Episode#49: 5 Money Mistakes To Avoid In Your 20's
Today’s episode is specifically for my younger viewers, who are smart enough to realize that it’s better to learn from other people and THEIR mistakes rather than going it alone and making all the same mistakes yourself. So if you’re in your teens or 20’s this episode is specifically for you because I’m going to be talking about 5 money mistakes to avoid in your 20’s. Make sure you head on down to the comments and share one of your own money mistakes so that other people can learn from you too or just commiserate with you because, we’ve all been there.
Money Mistake #1 Paying Too Much For Where You Live
This means either moving out too soon, or renting an apartment that’s way too expensive for what you’re earning. Don’t do it.
Now, I completely understand that when you’re young and getting started with life, it’s the dream to move out. It’s the dream to have an awesome apartment that’s simultaneously your private sanctuary AND the place that all your friends want to hang out. Having your own place is like the holy grail of your 20’s. Everyone wants it, and it seems like this magical thing that will solve all your problems when you just have your own space, but as someone who is nearing the end of their 20’s now I want to make you a promise and that’s that you WILL get there. You WILL get to have your own place that you can decorate and entertain at and have netflix movie nights at and maybe even add a puppy to one day, but don’t rush it and jump into it too early. You risk losing it in the turbulence of your early adult life or even worse, cheating yourself of the financial security that you should be starting to build in your 20’s.
I know you’re probably dying to get out of being at home with your parents, but it’s SO worth it to save a bit of extra money first by either staying at home with your parents OR if you don’t have that luxury, instead renting that dodgy apartment with roommates that’s dirt cheap because it’s actually just a converted garage.
Where you live ends up being your biggest expense, and will continue to be your biggest expense for most of the rest of your life. So if you make the smart financial decision to save some money on your living situation while you’re young, it’s going to set you up for an even better living situation in the future. I recommend either staying at home if that’s a luxury you have the option of, or finding a cheap place with roommates to help split the costs. Living alone is expensive and it’s a luxury, not a living requirement.
Use this early opportunity to save some money. Save an emergency fund, start saving money for the car you need, or your down payment you’re going to want to make to become an early homeowner. If you grab hold of this opportunity to create some basic financial stability in your 20’s then the rest of your life is going to be so much easier. You’ll reach your goals and milestones earlier, and you won’t be caught in your 30’s wanting to get into the housing market and wondering why everything is so expensive and talking about how it’s impossible to buy a home these days. Even though every bit of messaging is telling you to move out and get your own place as soon as possible, it’s not worth it to do this and then constantly be struggling financially. This is one of those things that will be a small temporary sacrifice for an amazing long term gain.
Money Mistake #2 is Buying an Expensive Vehicle
If you heard this and your brain said ‘well it’s not like I want a BMW, so this doesn’t apply to me’, I want you to hear me out. Yes this obviously applies to people who view cars as status symbols and want to put all their money into a fancy vehicle, but whether you’re looking at muscle cars or beaters, a vehicle is a huge expense no matter what, and needs to be carefully considered.
Start by honestly asking yourself if you really need a car at this stage of your life. Yes the freedom is amazing, but oh my god when you’re looking at a single credit card statement that paid your car insurance and 3 repair charges because the garage just couldn’t figure out what was wrong with your car, that freedom quickly doesn’t seem worth it.
If you’re at a place in life where you can get by with public transit, bikes, riding with friends, or even joining a car share program where you just rent one when you need it, then absolutely do that. I’ve had a vehicle all through my 20’s, and for a number of years the only reason that I kept that vehicle was because I needed it to run my business. If I could have gotten rid of it I would have and I would truly have 10’s of thousands of dollars more in my bank account from the past decade of savings. If you do need a vehicle, then question 2 is what is the bare minimum you can spend on a car while still buying a safe car that won’t be breaking down every month?
If you just drive around the city, don’t do heavy snow driving, and don’t regularly transport big things, then it’s better off to get away with an unsexy sedan for a few years rather than buying a crossover which costs more in the first place, often costs more in insurance, and costs you way more gas. The same goes for the age of the vehicle. Usually getting a used vehicle is much more economical so I highly recommend you do that. Before you go ahead and buy the cheapest car you can buy though make sure you ask yourself the third question which is ‘how much repair work can you anticipate this vehicle will need?’.
It’s not always the best decision financially to buy a beater, because car repairs can be soooo expensive. Now I know it feels like I’ve just given you an impossible problem to solve, but really what I’m getting at is: make sure that if you’re buying a vehicle in your 20’s, that you’re buying it out of need, and not out of want. Just like the fancy apartment, I promise you that you will get there, and you don’t need to risk it all to get there so fast.
