8 Money Mistakes to Avoid in Your 20’s

8 Money Mistakes to Avoid in Your 20’s

You might be wondering what money mistakes to avoid in your 20s. Well there’s a lot of stuff to figure out in your 20s. From starting a career to finding someone to settle down with – there is much to navigate. The habits you pick up in your 20s will follow you for the rest of your life, so the more you focus on your financial future the better off you will be. And one of the most important ways to build a solid financial future is to avoid making costly money mistakes.

1. Not starting an emergency fund

It’s easy to ignore the need for an emergency fund. People naturally try to not to focus on the the kinds of things that lead you to need an emergency fund – losing a job, health emergencies, etc. People find excuses for why they don’t put an emergency fund together. Thinking things like: I need this money to pay my bills or I need to start contributing to my retirement account. But the fact is, setting up your emergency fund should be the first money thing you do. Experts say you should keep between three and six months of living expenses in your emergency fund. For more on emergency funds, read this article on how to build an emergency fund.

2. Living beyond your means and running up your credit cards

If you are in your 20s and not in credit card debt, be grateful. Avoiding credit card debt is the best financial decision you can make in your 20s. It’s easy to fall into the trap of using credit cards to live beyond your means but running up the credit cards is a sure fire way to kill your long-term financial goals. Living high on your credit cards is a dangerous game to play with your finances. If you let your credit card debt get out of control you will spend years, even decades, paying interest to the credit card companies.

3. Forgetting to start investing for retirement 

With everything that you need to figure out in your 20s it’s easy to forget to start saving for retirement. But the thing about saving for retirement is that the earlier you start the easier it is to meet your retirement goals when it comes time to stop working. Thanks to the magic of compound interest, if you start saving for retirement early – especially in your 20s – you are far, far more likely to have enough money socked away when you get to your golden years. It is easy to think that retirement is too far away and that you should be saving for more immediate goals like buying a car or paying off your student loans but that would be a mistake. When it comes to achieving your financial goal, you can have your cake and eat it too… or may that should be more like you need to eat fruits and vegetables. Not starting to save for retirement in your 20s will cost you thousands, possibly hundreds of thousands of dollars.

4. Spending too much money on a car

For many, having a car is a necessity of life. But that doesn’t mean you need to be spending all your hard-earned money on a fancy set of wheels. It’s easy to start believing your life won’t be complete without that awesome new car, but the truth is, spending too much money on a car is a great way to waste money. You are far, far better off getting a cheaper car and saving the extra money to invest for something like a house, retirement, paying down debt etc. You may be familiar with the concept of the millionaire next door. The basic idea is that your inconspicuous neighbor that drives a used car and never seems to be doing anything flashy just so happens to be a millionaire. And the reason is because your neighbor doesn’t waste money on fancy cars and other stupid stuff and instead invests the money.

Cars lose value quickly, they need tons of maintenance and suck down gas. Owning a car is basically and endless money pit. The cheaper you can get off the better. And the only thing better than owning a cheap car is not owning a car at all.

5. Forgetting to set financial goals

You can’t wait until your 30s or 40s to start setting your financial goals. You need to start planning for your financial goals in your 20s. Want to pay off your student loans? How about buy a house one day? Want to retire at some point? Well in order to do all those things and all the other important financial milestones you need to have a plan.

 

So instead of playing financial catch up in your 30s or 40s, start setting your long-term goals now.

6. Failing to pay yourself first

By paying yourself first, you are prioritizing saving money and that is how you begin to build wealth. Even if you make good money, it’s a big mistake not to pay yourself first. Saving a certain amount of money before you pay your bills helps to encourage good financial habits like maintaining a budget. People that don’t learn to save first tend to spend all their money paying bills and having fun. And in the end they find there is nothing left to save.

7. Trying to keep up with the Joneses

There is a lot of pressure to go to each dinner or drinks outing with your friends. It probably seems like your friends are always going on cool vacations and buying sweet stuff but trying to keep up with them, espiecialy if it’s not within your means, is a big financial blunder.

And the pressure to fit in can be the motivation behind a lot of poor financial decisions, but the thing to remember is that there will always be someone else who has the money to do something you can’t. But if you need to realize that you don’t know what kind of money other people have. Maybe they are rich. Or maybe they are just living off credit cards. Do you really want to follow them off that cliff?

8. Putting others in charge of taking care of your finances 

No one cares more about your money than you do. And the truth is that many financial advisors are nothing more than sales people who get a commission to sell you certain fincial products. You need to own your own financial future. The best way to do that is to educate yourself about money and the financial markets. And it’s totally fine to work with a financial advisor but remember, the more informed you are the better customer you will be.  Others can certainly give you good advice but that is not a substitute for knowing your stuff and being able to keep tabs on your advisor. Their interests are not necessarily your interest. And don’t forget to ask your advisor if they are a fiduciary.