Why these Money Traps will destroy you
Ah, the 20s. Ten years of fun, joy, video games, dreams and hobbies. But who knew that those ten, tiny years would decide the destiny of most of your remaining life? In this video I prepared a list of the 10 worst money traps that you must absolutely avoid in your 20s.
I’m going to leave out of this list the typical traps like spending more than you earn, getting into debt or non investing. Not because they are not important, in fact, they are the most important, but because I spoke so often and in detail about them in the other videos that there’s no need to repeat them here.
1. Leasing a brand-new car
Now, the first money trap that each one of us went through is the desire to have a brand new, shiny car. As soon as you start getting your first paychecks there’s a car behind the corner telling you “Buy me”. And since cars are usually expensive they came up with the intelligent solutions of car leasing. With only 500 to 1,000$ per month you can have a brand new car of your choice and finally impress your friends.
Now, I do understand the desire: driving a nice car makes you feel better, you have the nice feeling of driving on clean, fragrant seats but the truth is that, from a financial perspective, a car is the most outrageous liability you can have in your 20s and there is no entrepreneur and no businessman that is going to tell you otherwise. There are basically three reasons for that:
First of all a car is not an investment, it’s a liability. Whatever money you spend on a new car, on average after 3 years it will have lost almost 60% of its value.
Second, that great feeling of driving a beautiful new car dissipates pretty soon after you start driving it. The strong feeling is actually the desire of having it, not the pleasure of driving it. And what lasts are just the monthly payments.
And the third is a pure financial reason: if you lease an average nice new car for 500$ per month you are going to spend 6,000$ per year and if you do it for 10 years between your 20th and your 30th birthday in the end you’re going to spend 60,000$ only in leasing costs.
Now imagine everything that you could do with those 60.000$. Maybe one day you’d like to start a business, or use them as upfront payment for a flat, or invest them in an index fund like the S$P500 and find yourself with almost 100.000$ portfolio at your 30th birthday. Wouldn’t be bad, no?
2. Playing the Lottery
Second money trap is what inspired the new motto “Get rich or more likely die trying”, playing the lottery. Lotteries are made in a way that it is really easy to win something but almost impossible to win big amounts.
The fact that someone at some point somewhere in the country manages to win the big jackpot is the trap that deceives everyone. Let’s take the Powerball for example. The odds of winning any jackpot are never in your favor, from a statistical point of view. That means that whatever the jackpot is, you are usually going to have to spend more than the jackpot to be sure to win.
For example the odds of winning the big jackpot of the powerball is 1 every 292,201,338. A Ticket costs 2$ so you’re going to need to spend almost 600 million Dollar if you want to be sure to win.
To put that into perspective, the annual risk of being killed in a plane crash for the average American is about 1 in 11 million, and the annual risk of being killed in your car is about 1 in 5,000. So you are more likely to die 26 times in a plane accident than winning the powerbowl. This is why they say Get rich or die trying…
Instead of spending your money on the super-rare chance of winning more money, try to get rich the right way.
3. Not building an emergency fund
The next trap is related to the idea that, since you have a salary, you’re always going to have enough to live off the month. Unfortunately, more often than not unexpected emergencies happen. Washing machines break, your car breaks, or a health problem, or maybe you just need some money to start a business or because you are going to have kids.
When you are used to spend your salary every month it’s hard to start putting money aside in an emergency fund, but it’s a step that you need to take in your early 20s because it’s going to support you in so many moments in the future and you are going to be grateful you thought about it.
4. Planning a wedding you can’t afford
For the number 4, probably some ladies are going to be mad at me, sorry but I have to say it. Planning a wedding you can’t afford is a money trap you don’t want to fall for. Now, I understand that a wedding is an important day that happens – hopefully – once in a lifetime, but the concept of not paying more than what you can afford is still valid.
What good is an expensive wedding, that by the way for bride and groom goes by fast like the wind, if you and your spouse then have to pay the consequences for decades?
So I’m not saying to just get married at city hall and do nothing else. I know how important it is for the bride to have a beautiful day. Bu t the beauty of a wedding is not dependent on the amount of luxury you have. So come up with a budget and look at your options based on the money you have and what you and your partner really need before saddling yourself with long-term debt.
5. Subscription Scams
Number 5 is subscription scams. – Hi we want you to be rich, would you like to get daily tips on where to invest? – No thank you I’m not really interested – But it’s free for the first month and then you are just going to pay cough .thousands. Ok, you convinced me.
I can assume that most of you wouldn’t fall prey to a phone scam, but the internet is also full of scams and sometimes they are not easy to recognize.
Usually what happens is that you are offered a free trial on something but it’s not clear up front what the cost will be after the trial period ends.
Many shady clothing websites for example use this tactic. They sell you a subscription with which you’re going to buy clothes at a discount and they are going to omit information about how much you are going to pay after the trial period ends. And then after a month or two you check your credit card and find out that they are starting to rip you off.
Problem is: most of these websites make it impossible for you to contact them and cancel the subscription, and in the end you try to solve it by closing your account and that’s often not a good idea.
