Your twenties just might be one of the most difficult financial times of your life. For most people, this is the period of time when they move out of their parents? home, get a job, and set out for life on their own. While that can be exciting opportunity, it can also be difficult to get settled as you start to realize just how expensive life can be. Juggling all of your bills on a starting salary is often difficult, and many people struggle to find the right balance to make it work. If you happen to get married or have a child during this period, those life events can only add to the stress.
As you work on getting through your 20s in good financial condition, try to avoid making any of the following five financial mistakes.
#1 ? Failing to Plan is Likely the Biggest of Financial Mistakes
Many young people simply fail to plan out their finances prior to making big purchases. For example, they may buy a new car?or sign a lease on an expensive apartment without really crunching the numbers of their budget. Take your time to think ahead when it comes to spending money so you ensure that you can afford the things you are taking on.
I know I did this numerous times and have seen friends go through the same thing. While it might be a rite of passage, I believe some forethought can help soften the blow of this financial mistake.
#2 ? Feeling Rich
If you’ve never really had a job before, you might feel like you are ?rich? when you start getting a paycheck coming in every two weeks. While it might seem like a lot of money at first, you will find that it goes out just as fast as it comes in.
Looking back I wished I would’ve taken those first few months in my first real job to see what expenses I was responsible for and implementing those in starting a budget.
#3 ? Relying Too Much on Credit
There is a time and place for the responsible use of credit cards, but don?t overdo it. Using credit cards can actually be a good idea when you are in your 20s so you may be building credit from nothing, but it only works if you are making responsible purchases and paying off your cards each and every month. This also means not using credit cards as a way to rationalize spending, but only as a part of a well rounded financial plan.
#4 ? Getting Tied Down
Most people are just starting to figure life out when they are in their 20s, so you don?t want to tie yourself down to large revolving payments. Focus on keeping your financial life as flexible as possible so you can make changes going forward based on the circumstances of your personal and professional life.
It might be tempting to make a series of large purchases, but you can probably do without most of those things for the time being.
#5 ? Not Thinking Ahead
Just because you are young and don?t yet have too many ?real life? responsibilities, you should still be thinking ahead and saving your money when possible. Try to make a goal of setting aside a certain amount of money each month to start investing for retirement.
I know retirement may seem like it’s far off, and it is, but starting now is the best thing you can do in order to grow the kind of wealth you want down the road. If you have access to a 401(k) and are overwhelmed by it, consider using the free service at Personal Capital?to help you find the best funds out of your plan and help you stay on track.
What financial mistakes did you make in your 20s? If there is one thing you could go back and tell your younger self to do, what would it be? What was the dumbest purchase you made just starting out?
Photo courtesy of: Betssssy
Wise Dollar
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It’s easy to fall into the feeling rich category. You come from making squat to suddenly having $30K a year. It’s very tempting to go out and start spending that money on cars, clothes, dinners out, etc.
The trick I suggest to avoid this is to contribute at least 10% to your 401k. That way your paycheck will be smaller, forcing you to not spend as much (ideally, you won’t go into credit card debt). As a bonus, that money will grow for you over the long term, killing two birds with one stone!
Agreed Jon. I think that’s especially the case if you come from a background that didn’t focus much on financial literacy.
Love the suggestion Jon!
Relying too much on credit was my downfall when I was in my 20s and I had to learn the hard way the importance of not having credit card debt. That debt haunted for me for years. Great tips for young adults.
That was my issue as well Petrish. Thankfully card companies have been majorly restricted in their on campus marketing efforts.
Personally experienced #2! Felt very rich with my first paycheck. I was running out of money a week before the next paycheck. It was a good learning experience though.
A lot of us fall into that trap!
Lifestyle inflation was a tough one for me. I guess that’s like the “feeling rich” point. As soon as I started working I started spending more and inflating my lifestyle. Bars, restaurants, a motorcycle. I bought them all right after graduation.
Yep, same here Thomas!
Avoiding these mistakes in your twenties will save you a lot of grief and money. This is good advice. These mistakes are also important to avoid at any age. Failing to plan, relying too much on credit, and not thinking ahead has resulted in financial hardship, disappointment, and delayed retirements for far too many people.
My biggest mistake is that I didn’t save some of my salary. I used my salary for new gadgets and gimmicks with my friends. I wasn’t really into saving. I was a happy go lucky guy. I wish I could turn back time….
I made almost every one of these mistakes and some of them I really regret. I should’ve saved up a lot of money during the 6 months I was working full-time before my mortgage loan payments kicked in, but instead I wasted a lot of money on clothes… Wish I could do that over again for sure!
LOL, I spent many years feeling rich and acting rich. Then I spent many years denying the fact that I couldn’t afford to act like I was rich. 🙂
Though our financial journey hasn’t been perfected, we were able to avoid some major pitfalls by trying to live like we were still in college (for the most part) until we paid off our student loans. And by questioning the American dream lifestyle of big house, big car loans, new furniture, etc. and instead investing that money in 401k and paying off mortgage quickly. Seeing an illustration about the investment earning power of an early nest egg was very informative and motivating for us.