Your 20s are filled with milestones and life-changing experiences. It's a time when the things you learn start to become habits and when financial decisions can either lead you to great success or become a problem for you in the future.
It would be great to have perfect foresight so that you knew the best decision to make in every situation — but in the absence of perfect knowledge, even knowing what not to do in your 20s could help you recognize a bad decision in the making or prevent a bad habit from forming.
In addition to money mistakes, there is also the need to save money in college, which is not always easy.
If you are in your 20s (or even your 30s), perhaps you can profit from some advice many people in their 40s and 50s wish they'd had as they started out.
Not contributing to your retirement: One of the most damaging mistakes you can make is not to contribute to your retirement as early as possible. It is easy to think that retirement is too far away and that you should be saving for more immediate goals like getting a car. But you can sock some savings away in a Roth IRA even if you earn minimum wage while in graduate school. At the very least, start saving for retirement when you land your first job.
The end result: If you don't have the discipline to save for retirement in your 20s, you may end up spending your entire salary and not saving for a car or anything else either. This is a difficult mistake to recover from that could cost you as much as $100,000 or more in the long run.
Buying more car than you can afford: New car manufacturers would like you to believe you won't be complete without their latest model, but that new-car smell can easily run you $20- to $50,000 in some cases. In reality, you may not need a car in some locations; but even if you can't use public transportation, it isn't necessary to buy more car than you can afford in any event.
Not starting an emergency fund: Frequently, people find excuses why they don't put an emergency fund together, such as, this money could be used to pay bills or to start contributing to their retirement. But it should be the first thing you do after meeting your basic needs. It is a good idea to keep at least $1,000 in a savings account at all times for life's little emergencies. Related >> Which Online High-Yield Savings Account is Best?
The end result: If you don't start an emergency fund, you are more likely to accumulate debt.
Living on credit cards: Be grateful if you have not gotten deep into debt in your 20s, and avoid it like the plague. Living high on your credit cards is a dangerous game to play with your finances. At some point you have to pay for your purchases, and that usually means emptying any savings you have accumulated. If you have already depleted your savings (or never established any), you may start the cycle of missing payments and opening new credit card accounts.
The end result: Living on your credit cards will teach you to live paycheck to paycheck, which is a very difficult habit to break once established. Left unchecked, this practice will ultimately destroy your credit score as well.
Failing to set financial goals: If you never stop to think about what you would like to accomplish in five or 10 years, it is likely that you won't accomplish anything by the end of that period. On the other hand, the very act of identifying and setting financial goals for yourself in your 20s clarifies your choices and helps you naturally focus on ways to reach your goals.
The end result: Failing to set financial goals in your 20s can create tension later on as you realize that you have to work harder to make any sort of progress toward what you want in life.
Keeping up with the Joneses (especially if they are your parents): The pressure to fit in can be the subconscious motivation behind a lot of poor financial decisions, but the tragedy of this unproductive mindset is that you can always find someone who has more than you do. Sometimes that pressure can mount even by comparing your lifestyle to your parents' lifestyle and thinking that you can have everything they do all at once.
The end result: If you don't realize the logic that your parents (and others) have had many years to accumulate their wealth, you could set unrealistic goals for yourself, which could lead to making risky financial decisions.
Not starting the habit of paying yourself first: Even if you are well paid in your career, it is a mistake not to pay yourself first. Saving a certain amount of money before you pay any bills encourages better financial habits like budgeting. By paying yourself first, you effectively prioritize saving money and that is how you begin to build wealth.
The end result: People that don't learn to save first usually spend all their money paying bills and having fun. In the end, they find there is nothing left to save.
Taking on student loans without learning about career prospects: Following your passion doesn't always pay, so treat your college education as an investment that can help you build the life you want. If you don't investigate whether your potential career is slated for fast growth and expected to have strong salary in the future, you may have a more difficult time paying back student loan debt. The end result: Student loans are a very tenacious form of debt. Even if you don't finish your degree, in most cases you must still repay your student loans — and it could take years if you can't find a good-paying job.
Going into debt for a wedding: You want your wedding memories to last a lifetime, but you don't want debt from your wedding to last that long — or at all! Weddings can become expensive events, especially if you make no attempt to manage costs. But you don't have to incur debt in order to have a memorable wedding — you can save up for it instead. Besides, an expensive wedding doesn't equate to a successful marriage.
The end result: Starting married life while managing to pay off debt is a sure way to add stress to your relationship, the kind of stress that many cite as the reason they got divorced.
Trusting others to take care of your finances: If you weren't taught a lot about managing your money, now is the time to learn because, as J.D. Roth is fond of saying, "No one cares more about your money than you do." Recognize that the advice others give you (or the products and services they sell) are almost always designed to promote their best interests, not necessarily yours. It is up to you to dig deeper and do your own research to protect yourself.
