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18 Huge Financial Mistakes To Avoid In Your 20's

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Written by Ryan Scribner
Updated on November 24, 2018

Money Mistakes To Avoid In Your 20's

You’re in your 20s and looking to make smart financial decisions; congratulations! There are so many pitfalls out there, mistakes everyone makes at one time or another during their life. That said, now’s the time to understand and be on the lookout for money mishaps that can easily be made in your 20s…and beyond! Check out the following 18 no-no’s, and consider yourself smarter.

1. Not investing in the stock market.

One of the biggest mistakes young people make is not beginning to invest. Compound interest is, essentially, how much your money grows over time. The more time you give your money to grow, the larger your net worth becomes!

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2. Spending too much money.

It seems simple enough: Never spend more than you take home in your pay check. But it’s easy to fall into this trap when you’re not tracking your expenses down to the penny. Always remember to live within your means!! Sure, it’s nice to buy a round of drinks for friends on Friday night, but how much is that going to cost, and what kind of dent will it make in your monthly budget? Which leads to the next point…

3. Not setting and following a budget.

This is imperative and should be the first step once you are out in the working world. Make a complete list of EVERY expense you will encounter, right down to incidentals like laundromat quarters, bus tokens or having one draft beer after work. Add everything up and see how it compares to your monthly income. Certain expenses are fixed, such as rent/mortgage, utility bills for electricity, cable/WIFI, gym membership, etc. Other expenses are something you have control over, including groceries, clothing, grooming and entertainment. What does this mean? You can (and need to) set a fixed amount you will spend monthly in these categories. Then – and this is key – STAY WITHIN THOSE LIMITS!

4. Comparing yourself to others.

This will bring nothing but trouble. Envy is an emotion to which we can all relate. Your friend, neighbor or co-worker may have the best car on the market, a fabulous home, take luxury vacations, but here’s the thing: you have no way of knowing HOW they’re amassing these things. Could be, they are spending money they don’t have. If they’re plunking down the old credit card for purchases, this won’t serve them well in the long run. In fact, it’s one of the worst financial decisions people make, no matter what their age and income. The lesson here is to be satisfied with what you have. Spend more time being grateful and less time being envious!

5. Not setting financial goals for yourself.

This is imperative for both short- and long-term goals. Maybe you want to buy a new cell, outfit your home with new furniture, or save enough to invest in a stock portfolio. You need a plan with precise steps on how you can make that happen. Remember, it won’t happen overnight, and it won’t happen without a lot of pre-planning. Set aside a very specific amount of your earnings each month towards these goals, and stick to it. Don’t be deterred by instant gratification items like a 4-Star dinner or weekend at the casino…these will put you right off your path and your sound financial plan. It’s important to WRITE DOWN your goals and how you will meet them. Consider them written in concrete, and don’t modify them. Before you know it, you will have reached that financial goal and be making smarter money decisions as a direct result.

6. Not keeping track of where your money is going.

Track, track, track every dollar you spend. Get a notebook and write it down, or better yet, develop a spreadsheet to monitor every purchase and expense. You may be surprised by what you find out about your spending habits! Sure, it’s cheap to buy a $2.99 movie on Netflix, but if you’re doing it to binge watch your faves every weekend, it will add up, even though it seems like nothing major. One of the most common expenses people do not track is dining and entertainment. Even if you split the bill with friends, that night of beer and wings will add up. Ditto for Amazon purchases like new kicks or protein shakes. See if there are less costly ways to have these items than spending money on a regular basis. Buy fresh produce and yogurt and make your own smoothies. Wear your Nikes one more season. You get the idea.

7. Not being realistic.

You need to be brutally honest with yourself about your finances and expenses. Sure, you may make a pledge to yourself to never eat out, but if you’re starving and there’s nothing in the fridge, or if you have to join a colleague for a business lunch, this will break that rule. Be realistic about what you can and can’t do. For example, vow to buy groceries and bring your lunch to work most days of the week. Learn to cook some simple meals like tacos and burgers and make dinner on weekdays. Give yourself a break Saturday night and get takeout or order in from Grubhub.

8. Living off credit cards.

This may seem like a no-brainer, but the vast majority of people have credit card debt that will take years, if not decades, to pay off. Most of the temptations to buy on credit are for instant gratification items (think: not groceries, which are needs instead of wants) that won’t bring much enjoyment when you start seeing the interest adding up. If you absolutely can’t avoid making a purchase on credit, pay off the balance immediately, and don’t even think about paying the minimum amount monthly. A better bet than using any plastic – including debit cards – is to use old fashioned hard cold cash. Studies show when you pay in cash, you’re less likely to overspend than when you don’t have to hand over your hard-earned dollars. Even better, put a precise amount of cash your wallet (money clip, whatever), and spend not a penny more than you have allotted for the entire weekend. Well, maybe a penny more, but you get the idea.