In general, I would suggest avoiding all subscriptions except the ones that are so famous and reliable that even your dog knows them, like Amazon Prime, Netflix or similar. But while we’re on the subject: Make sure to budget for your subscriptions! An app here, a subscription there, it adds up fast and in the end you start spending 50-100$ per month on subscription services.
6. Get Rich Quick Scams
Number 6 is also a scam, and you probably saw it many times as advertising every time you open a new youtube video: the so-called get rich quick scams – or schemes, or scum – Get my free book by paying only shipping, get my checklist for free, buy my 10.000$ course for only 97$ – JUST TODAY – you know what I mean.
Now it’s a new trend also in Instagram and Facebook to scam people by writing how you had a difficult life and now after only 1 year you’re finally able to earn 600,000$ a month and live the dream life, because you know that a portion of the people is gonna get interested and is going to contact you, so that you can scam them.
I remember the worst was last year with crypto. Basically everyone I knew was telling me they were part of some telegram or whatsapp group and they were trying to pull me into some shady scheme. Well, they are all broke now.
Don’t ever give your money or personal information to someone who offers unwanted investment advice or pressures you to invest in something “right now” so you don’t “miss out.”. People know that FOMO (fear of missing out) is real, and they prey on it.
And avoid also those who promise you a high return with zero risks.
Just like Grandpa always said: If it sounds too good to be true, it probably is.
That’s why I believe that a good financial education is extremely important and with my channel I want to share everything I can on this topic. Know that I will never ask you for money to make you rich quickly and if you want to support my honest channel you can subscribe and drop a like and I would be extremely grateful.
7. Credit Cards
Now, number 7 is credit cards. No, I don’t mean you shouldn’t own a credit card, but: Credit card companies know how much we love freebies. They hope that by offering you all this free stuff you’ll sign up and before you know it, you’ll rack up a ton of debt like it’s nothing.
So, when the credit card companies come calling: Just. Say. No.
And sign up bonuses are just one of the credit card traps: you are going to get reward points, cash back, discounts, a free massage and even a new car if you are lucky enough.
Don’t play their game because there is no real freebie in the world. Always avoid credit card debt because it’s the worst debt you can have and in case you already have it, think about paying it off before any other investment.
What I always say is that paying off debt is the same as investing. So if you have a credit card debt with 19% interest rate, if you use 1,000$ to pay it off it’s like you are investing those 1,000$ on an investment that gives you 19% return.
8. No-Money-Down Plans
Number 8 is No-Money-Down Plans or buy now, pay later plans. That’s just a workaround to convince you to buy something you can’t afford by binding you to a debt for weeks or months to follow.
Many No-Money-Down plans promise no interest, but there are two main problems: you are getting into debt for something that you can’t really afford, and the yourself of the future is going to pay for it, and in some cases you also fall into the trap of the late fees.
In my opinion the one and only solution to this is to just buy what you can afford to pay 100% upfront. And if you really want that phone so badly, then try first to save up the whole money that you need before buying it. Only this way you are going to realize how hard it was to save all that sum and most likely you’re not going to want to use it all like this.
9. Investing in High-Risk Stocks without knowing
Number 9 is investing in high risk investment opportunities without knowing. Now I have to say that in general, the younger you are the more you should risk, but there’s a limit to that. First of all you need to be able to calculate what is the probability of success of your investment, and not based on false promises.
Let’s take NFTs for example. Some NFTs have sold for millions and if you hear the NFT gurus, they tell you that NFTs are the art of the future. But what they don’t tell you is that the probability that you buy an NFT and sell it at a higher price is basically zero, because there is no reason why an NFT should increase in value because it passed through your hand.
So while famous influencers and internet personalities are making millions because they flip NFTs that increase in value because they bought it, the rest of the world is losing money.
The same goes for risky cryptos that nobody knows and that suddenly are praised as a great investment opportunity before crashing a couple of months later when the bubble pops.
I do believe in crypto and I do invest in the most important cryptos around, but there are thousands of new cryptos every day that are created and forgotten after a couple of months.
In general, whatever high risk investment you want to do, even if we are talking about famous crypto like Bitcoin or Ethereum, should concern a small percentage of your money. Don’t make a gamble out of your investments.
10. Wasting your time
The last money trap that everybody should avoid and that unfortunately is the biggest money trap, is wasting your time. This has nothing to do with money and at the same time everything to do with it. Time is money, everybody knows that. But still if you are in your 20s you are probably going to have a perception of time that is really different from the one that you’ll have when you are 30.
When you are 20 you think you have a life in front of you to save money, invest money, create a business, take responsibilities, but in reality the best way to see life is to think that you only have 10 years, from 20 to 30, to do something great with your life. And if you don’t, the time you wasted is all going to cost you financially. Of course, you always have the chance to change things when you’re older, but the probability of making it drops drastically.
You’ll have less time, energy and courage than you do right now. So think about what you want to become and work as much as possible during your 20s to achieve your dream.
If I could help you in any way with this video, please help me out with the youtube algorithm by dropping a like, and of course if you enjoy personal finance, take a look at my channel and if you like it subscribe for more. I wish you a great evening, people, you guys are amazing, see you next time. Ciao!