The end result: Blindly trusting others to take care of your finances is a sure way to fall victim to a scam or to lose money on an investment because an advisor seems more knowledgeable than you.
The best thing about being in your 20s is that time is on your side. You can recover from money mistakes more easily and enjoy a bright future; but making good financial decisions starts with learning about money and being willing to take responsibility for your own financial success.
If you are in your 20s, what money mistakes are you trying to avoid? What would you add to the list (even if you're not in your 20s)?
There are 78 reader responses to "10 Money Mistakes to Avoid in Your 20s".
There is more nuance to the article than your snarky comment shows. Besides, there is more to financial education than just telling people to save, and then save more. People need to know what they are saving for. There are different reasons to save. Saving to build wealth, saving for the emergency fund,saving for a car, etc. Then for most people they can't figure out how to save fro these things because all of their money is spoken for.
I'm just recently out of my 20s and I found that it was the perfect decade to truly get my financial house in order. As you mentioned, saving for retirement will yield far greater dividends if you start when you're 25 than if you start when you're 35. Compound interest is a powerful thing!
And, if you can just keep living essentially as you did in college, you'll be golden. Not succumbing to lifestyle inflation and the carousel of pointless consumerism will give you so many more financial options in the long run.
I'd add "don't automatically assume you should buy a house" to this list. I think buying only makes sense in certain markets and under certain conditions. And I wouldn't rush into it under the pretenses that it's the best financial move you can make because that's not always the case. The best financial moves you can make are to pay off debt, stay debt free, max out retirement accounts and save as much as you possibly can. Your older self with thank you big time!
I totally agree about not buying a house too soon! It ties you down to one place at a time when you might want more flexibility. I've read that you don't break even unless you stay somewhere five years or more when you look at the total cost of ownership.
Many people buy a house and then figure out their savings goals. I think it should be the other way around — if you can't put aside x for retirement and build an emergency fund, you aren't ready to buy.
Yes, I absolutely agree that you shouldn't buy a house and then figure out how much you can save. In fact, you shouldn't buy ANYTHING and then figure out how much you can save. It should be the other way around. Put your savings goals for retirement and other savings goals first, and then see how much you can afford. Most of us are going to need to save at least 15% for a decent retirement, plus you need savings for other things (cars, college, savings for that house you might want, unemployment fund, etc.).
All good advice! #6 Is really important – especially the point about not trying to live your parents' lifestyle. I think sometimes people forget that it took their parents decades to work up to that way of living. I wonder if it's harder for people who move home after graduation than people who go straight from a frugal student lifestyle to an entry level job?
One thing I would add to this list is to keep learning. Just because you've earned your degree(s) it doesn't mean the learning stops. Make room in your budget for professional development so you can maximize future career opportunities.
I think you have a good point about avoiding lifestyle inflation by going from frugal student directly into a job rather than moving back to the comfort of mom and dads house. I think along the same lines this is a good argument about what type of financial support parents provide to college age kids. It's one thing to help pay tuition, groceries, etc… but another to help finance a lifestyle – at what point does it end? I was on my own financially all through college and while it was hard, I graduated debt-free and even though I didn't start out with a huge salary, I felt like I was living lavishly (I actually had money to go have fun now and then!) and I was able to immediately begin contributing a good percentage towards my 401K because I was used to living so frugally.
#8 should be #1, no questions asked. I know this site loves to save, save, save, but student loans dictate every other financial decision for someone in their 20s.
If you graduate with student loan debt without a job or without career options, it screws everything else up. I know because at 26, I was one of those people. History/Poli Sci degree with $34k in debt and a job after graduating, but not a career. Luckily I always had a salaried job with benefits since graduating. After a few years of working, I figured out what I wanted to do and started night/online classes in accounting. This week I start as an Accounting Manager making mid 40s with a lot of room to grow, not only professionally, but in earning potential.
I'd still have to say I'm sitting better than many, probably. I have never had credit card debt. My student loan debt is now $19k. I did purchase a used car, but probably overpaid a bit from the dealer. At least it's on a great 2% rate. I've saved a bit into a Roth, but never been able to max it in my previous positions. I use multiple targeted savings accounts to automate my saving for larger expenses like auto insurance, tuition, and saving for standing in two weddings this summer.
I still question whether I should be focusing more on debt repayment or retirement savings, as I can't maximize both. The loans are 5.4-6.8%, while my Roth has earned 12-13% in the past two years. My parents are all financial disasters and the last thing I want to do is be like them. That and just simply wanting to be financially independent are two big motivating factors.
It's a tough choice, but I would focus on the student loans over retirement saving because student loans are not dischargeable in bankruptcy. If your company gives you a match, then contribute up to the maximum match in your 401K. I'd skip the Roth IRA for now if you have a 401K available. You get the tax break for the 401K contribution, which will give you more free cash to put aside for the student loans. Those interest rates are pretty high, you want to get rid of those loans ASAP.