9. Not having an emergency or rainy day fund.

Yea, so you’re 25, what could happen, right? Think again. Emergencies can happen to anyone at any time. Your car breaks down. You twist an ankle at the gym and have medical bills. Your basement floods. Your work hours are cut back. These are worst case scenarios for sure, but the point is, you need a cache of cash to tide you over. Experts recommend having a savings of 3 month’s salary in emergency funds.  Save it, don’t spend it.

10. Not starting a side hustle.

We know you work full-time. And we know you need down time. But there must be a few throw-away hours each week when you allow yourself to do…nothing. Get motivated and get moving! A side hustle could bring in hundreds of dollars more per month, and you might even enjoy it. Walk dogs, rake lawns, personal shop, wash cars, do whatever sounds interesting and maybe even fun. Find a niche need and fill it. Who knows, you might find that entrepreneurial spirit that has lain dormant ever since you quit selling Boy Scout popcorn door-to-door.

11. Believing your own financial lies.

This has something to do with superstition. For example, if you leave a bill in the mailbox or don’t open the envelope, then the bill doesn’t exist, right? Many people fall into this state of denial about their expenses and, as a coping mechanism, pretend debt isn’t there. If you’ve made a budget (see #2 on this list) and are doing your absolute best to stick to it, you should have a very good idea what’s inside those envelopes and how you’ve allotted for it. When you spend within your budget, there won’t be any surprises, and you can safely check your bank statement by email without going into shock.

12. Allowing student loans to stop you in your tracks.

Granted, college tuition is through the roof. But if you’re in your 20s, you will never have the time and energy again to pursue higher education. So, take advantage of the opportunity. Live off campus, go to a community college, then transfer those credits to a four-year college. Buy used books and eat Ramen Noodles. Take classes part-time while you maintain a full-time job. Forego sleep if you must. Research and apply for scholarships based on income and also on merit. Do your best to avoid student loans, which will need to be repaid with interest.

Consider pursuing your degree an investment in your own future. Aim for a better paying career that will motivate you to work hard and excel. Your 20s are a great time to further your education, and there are many ways out there to do it without digging yourself into a financial ditch.

13. Putting off saving for your retirement.

The sooner you start stashing money away into a 401(k) or other retirement account, the better. You want to give your money optimal time to accumulate interest and build up a nest egg that will benefit you in your old age (yes, you will be old one day).

Financial experts recommend squirreling away around 10 percent of your income starting in your 20s. It’s not a huge stretch for you right now, and it will pay off remarkably to your future self.

14. Not working on building good credit.

Having an excellent credit score will be an enormous benefit in all your financial endeavors. You will need it to rent an apartment, buy a car, get a loan or take out a mortgage. Start with a single credit card and pay off the entire balance monthly. Never miss a payment or pay a late fee. Stay well within your credit limit. For example, if your limit is $7,500, resist the urge to rack up $7,499 in charges! Keep it low and pay it off immediately to build a good credit history. Also, avoid opening too many accounts at one time. It’s much easier to keep track of one account and will reign in your utilization as well. This leads to the next item to avoid.

15. Not checking or knowing your credit score.

As you know from all the commercials, there are plenty of free credit score sites that take literally seconds to pull up your number. Knowing where you stand is key to your overall financial well-being. If your score is low, take immediate steps to improve it. If it’s good, put all your energy into maintaining it. Challenge your friends to see who has the best score. Loser buys beer. Actually, loser might not be able to afford beer.

16. Not taking smart risks.

You’re young, probably single, and it’s a great time to grab life and see where it takes you. Smart risks are things like moving to a new area with better job opportunities, launching your own business, or furthering your education. In a few short years, you will likely have far more weighty responsibilities on your shoulders (think marriage, mortgage, kids). Now is the time to take that leap – but make it a smart, calculated risk. We’re not saying quit your day job to become a stand-up comedian. Maybe just add the comedy as a side hustle (see #6).

17. Skipping renters insurance.

A wise fortune cookie once said, always expect the unexpected. Renter’s insurance may seem frivolous…until the ceiling leaks and ruins your leather sofa, a freak lightning storm fries your computer or television, or a break-in results in losing your jewelry. For the small monthly cost, renter’s insurance pays you back a thousand times fold in security that it’s there when you need it.

18. Having no health insurance.

OK, so maybe the last time you had a cold was 2010. But who knows, you could forget to get the vaccine and come down with the flu and need a doctor’s visit. Twist a wrist at the gym and need an x-ray. Even a single visit to a walk-in emergency clinic could rack up charges quickly, or worse, you might be tempted not to seek medical care. Don’t play this risky game. Invest in low-cost health insurance and for goodness sake, get that flu shot.

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