education has increased.In the 1980s, a college degree almost guaranteed a job in a specific field of study. This is no longer the case given the higher number of degrees and the shrinking number of jobs on account of technology and automation.

16) You Should Avoid Cheap Stuff

Frugality, minimalism and austerity are good attributes for those that want to be financially free. But there is a difference between being frugal and being cheap. There are a few things that you should never buy on the cheap, such as appliances (if you buy cheap, it is likely you will soon need to replace it), mattresses (just think how much time you spend on it), personal safety items (like helmets) and professional services (the good one’s cost money for a reason - they have the proper education, experience and credentials).

17) You Should Not Take Financial Advice from Idiots

The barriers to entry into the financial advice market are low. Everyone wants to be an influencer, and everyone is generous with their advice. You need to consider the source of this advice. TikTok has become a fertile breeding ground for misinformation on personal finance. Here is a sample of the worst advice I could find: “starting a corporation can help you to avoid paying taxes”, “anyone can teach themselves how to trade stocks and make millions’, “buyer into newer cryptocurrencies early will make you richer quicker”, “it is impossible to lose money investing in real estate”. All this advice is completely false and should be avoided like poison.

18) You Should Not be Gullible

This links back to the previous point, If something is too good to be true, it probably is. When an investment “guarantees” a high return, that is a red flag. The only investment that can truly guarantee a return is a treasury bond issued by the United States Treasury – and even that guarantee is starting to look a little tarnished as the US continues to rack up trillions of dollars in debt. A US treasury can guarantee you a return of around 1 percent. This means that any guarantee above that 1 percent, needs to be questioned. This is my rule of thumb – I am nervous of a guaranteed return between 5 and 10 percent, I am extremely nervous of a guaranteed return between 10 and 20 percent, and any guaranteed return above 20 percent is a scam or highly risky.

19) Do Not Buy a Retirement Annuity

Retirement annuities are horrible investments.  The only beneficiary is the annuities salesman. According to billionaire investor Ken Fischer, if you invest $1 million in an annuity you will put a kid through private college. The problem is that it is not your kid. It is the kid of the annuities salesman. Fisher says you would be better off cutting a check directly to the salesperson and then investing the balance directly in stocks and bonds.

Do not be fooled by the sales rhetoric. Annuity salespeople will regale you with the tax benefits, the power of compounded growth, the discipline of saving (a lie that we have debunked), supporting your dependents and long term stability. If you are financially educated and disciplined, you can do better with direct investments. Annuities are black-box investments – there is no transparency and accountability of results. The fees are bordering on criminal.  Moreover, when you retire with that annuity, you will get a stream of income akin to a quaint Scottish brook. You deserve the whitewater rapids on the Zambezi River.

20) You Should Not Believe that All Banks are Safe

Banks can fail, even high quality banks. We learned this in September 2008 when Lehman Brothers, an A rated bank went to the wall. Even though banks are highly regulated entities, one should not overestimate the skills and intelligence of the people that are applying and enforcing the rules. If you have your savings in a bank (which is not a good strategy due to the low levels of interest rates), make sure that the bank is safe and secure.

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