That's pretty much what my game plan was. The old job had a miserable 401k, the new one has a much better plan. So I plan on taking full advantage of the match.
I did the snowball effect, attacking the smaller loans first. Unfortunately those also had the best interest rates. At least all my loans are federal loans, which gives me more flexibility over private loans.
Personally, I think you should attack the highest interest rate first. That higher interest rate would be driving me crazy. I accept that maybe other people would be more motivated to get rid of a bill first, but this method takes longer. Otherwise it sounds like a good plan.
Hi JoeM, I just wanted to chime in and say it sounds like you are doing almost everything right. You'll have those loans paid off in no time. I would second the recommendation to attack the highest interest rate loan first. Try to embrace that "college student living like a pauper" mentality for as long as you can, also.
I graduated from college in 1996 with $30k in student loans (about $44k in today's money) but I had a bit better job situation to start with – a tech job making $42k (about $62k in today's money). It was also a good time for tech up until about 2000 – there were raises/bonuses every year. I lived very simply and paid my loans off in 3 years while contributing enough to my 401k to get the match.
Once you knock those loans out it's full speed ahead, and you've got a lot of time to compound your investments. You are going to be in great shape down the road. Good luck!
I'm guilty of number 2 in a big way, but I managed to stay clear of most of the others.
However, recently I find myself drawn into another trap, where I want to visit the world and not worry about my savings right now. I'm still debt free but, I fear that continuing down this path, I will be savings free as well.
The Jonses (parents) thing stuck out for me here. Your 20's are a great time to find out how you're most happiest living, then avoid lifestyle inflation. The parents thing struck me because I think when I first started out I wanted to make things as comfortable as they were at home. I also think our parents expect us to bring our lifestyle up to theirs. I hadn't really thought of that before!
I tell my children all the time, that it took us 25 years to be an "overnight success". The point is that we share all of the struggles we went through as young parents and the decisions we made year after year to improve our financial position. We don't want our children to think that they need to live the lifestyle they currently enjoy at home once they move out. They cannot afford it, and neither could we when we were their ages.
I love reading lists like this, and then realizing that I can say I've avoided nearly everyone of them (I'm 26).
I've got a retirement account funded partially by me and my employer and I started my own separate 401k. I automatically pay myself every pay check, which includes an emergency fund.
I might have bought a little more car than I needed, but it is a reliable and long lasting brand and the interest rate was low-low-low. Plus, I commute 1.5 hours every day so I want something I enjoy driving and has good gas mileage.
I did graduate with student loans, and no job offer, but in 3.5 years I've already paid off half of them. This feels like one of my greatest accomplishments.
I definitely urge all of my peers to follow the advice in this article. It's great when 20-somethings can talk about finance and learn that they're not alone in their money battles.
Along the lines of #6 & #8, I'd say keep living like you're in college until you pay off your college debt. We didn't follow this advice perfectly, but within a year of buying our home we paid off our school debt, and if anything we could've done it sooner.
For #1, the "magic" of compounding interest is amazing. Your nest egg now will grow exponentially and time is a huge factor in the equation. The more you start with and the early you start, the better off you'll be.
I would say my biggest mistake was not developing myself more through continued education. Not talking about formal education, just about gaining knowledge and skills that would move me forward in my career at a faster pace.
It's really easy to miss this step because the last thing you want to do after graduating college or grad school is to keep grinding with your learning. It's easy to feel like you've made it and can coast.
Whole-heartedly agree with #8. I went back to school for my master's on a whim, without fully understanding the likelihood of employment and how long it would take me to pay back the $40k student loan.
After school, I got a very similar job to what I was doing before, not using me new degree, and barely increasing my salary. "Follow your passion" is bogus if you don't do the research.
Great list. We wish that we had started to plan for retirement earlier. I think that it is a general misunderstanding of what is a need versus what is a want. We justified some ridiculous items early in life because we needed them.
Unfortunately I didn't avoid any of these mistakes in my 20s. I wish I read this post 10 years ago! Oh well, I'm learning now and I'm hopefully making the right moves. Better late than never.
Same here, hopefully being more determined and focused now can help eliminate a few years of mistakes back then in the long run.
Along the lines of #6, its not just keeping up with your parents. Its your friends and coworkers too. Can't tell you how many times we see young people buying fancy new cars cuz their friends or coworkers did. (I get to call them "young people" now that I'm the ripe old age of 31.) One guy buys an Audi, next week someone else does. Never mind that they're barely making 12 bucks an hour and have student loans galore.
Its not just cars either. You know from TV and the movies that you have to live it up in your 20s, so of course you need that luxury high rise apartment in downtown, dinners as the top restaurants, bar hopping every weekend, trendy clothes, the latest phone, and an awesome home entertainment center.
All of my coworkers do this, and then they complain how saving up for a home or wedding is impossible.
