Our 20s are a time of self-discovery, to mature and grow. Finding myself on the back nine of the my 20’s I have made my share of financial mistakes. And you will too.
But what if you didn’t make those mistakes in the first place? Wouldn’t that be easier? Could you avoid the hard lessons that I have learned?
Here now from my own personal experience are 10 money mistakes that nearly every 20-something makes (and you should avoid):
No. 1: Not Contributing to Retirement
According to a recent Better Money Habits Millennial Report poll compiled by Bank of America, a staggering 53% of millennials are living paycheck to paycheck. Even worse, the survey showed less than half were saving in a 401(k) and only 16% had an IRA in 2014.
But let’s be real. Chances are, a lot of the young adults in that demographic simply can’t save for retirement. Maybe they’re still unemployed or maybe they’re saddled with too much student loan debt to save for anything, let alone retirement.
Still, it’s likely that at least some 20-somethings can afford to save for retirement, but aren’t. And as with most things, there will be consequences.
Your 20s are the best time to start saving for retirement for a number of reasons. Remember, time is still on your side, and that time can work in your favor when it comes to retirement savings — mainly due to the magic of compound interest.
No. 2: Pursuing Higher Education Without a Plan
Pursuing an advanced degree seems like a good idea, but is it? According to the experts, it depends.
Unfortunately, many unemployed and underemployed college graduates pursue advanced degrees without taking the time to figure out the return on that investment. And in many cases, the return on investment, or ROI, is awful, to say the least, or even nonexistent.
Why? Because advanced degrees cost money and time, and aren’t always a guarantee of higher earnings – or even a job.
According to Forbes, some of the best master’s degrees for jobs right now are in fields such as information technology, engineering, health care, and computer science. Meanwhile, some of the master’s degrees with the worst ROI are in fields such as library science, English, history, and political science.
No. 3: Giving Up the Student Life Too Fast
For most people, college is a time of simple living — stacked four-deep in a tiny apartment, keeping odd hours, and scraping by on mac-and-cheese. And even though college life may seem like a struggle when you’re in the midst of it, ask any 30-something with a mortgage, car payment, and two mouths to feed if they miss those easy days of college, and they’ll likely say yes.
The truth is, college life is probably the easiest many have ever had it. Never again will life be so simple or so cheap. Embrace it and the upcoming challenges.
No. 4: Buying New Cars … and Thinking It Matters
According to USA Today, the average price of a new car surged to more than $30,000 in recent years. But when you’re a 20-something, you don’t really care. You might do or say nearly anything to justify the purchase, telling yourself things like, “Everyone has a car payment!” and “I can totally afford this,” all while not really having a clue what your life will be like in the future.
At a certain point, most people realize expensive new cars are essentially a waste of money and opt for cheap, get-the-job-done transportation instead. Save the new Corvette for your midlife crisis.
No. 5: Voluntarily Diving Into Debt
When you’re 20-something, it’s easy to think of debt as a temporary hassle. A few dollars charged here and a hundred bucks charged there don’t seem like a big deal.
But eventually, those small purchases add up, and those credit card balances start to balloon. Throw a high interest rate in the mix and those balances could even become a hardship. Then, all of a sudden, you’re deep in debt, struggling to get by, and often have nothing to show for it.
The bottom line: Staying out of debt in the first place is much easier than digging your way out after the fact.
No. 6: Not Killing Those Student Loans
According to the Project on Student Debt, seven in 10 college graduates in 2013 left school with more than $28,000 in student loan debt, the highest of any generation of college borrowers ever. And it’s only expected to get worse as the cost of college continues to surge.
With debt like that hanging over their heads, it’s easy to see why college graduates seek to defer their loans or even sign up for loan forgivenss programs that offer to zero out their balances if they agree to work in a certain industry for a specified amount of time.
But doesn’t that just push the buck further down the line? Wouldn’t it be better to kill those student loan debts before marriage, kids, and a monthly mortgage threaten to get in the way? Your 20-something self may not think so, but your 30-something self would likely disagree.
No. 7: Keeping Up With the Joneses
Your best friend graduated from college and immediately bought a starter home, some Ugg boots, and an adorable Toyota Rav 4.
When you’re a 20-something, you see situations like this and sit back with envy. After all, you want your own pricey possesions right out of college too right?
But the truth always comes out in the end. Eventually, you’ll probably see exactly how your friends lived an elaborate lifestyle right out of school. And most of the time, they did it by diving into major debt. Plan for the long road ahead.
No. 8: Staying in Dead-End Relationships
We all had that one boyfriend or girlfriend in college, (or in my case more than one). You might spend years with this person, hoping they would one day grow up and change — that they would eventually become responsible enough to help pay for the new apartment, bills etc.
It’s okay to date someone who you love spending time with and may one day mature financially, but it’s time to throw in the towel when you find someone who never will. The hard part? Knowing the difference.
No. 9: Insisting on Big-City Living You Can’t Afford
Twenty-somethings love to live in big, exciting cities with round-the-clock street fairs, cultural events, and action. They don’t mind paying $8 for a gallon of milk or a case of water because it’s totally worth it. They’re living the dream!
But that tiny, overpriced apartment will get old one of these days. And maybe, just maybe, you’ll wish you could have some of the money you spent on $13 martinis back. And perhaps you’ll find that your dreams change as you get older; while you once dreamed of the big-city life and all the glory that comes with it, you’ll find your new dream requires a house, a picket fence, and 2.5 kids.
Once you’re not a 20-something, you may even find that the suburbs or the country (my favorite) aren’t so bad after all.
No. 10: Never Learning to Budget
To a lot of 20-somethings, budgeting means the same thing as not overdrawing their checking account. It means having enough money for happy hour at P.F. Chang’s and the electric bill, all while still having a half tank of gas to get there and back.
But when you get older (and wiser), you may realize you want more out of the money you work so hard to earn. You may look around and think, “Where is my money going?” and “What do I have to show for the 40 hours I’ve been slaving away every single week?”
That, my friends, may just be your defining moment. And let’s hope you’ll create a decent budget that actually tracks where your money is going.
And finally remember, unless your parent’s are still supporting you (not an option for me personally) once you’re a 20-something, you’re on your own.
Good luck out there millennials, these habits take time.