Money Mistakes to Avoid In Your 20s
Your 20s are an incredible time of self-discovery, experimentation, and hopefully, wealth-building. They hold an interesting balance of independence and responsibility. While you should most definitely spend your 20s having as much fun as possible, it’s also a great time to set yourself up for success down the road. However, I see too many young people forgoing this opportunity. Your 20s are arguably one of the most important times in your life. My mother always called them your “wealth accumulating years”.
If you’re in your 20s and want to learn the top money mistakes to avoid in your 20s, then this article is for you.
1. Thinking you have time
I’m sure you’ve heard this over and over, but time is truly our most precious asset. We all have the same 24 hours in the day and it is something, no matter how wealthy you become, cannot buy. Take it from me…your 20s fly by. Before you know it, the big 3-0 creeps up and this special time in your life is over. From the perspective of wealth building, a huge money mistake to avoid in your 20s, is putting things off. Don’t wait to start building your wealth-start today. Whether it’s paying off those student loans, investing in a retirement fund, or putting money in the market, do something today to get yourself on the right track.
2. Not taking advantage of a company retirement plan
When I started my first job, my company matched my 401k investment up to 6%. When a company agrees to match your investment, you’re essentially receiving “free” money. Leaving this on the table is not a wise move. If you have the opportunity to invest in a 401k, take it. If your company offers to match, even better. In 40 years your retirement account will thank you.
3. Spending without a budget
A huge money mistake to avoid in your 20s is spending without a budget. With so many apps and software available to you now there really is no excuse. I don’t advise tracking every penny as this will drive you crazy and unless you enjoy a good spreadsheet, will not be sustainable in the long run. However, you should set a budget for your home with major expenses like rent, food, utilities, etc. Tracking to a budget is a discipline that will follow you through adulthood. If you can get into the habit now, do so. There is no downside to this practice.
Want to use an app? try one of these:
Mint, Pocketguard, YNAB, or Personal Capital
4. Taking on debt
The student loan debt in America is a crisis unlike one I’ve ever surpassing consumer spending and topping over $1 trillion. To make matters worse, we live in a system that not only encourages debt, but also makes us believe it’s normal. I’ll let you in on a secret-being 22 and having a six-figure debt hanging over you is not normal. Financing a car worth more than your annual income is not normal. Taking on massive debt inevitably leads to paying a lot of interest. If you don’t tackle the debt fast enough, the interest will only compound. If you’re already in debt, that’s ok. When I graduated college, I had $30k in student loans. Use this time to devise a plan for paying off those loans. Instead of paying just the minimum balance, make additional payments to the principal every month. While your monthly payment will be higher, you’ll save on interest in the long run. Your 20s are your wealth accumulating years, not your debt accumulating years.
Sometimes taking on debt is inevitable. If you must take on debt (eg: buying a home), do so wisely. Shop for rates, make sure the monthly payment is in your budget, and devise a plan on how to pay that loan down as soon as possible.
5. Not investing early
One of my biggest financial regrets is not investing in my 20s. I thought I could save my way to wealth. Had I done the math, I would have realized that no matter how much of my income I saved every month, I would never reach the type of wealth I dreamed of. The measly interest rate from the bank coupled with inflation meant I was actually losing money. If I had started investing $200 a month at 21 within 10 years I would be sitting on almost $35,000. Saving $200 a month would net me only $24,000 losing me $10,000 in interest. Make investing part of your monthly budget. If you’re new to investing I recommend starting out with an index fund or ETF.
6. Trying to Impress Others
The biggest money mistake to avoid in your 20s is trying to impress others. I can’t say this often enough-DO NOT use your money to impress others. The money you spend trying to impress others is wasted. There will be criticism regardless of the choices you make. Always remember, those who matter don’t mind, and those who mind don’t matter.