I agree that don't buy a house before you are truly ready should be on there as well. I bought a house in my early 20's with a 5% down payment. It worked out ok for me, as I had roommates and my house has recovered since the market crash to where I have positive equity, but I know plenty of people my age renting out their first house while taking a small loss because they can't sell it due to the housing market crash and low down payments. I would say a good portion of the 20 somethings I know have moved in the first 5 years of a new job.
I was almost guilty of buying a BMW. I narrowly avoided it and I'm so happy about it later. I have plenty of friends that spent $40k+ on cars straight out of college making $50k+.
I was pretty good on the rest. I sincerely thank my first employer for 401k matching. If I didn't have that, I probably wouldn't have done my retirement in my early 20's and would be regretting it majorly now.
As much as lists like this make me want to roll my eyes, they are legitimately good advice that more people should follow. I see undergraduates doing (what I consider) absurd things with their money on more or less a weekly basis. I assume it's generally due to a lack of education, but it certainly doesn't help that this often coincides with teenagers being given a great deal of freedom for the first time in their lives.
Lifestyle inflation is easily the biggest trap the most people fall into, in my experience. While a little bit of luxury or convenience isn't a terrible thing, the problem is compounded because so many use credit cards or student loans to afford larger apartments, nicer cars, or going out to eat multiple times a day nearly every day. While it seems like common sense to me to avoid this kind of nonsense, that's because I was raised to be aware of my financial situation. Shame on the parents and schools that send students out into the world with no idea how to deal with common financial problems.
Life insurance. No, you probably don't have a family or house yet. But you should lock in the low rate now while you're young and presumably healthy.
You can lock it in for up to 30 years, which means you'll have lower premiums when you do need to leave something to your loved ones.
To me, buying life insurance before you have people depending on your income to lock in a low rate would be similar to paying for auto insurance before you owned a vehicle just to lock in a solid rate.
I'd spend (or I should say I spent – since I'm 35) my time/resources on all the other items first.
I would like to see the list address health though. People who don't take care of their body, teeth, etc. can end up paying a lot down the road.
Well yes, if you have debt or other obligations, fine. But in the next 30 years, you're almost certainly going to find someone you want to protect financially.
If nothing else, what about your parents? If they're not in a great financial situation, even a small policy would potentially give them some space to grieve without bankrupting themselves.
It's not that I don't see your point, but people underestimate how early health problems can develop. Those *will* affect your costs significantly. I got my coverage in my early 30s. Thanks to health problems, I pay $50/month for $125,000 of coverage.
My parents and god children are set up as the beneficiaries on my 401K, Roth IRA, and emergency fund/banking accounts. If something happens to me, those transition nicely into an insurance policy for them w/o necessitating me to pay premiums in the meantime.
I might have taken the not having family or a house part of your comment too literally…leading me to boil it down to if you don't have anyone or anything to protect, what do you need protection for.
My thinking's along the same line as yours Mike. I am weary (and wary) of insurance companies constantly making us feel as if we are inept to deal with life without somehow getting them involved while making them richer.
I try to limit both my coverage of and reliance on insurance as much as possible. Between health, auto, home, property, liability, mortgage, and life insurance premiums, some people are better off just keeping their money in savings…I mean there are folks that spend THOUSANDS of dollars per month on insurance, just to hedge against the "what ifs" of life. I find the overall role insurance has taken in modern society to be distasteful, and one of fear mongering. Since when is it necessary for your family to be insta-millionaires when you die? And yet that is becoming the expectation when it comes to life insurance.
I admit I say this as someone with no dependents, but I am consciously trying to built my assets/networth in the event that I ever have someone who will rely on me (including aging family, though they also have their own savings and retirement income), they will make off OK.
Some people might find that material assets, retirement savings, spousal benefits, and savings/investments is enough to make them feel comfortable with forgoing life insurance; also, many employers (and some credit cards) offer some free life insurance to their employees.
I know many don't share this mindset, which I understand since everyone has different needs, but as I get older and open my eyes to what Americans are spending their money on, I've become a lot more picky about WHO I give my money to, and why; I am constantly, and perhaps overly, hyper-conscious about being the fool who is parted with her money, over and over again. So for now I will rely on my employer's life insurance (and the $250k insurance my travel card provides during travel), select plans with high deductibles for mandatory insurances, and continue to grow my networth, keeping more of my money in my pocket.
I would say the one thing the PF blogs never warn about to folks in their 20s is having kids out of wedlock. It's a proven financial disaster. I guess they don't mention it because they either don't want to offend people or because PF blogs appeal to folks who already know that it's a bad idea…but around 40% of kids in America today are born outside of marriage; and for folks in their 20s, more than 50% have kids outside marriage Holy cow! No wonder the income and wealth gaps are widening.
I think it is important to build a robust base about financial principles in this age. Lack of knowledge and excessive greed for money should not accompany after 20s.