Money Mistake #3 is Not Understanding How Your Credit Card Works
This mistake can manifest in two different ways. First, by not understanding how to use your credit card properly, you run the risk of getting yourself into credit card debt or messing up your credit score. On the other hand though, lots of people decide to get around this risk by just deciding that they won’t use a credit card at all, BUT this robs you of one of the best opportunities you have to start building good credit while you’re young. And if you don’t start building your credit when you’re young, this could really get in your way when you need to take out a loan, finance a car, or apply for a mortgage because you don’t have the credit score to back you up for a lender to approve you.
When you’re in your 20’s it’s important that a) you start using a credit card provided you think you can do so responsibly and b) to learn how you should be using your credit card properly. A quick overview is that you want to pay off your card on time, you want to pay it off in-full, and you want to make sure that you’re only using 30% or less of your available credit limit. I’m not going to go into detail on this here, but if you want to learn more I have an entire episode all about how to use your credit card properly.
Money Mistake #4 is Not Tracking Your Finances
The truth of the matter is that money doesn’t get easier as you get older. You don’t really just grow up, turn 30 and magically get better with your money. It’s something that you need to actively invest time into learning about and understanding.
I promise you, future you will thank you for doing even just the baseline amount of this in your 20’s rather than waiting until you really do need to have your act together aaaaaand then you discover that you don’t know how to money. And there’s one really basic thing you can start doing in your 20’s that will help you out SO much over the course of the rest of your life and that is to get into the habit of tracking your expenses.
One of the best skills to develop that will help you manage money going forward is to simply have an understanding of what you earn vs what you spend. To do this, start a practice of reviewing your finances once a month. Put it in your calendar and set aside just a couple hours max to look at and record what you earned that month, and most importantly what you spent that month. Over time you’ll start to get a really good understanding of your spending habits and start to see the different ways that money flows out of your life.
From there you’ll be completely in the drivers’ seat to make good spending decisions going forward without having to resort to extremes like trying to fit yourself into a teeny tiny little budget and then convincing yourself that you have a ‘spending problem’ when you fail to stick to the budget. Get in the habit now of tracking your spending and again it’s going to make the upcoming years of your life soooo much easier and far less painful because you’ll be able to avoid all the money and debt problems that so many people go through. If you want to learn more about tracking your spending I recommend checking out this episode here where I walk you through the monthly routine that I use to check in on my finances. Again I’ll also link that below.
Money Mistake #5 is Not Starting a Savings Regime
I’m sure you know that you should be starting to save money in your 20’s, but are you actually doing it? If you’re not sticking to a savings plan yet then I bet you’ve said things to yourself like ‘I’m young and should just have fun with my money’, or ‘there’s time to save when I’m older’ or ‘It’ll be easier to start saving when I’m older and earning more money’. As someone who is almost 30 (which blows my freaking mind) I have one of those nuggets of life wisdom to share with you, and that’s that saving money doesn’t get easier as you get older. Instead, what happens is when you start to earn more money, you also start to want more, and the money that you need to spend also naturally increases.
The good news is that right now at this stage in your life it doesn’t really matter how much money you save, more so that you start building the habit of saving, and you start using what you do save to invest and get your money working and growing for you and using the magic of compound interest combined with a long time horizon. If that was a bit jargon-y for you, I’m sorry, don’t get scared off, it’s actually not that complicated and I explain it all in this video here all about saving, investing, and how compound interest helps you build wealth.
So you want to start saving and investing a percentage of your paycheck now. Start small if you need to, and set yourself up so that your savings are automated. Whether that means setting up an automatic transfer through your bank, or enrolling in your company’s retirement plan matching program, just start the habit, automate it, and you’ll find that as long as you don’t see that money available in your bank account, you’re never really going to miss it. Plus, if you start doing this early, you’ll have to save way less money dollar for dollar to retire a millionaire than you would have to if you started later in life.
So, hopefully you’re feeling inspired to start getting your finances together as soon as possible. It’s not necessarily going to be easy, but it will start to get easier as you go, and even though you should go forth and have fun and have experiences during this decade of life, you also have the opportunity to help future you out, and grab this opportunity to set yourself up for financial success later in life. I’m sure there are a hundred other finance tips and money mistakes to avoid in your 20’s, so if you think I missed any here or if you have your own examples that have been learned from painful experience please leave them below in the comments section. I’d love to see them, probably commiserate with you on some of them, and hopefully other people will find some little nuggets of wisdom and value in there.
Linked Resources
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