Does this mean that Suba Iyer was compensated for her article? As a freelance writer myself, this interests me. Or is GRS now going the way of HuffPo, Buzzfeed and other sites who perennially "adapt" content? Just wondering….
Thank you for your interest, Midwest Jane! Yes, Suba was compensated for her article.
Awesome – glad to hear that. I appreciate that sites exist that still pay for content.
Love the point about keeping up with the Joneses. Buying more than you can afford is a recipe for disaster. Not only do you lose by paying more interest on your debt and the depreciation of whatever you buy, but you also lose out on interest/appreciation you could have earned by investing the money instead.
I'm 28. After years of terrible, low paying jobs (and living on credit cards to supplement my income) I finally landed a job that paid me a living salary for my area. I also got a huge tax return as well as having a large security deposit returned to me. In one fell swoop I paid off all of my credit cards, put about $1500 in savings and took myself and my boyfriend out to an expensive dinner to celebrate. I definitely made mistakes with my money, but also feel this big influx of cash was a godsend. It feels a lot better to pay it all off than chip away at payments on maxed out credit cards, most of which is interest. Basically my advice is if you find you have a windfall, use it to clean up a mess if you have one. I'm looking forward to contributing to my IRA with the money I was previously throwing at my credit cards and putting a percentage of money away in my savings so I actually do have a cushion when things get bad. Never assume you're always going to be well off financially.
I was basically in school for all of my twenties (college, then grad school). I hardly saved a thing. But I was lucky and had an assistantship so I graduated without debt as well. Tried to start making up for it when UI landed my first job.
Though, I've finally realized how important it is & I'm starting this year (at age 27).
I know I'm in a better position than a lot of people, but I also realize that I've lost out on a lot (especially in terms of compounding interest) by not contributing to a retirement fund earlier.
Guilty of 5 and 9. Now, 23 years later both my wife and me believe that we should have kept our wedding much smaller and thus cheaper. The honeymoon was great, the party etc was a bit of a waste of money. A nice meal with close friends and family with some good stories would have been as good, if not better. And far less stress.
I made the same mistake first 3 months out of college of buying a brand new car. Good news I drove it for 15 years and paid 15000. for it. I even got back 1000 for the parts when I sold it.
I was given a second hand car a Honda from my parents and I drive it now. I wish I had put that 15000-6000. for a used car away in a mutual fund or savings. But it taught me a hard earned lesson.
Parents pushed me into a degree mill right out of HS. I was stupid and didn't have any clue when they put the pen in my hand. After a year and a half I decided I'd rather jump ship and cut my losses than face $80K of loans (I'm sitting at about $40K). Tried to survive for a couple years working full time until I had no choice but to face the student loans I could no longer keep in forbearance. With no way of being able to absorb an additional $550/mo bill I pulled the trigger and joined the Air Force. My wife and I got the $75 special with an ordained minister. Was finally able to afford living. First deployment helped pay off $7,500 CC debt. We bought a little econobox. Yes, I shouldn't have got it new but it's served us well and I'm gonna drive the wheels off. Been saving into IRA for a couple years now (I'm 27). On the second deployment ATM and I'm gonna try to take a stab at these student loans once I get back. Intentionally have not had kids yet. Even when I was poor I protected my FICO with everything I had. Paid everything on time even when the money was scarce and thankfully it shows. It's been a learning process but such is life.
I've luckily avoided all of these mistakes. I say lucky because my family paid for college (grandparents and parents), so I've never had to deal with the dreaded student loans. Now saving on my own to go back to school, I have much more of an appreciation of what it takes to get an education; my plan is to continue not having student loans and I am currently saving up enough money to attend a 2 yr full time, year-round program, without working (or able to work because of the school's requirements). This means I need to save up 2 years of living expenses, a 1 year EFUND), and 10k + for tuition and books/supplies.
I agree that buying a house (and too much house) before you are ready or settled rarely turns out well, but buying an affordable house young, in my lowest earning years, has drastically helped me maintain a low-cost lifestyle. I plan on paying it off early but even if I didn't, it would be paid off by the time I'm 55.
Although I've always contributed to a 401k (to get employer match), I haven't contributed to my ROTH since my early twenties and I regret that since it offers a different type of tax shelter than the 401k, and I'd like to start taking advantage of that. I'm torn between trying to reach some other financial goals (like saving for school and a condo) and contributing to the ROTH; I already feel like time is going by so quickly and I've had to push back schooling several years already, it's really hard to commit to directing my precious resources to something as seemingly far out as retirement…which is something I know a lot of young people feel. However, because I started early and have consistently contributed some money to my 401k, in addition to employers' matches, and have other plans for supplementing retirement through rental properties and eventual sales of rental properties, I don't feel like I'm necessarily behind on retirement planning, even if I know I could do better.
At 30 I have bought 2 cars, used; first car (highschool) I drove through and after college, and had for 7 years before the engine went out due to my negligence (it had an oil leak and I didn't stay on top of checking the oil frequently…most expensive mistake I'll never make again). I've had my 2003 Honda about 6 years and am hoping to sail through 10 years before even looking at another car. I will likely always buy used cars (3-5 years), long-lasting low maintenance models, and drive them to 200k+ miles.
I can't see myself keeping up with the Jones'; I get sympathy anxiety just hearing about my friends' and coworkers' financial troubles. It's kind of hard to be enviable of their situation when you know the truth. Every time a coworker buys a brand new car, talks about the great deal they got, and in the same breath worries about the new $400 bill and what they need to give up to make room for something that costs more than my monthly mortgage, I want to go outside and physically hug and kiss my beat up paid off car.
I feel like technology is a major financial drain for my generation; in keeping up with the Jones', cell phones, laptops, pads, home entertainment systems, gaming systems, etc, are the Millenials' version of the baby boomers' McMansions and SUV's. I know friends of mine who work minimum wage jobs, yet have $500 cell phones that they upgrade whenever possible, and the newest and best and most expensive gadgets. Not to mention $100+ data and phone plans.
I got left behind technologically and just never felt the desire to catch up; honestly, the bigger the gap gets the more intimidated I am…technology moves so fast and because of that it's so easy for them to sway people to constantly spend money on the "new new" because it never ever stops, not even for a few months; sometimes it feels very much like a scam.
That's a whole nother topic though.
Interesting comment about the technology. My husband and I were just talking about the very same thing! I often feel like we're the only people left that don't keep up with that stuff.
Don't feel bad about technology lag. I'm 45 and the only up to date tech I have is a 6 year old flip-phone. I listen to music on CDs or Sirius/XM, drive to work in a 1982 Buick and My motorcycle is a 1995 with low miles. To many people are a slave to Tech and it is costing us(USA) financialy.
I love it! At my new job I am still in training and we are not allowed to have our phones out during training for any reason, even to listen to music while we work (which is actually allowed).
Guess who's happily typing away while listening to books on tape on her cd walkman while everyone else complains that they wish they could listen to music LOL! I try to embrace the positives of being a techy cavewoman whenever possible.
Yep, we still listen to music on CDs. My husband drives a 14 year old car. We still have never purchased a flat screen TV. When our first circa 1998 TV died, we just pulled the second one from the bedroom. We have a combo VCR/DVD player. My children have quite a collection of Disney movies on VHS!
I'm going to be 33 soon and looking back on my twenties the advice given here would have made a tremendous difference to my life. I would have wasted less money and been closer to my goal of financial independence. Excellent advice, wish they taught this at school rather than how to do complex conjugation.
I'm 25 and i have a burning question – I hear so many people tell me to "travel when you're young," and not having done much (my parents could not afford it as a family and class trip costs were out of reach for me) it's my ultimate goal. HOWEVER, how can anyone travel when they have the burden of this list? It's supposed to be another "investment" in your life, but with this list telling me to SAVE my lower-end salary, it seems unattainable.
I was in the same boat as you Kait, my family didn't have much money when I was growing up. For me, when I was in my 20s it was a great time to have a job where I traveled a decent amount. I got to see a lot of parts of the country on my company's money and while some people only wanted to see the airport, hotel, and the office – everywhere we went I always made it a point to get out and try or see new things. Not sure what you do, but does your career offer that same opportunity?
Travel doesn't have to mean luxury vacations overseas for two weeks at a time, there are so many amazing places in the US that I still want to see. You could drive cross country with a friend and sleep in tents or the back of an suv.
Do you have friends that live in other places? Some of my best trips were when my hotel was basically a friend's coach for a week.
If you want to go overseas traveling with other people can help split up the cost of hotel rooms or you can stay in hostels or backpack.
Bottom line is the list you are reading is someone else's list. Doesn't make it right or wrong. Those suggestions above are mine, if you wouldn't be caught dead sleeping in a tent driving cross country you don't have to. If you would rather put 3% of your pay in a retirement fund and 3% towards a travel fund you are allowed to and I wouldn't judge you for tweaking it in a way that works for your own personal goals.
After all, if you live your life the way you want and see all these great things as you go, then maybe you don't need as much in retirement bc you already did it.
Best of luck to you in your adventures, don't be so hard on yourself. If you are reading this blog and thinking about the things on the list you are already so far ahead of a lot of people both older and younger.
I am one of those people who encourages people to travel in their college years and 20s. Not knowing your exact situation, I can't give specific advice. In order to fund my travel dreams, I lived with roommates throughout college (sharing room) and I also shared an apartment when I first moved out. Could that be something you look into? I know there are roommate horror stories but 99% of my roommates turned out to be good friends.
Travelling is a great investment if it helps you to become self-reliant and able to conquer problems, starting with how to pay for it.
I travelled a lot when young and I paid for it mainly by the combination of low-budget travelling and working. It is amazing how cheap one can live with a bit of creativity. And in almost every country in the world it is possible to find work. Teaching english comes to mind. Or any other thing you are good at, bring something good to the table and people will pay for it. Or turn up at harvest time and any farmer will hire you. Work hard and don't complaim and they might even pay you!
Another way is what friends of mine did, they worked at home, travelled a few months and than worked a bit at home again etc.
Travelling can be the greatest experience in the world, do it before real life takes over!
I traveled a lot in my late 20s and early 30s. But I did give up other things in order to do that. I wasn't going out blowing a lot of money on entertainment on the weekends. I lived in a rented room. I drove an old car that was paid for. i did have some student loan debts on my first trip, but the amount was modest. I also traveled to South America (I wanted to go there) instead of more expensive Europe. Travel also doesn't have to be super expensive, especially when you're young. You can stay in hostels and meet other people.
Here are some thoughts from a 40-year old!
When I was in my 20s, I did #1, #2, #4 and #7.
However, I did not do #3, #5, #6, #8, #9 or #10!
I think staying out of credit card debt and lifestyle inflation and starting to save for retirement were the choices that made all the difference for me. I did not graduate with student loans so I can't say how that would have played into the equation.
I was a very "typical" 20-year old in other ways. I had no set financial goals. I graduated with a liberal arts degree. I was not very interested in my money until my 30s. I guess it was enough to know not to incur debt!
At 25 I have some major house fever, but I'm not taking any action. I like hearing this confirmation every now and then. Student loans can make you feel so behind in your 20's, but all you can do is pay them off asap!
Beyond contributing to the company match, does anyone have opinions on savings for retirement vs. investing vs. paying off student debt? I have various loans (in huge amounts), at an average of 5-6%. From what I've concluded, that's about the same as what I'd conservatively earn in the market anyway — so I might as well rapidly pay down the debts, right?
Yes, since student loan debts aren't dischargeable in bankruptcy, I'd contribute up to the maximum match in the 401K (and maybe 6% if you don't get a match, just to get your retirement funding going), then I'd concentrate on student loans as much as possible. I have a sister who went took out loans for grad school. Graduated in her early 30s. She's still paying them off at age 46!! Don't be like my sister!!!
It all depends on your income. The higher the income the more lax you can be about making good financial decisions. Let's assume you have a low income.
Kick yourself in the head for making a really poor decision to take large loans in a job field that pays small amounts. College is not about learning, it is about making money through employment. If you want to gain knowledge go to the public library it's free.
Learn from this experience and don't repeat it.
Consider changing job fields. Use the money from this job to pay for a graduate degree at the nearby state school in a field that pays more.
Buying a house right now with a loan (mortgage) will cost roughly 200% the purchase price (loan). Better to look for low cost housing alternatives: parents house, efficiency apartment, let a room, trailers, cardboard box, etc… Organize and plan to purchase a house in ten years or more with cash (or near abouts).
If you must buy that house today than make it pay the loan by letting out rooms or something like that.
Owning a house is very time consuming with near constant ongoing expenses. The vast majority of people lose money on their house.
Paying 200% for something is not a very good use of money.
If the company match is lower than the student loan interest then skip the 401 contributions altogether. Get the loans paid off. Speak to a professional to see if the student loan amounts can be frozen so the total to be repaid stops increasing.
If the loan amount is frozen the total payoff amount is the same quick or slow so try to get the payment as low as possible and draw it out as long as possible to free up some immediate cash for the retirement account.
As for the 401 you don't know if the portfolio manager (you or other) will be able to make a profit at all. I've know people whose 401s (market investments) have lost money for years using both professional management and self-directed.
Investing, approx a 401 annual contribution amount, expecting a 6% return means to have a sizable amount your gonna have to live and work a few hundred years. Better get a thigh master and start that detox/cleanse program.
You are either going to have to learn to get your return up and/or find a way to make more money.
Try replacing all that spare party time with a second full time job or night school.
Yikes, definitely did #2 and I am still paying for that mistake. It is not just the car payment with these more expensive cars, it is gas, insurance, maintenance, etc., which add another 50%-60% at least on top of the car payment. And worse – should something not covered by the warranty break, you are paying a crap ton of money to fix it.
Next time I am going with a cheap, used compact car that is also cheap to fix.
I would add another part onto the student loan point. I recommend not using all the money the government gives you in the student loans, but only what you need. If you can save some of the money to use for the next term from each school term, when you graduate you will have less debt. It is so easy to spend money when you are given a big chunk at once.
Another thing I would add is not getting a line of credit from the bank. Again, it is so easy to 'tap' the LOC when you need funds, but when you only pay the interest, you have a distorted sense of the full amount of the loan you are left with at the end (when you are not extended any more credit).
Here is how I see it…I buy cheap cars. Then I take the payment I DON'T have, and invest it.
Do I have to get towed once in a blue moon? You bet. I just remind myself, though, that I paid myself thousands of dollars per year to have a little hassle. And if you have AAA, you're good. Do I have more repairs? Sure, but I am still waaaay ahead of the game over a $400 car payment.
It is a great way to live, and cars today are amazing. I bought my last vehicle at 220,000 miles for $6000. I will have it for many more years. My guess is it will cost me about $1200 per year, or $100 per month of ownership.
Great article! I see many of my peers falling for these mistakes and I myself am doing my best to avoid these mistakes. I believe in setting my financial foundation solid now so that I can enjoy the fruits of it later in life. I wish more of the young people would take control of their money and consciously correct mistakes you've listed here.
This is an awesome article, Linda. I was lucky to have avoided all of these pitfalls in my 20s and I am now in my 40s and, due to some hard work, but also alot of luck, financially free. And still frugal.
The good habits I learned have really helped me avoid much monetary difficulties and I am immensely grateful!
Thanks for the article and I'll send it to my kid when he gets there (he's 2 now). Thanks!
This advice is priceless. What you are able to accomplish in your 20's, sets the path for the rest of your life. Time is a huge asset and you will never be this young again. Make small sacrifices today that will have life changing benefits for the rest of your life.
I agree about adding a house purchase to this list. In general, I find that most people don't necessarily have pressure to buy, they just haven't made an honest self assessment to determine what a home means to them and then realize they don't need it, if that's the case. The expectation we grown up with that homeownership is a requisite for adult life is really not a simple idea to shake off; it takes some work, but I think it's more and more the best decision for 20-somethings to hold off and wait.
More specifically, my brother purchased a house soon after he finished undergrad, but he didn't plan for the fact that he may go back to school – which he did, in a different state, two years later. The house ultimately put him in bankruptcy and it's just coming off his credit history now. It's essentially made a decade of his financial life a net zero proposition, if not worse. Looking back, this is something my family did not discuss with him in an appropriate way ahead of time, and he headed into a transaction that made no sense for his life.
We have somewhat of a 'live and let live' approach to each others lives, but I can't understand how we didn't back him away from this decision. I can only guess that with no solid plans for grad school, we all assumed he'd be there for 5+ years. It was also pre-crash, so the market would have felt safer at the time. Life lesson – it's made me more vocal in our conversations about money. You don't have to make the best decision, but I'm certainly not letting you make the worst.
The story of my 20s, and that of most everybody I know, is debt. Credit cards and student loans. From what I've read, my student loans were an average amount at the time I graduated, about $35K. Fortunately, I did not fall into #8 on the list as my degree was a not-too-exciting but extremely practical business degree which got me employed. I just paid off my last loan in February, paying roughly $1,000/month over the last three years. I saved $7,500 on interest expense through advanced payment. I also lived off credit cards during the last couple years of school (#4 on the list), so that was another $5K balance to pay off once I started working. If I could do it over again, I would have done more part-time work while in school to offset my spending. My concept of money going into school compared to now is remarkably different. Until you're forced to fully support yourself, you just don't know what a dollar is worth to you.
The most important thing is to buy on dips when the market goes down and don't let CNBC or other experts convince you otherwise. Follow Warrant Buffett. Read his newsletters online.
I had been lucky to earn a lot in my 20s, however, some poor financial decisions took a toll on my over all financial health. If you manage to earn a lot, be wise enough to do the following.
1: Saving, be wise at saving.
2: Take calculated risks, invest wisely into your business and future.
3: Avoid bragging infront of everyone, friends and family will soon be asking for favors. If you really have to give loans, calculate the risk, chances are you might not be able to get back your money for one reason or another. Helping is good, but be wise at giving out loans.
Thank you for this article – some great tips!
Don't screw around reading about and trying different mutual funds, I just put 10 percent of your income into Vanguard Total Stock Market and let it ride for as long as you care to work.
That mutual fund has paid for our kids' college and a lot more besides.
What a great read, I am guilty of many of them, learned alot.
This is what did me in. I just *expected* to buy stuff I wanted, because my parents could, too. I never saw them budget for stuff.
I'm in my mid-twenties and thankfully I had parents and others who helped me to be mindful of these decisions. One of my biggest achievements was paying off my ~30k in student loan debt a couple years after graduating from college. It's been awesome since then to be debt free! It was hard to stay disciplined to pay extra toward loans while friends were getting new cars or going on sweet vacations, but now I'm debt free and have the habit of living well beneath my means. It feels great!
During my 20's I don't really think about these stuffs until I realized that I should have become more financially mature at this point. This is why it is important to save at early age. The more you contribute for your savings or retirement fund, the more you become financially stable when the right time comes.