Your 20s are the decade when you try to figure out life and (hopefully) learn from your mistakes. For many, it’s the first time they’re faced with dealing with finances completely on their own.
You may be taking out student loans or trying to pay them off. You’re learning to manage credit cards and pay your bills, and you’re entering the workforce. What you do with your money in your 20s -- your saving and spending habits, and the debt you incur -- will stay with you into your 30s and beyond.
Penny-pinching and living within a budget aren't fun, but it’s a whole lot better than finding yourself swimming in debt and stressed about money. If you can avoid these 20 money mistakes in your 20s, you’ll be setting yourself up for financial security for the rest of your life.
1. Spending more than you make
The secret to building wealth is simple: live within your means, month after month. But so often we feel deprived if we have to do without -- especially if we think everyone else is living the good life.
However, spending beyond your means isn’t sustainable, as you’ll soon see when the bills start piling up. Learn to be happy with what you have. Spend less, and you’ll find financial freedom is much more empowering and gratifying than constantly trying to keep up with others.
2. Not tracking your money
Tracking your money gives you greater awareness of your spending habits and what you’re actually doing with your money. You may think you’re being thrifty and doing all you can to spend wisely and save, but when you scour the details, you might realize that your daily latte, grabbing lunch out or those happy hour drinks are adding up to more than you can afford.
3. Not setting financial goals
Building wealth and financial security doesn’t happen magically -- it takes time and effort. Like anything else in life, if you don’t have a plan, you’re just winging it. Coming up with financial goals helps you set the parameters of your budget and gives you targets to focus on.
If you want to pay off debt, buy a new computer, save for a car and put away money for retirement, you need to sit down and take a realistic look at how to make that happen.
4. Living off credit cards
There’s something you desperately want, and there’s a little piece of plastic in your wallet that says you can buy it. Sure, you’ll have to pay it back -- some day. Beware!
This habit is a surefire way to rack up mounds of debt that could take years to pay off. If there’s one thing financial gurus agree on, it’s not using credit cards as a crutch to get by. Even ultra-successful entrepreneurs like Mark Cuban suggest ditching the plastic and living off of cash as much as possible.
5. Not having an emergency fund
Emergencies can happen to anyone, at any age. Those unforeseen circumstances may be anything from losing a job to an unexpected car-repair bill. An emergency fund can protect you from crippling debt and give you peace of mind while facing stressful situations. Many financial experts suggest saving at least three months’ worth of salary, and preferably more. Include your emergency fund in your budget until it’s fully funded.
6. Telling yourself financial lies
It’s easy to tell yourself financial lies to make yourself feel better about the state of your bank account. Do you avoid looking at your bills or financial statements? Do you tell yourself that “future self” is going to take care your money woes?
We want to believe things will improve when we get a better job or a raise. The problem is, these financial lies cloud the reality of your money habits and the condition of your finances. Take an honest assessment of your finances and build on that.
7. Not taking advantage of your free time to earn extra money
You’ll never have more time and energy then you do right now. This is a precious resource, so instead of binge watching your favorite shows, put your spare time to use earning extra money. You can often make a lucrative income with a side hustle, and there are tons of micro jobs to earn extra spending cash.
8. Putting off saving for retirement
The down and dirty on saving for retirement is this: the sooner you start squirreling away money into a 401(k) or other retirement account, the longer that money has to accumulate interest and build into a healthy fund that will see you through into old age.
The standard advice is to try and save between 10 to 15 percent of your income for retirement, starting in your 20s. You can use an online calculator to determine how much you should be saving.
9. Not taking calculated risks
Your 20s are a time when you should be grabbing opportunities and seeing where life takes you. Take calculated risks now, before you have a lot of responsibilities (kids, marriage or needing to put others first). Smart risks include starting a business, moving to a metropolitan area (where there are higher paying jobs) and educating yourself in your chosen career field.
10. Allowing college expenses to balloon
College tuition has more than doubled since the 1980s. But there are ways to keep expenses down and keep your debt from ballooning while you earn a degree. For one, keep in mind that whatever you take out in student loans will need to be repaid, with interest.
The less you borrow, the less you’ll need to repay later. Start off at a community college and transfer to a four-year school. Buy used books and apply for scholarships and merit-based aid. Get a part-time job and work summers to save money for tuition and other expenses.
11. Paying off the wrong debts first
You’re committed to paying off your debts, but you may be unsure where to begin. Should you work on student loans, your credit card debt, that car loan or a home mortgage? Financial experts recommend paying off your highest rate of “bad” debt first.
Bad debt is anything that doesn’t boost your financial situation, which includes credit cards, personal bank loans and automobile loans. Focus on paying off whichever debt is charging you the highest interest rate.
12. Not building good credit
Building your credit history is key to renting an apartment, applying for a credit card or getting a loan. It takes time to build a good credit score, and involves practicing creditworthy habits such as making all your payments on time.
Avoid opening too many accounts at once, and keep your credit utilization -- the amount of credit you use as compared to your limit -- as low as possible. Pay off your credits cards monthly, or carry a balance of no more than 30 percent of your credit limit.
13. Not checking your credit scores regularly
Who wants to spend their free time checking credit scores? But knowing where your credit score stands is an important part of understanding your overall financial health.
If your score is poor, you can take steps to improve it. If it’s good, you can focus on maintaining it. It’s also a chance to make sure your credit information is accurate, so you can dispute any errors in a timely manner.
14. Going into debt for a luxury ride
You’ve finally got your first decent paying job. The first thing on many 20-somethings’ list is to upgrade their vehicle. Don’t do it! Dropping a lot of money or going into debt for a fancy car is a waste of money on something that will quickly depreciate.
Not only that, but you’re likely doing it in an attempt to “keep up with the Joneses,” which is never a good idea. Instead, invest that money in educating yourself, in your savings or in your retirement. Future you will thank 20-something you!
15. Careless spending
Does it seem like you’re barely making it between paychecks? Chances are, you’re doing some careless spending, and it’s time to kick the habit. Try paying with cash and nix those random shopping sprees. Make a grocery list, pack your lunch and try eating most of your meals in. Limit your online shopping -- those late-night purchases add up.
16. Not getting renter’s insurance
Renter’s insurance may seem like a waste … until the unexpected happens. Disaster can hit anyone. A fire or a flood destroys all your belongings. A break-in leaves you needing to replace your computer or television. Suddenly the small monthly expense of renter’s insurance seems totally worth it! It may be that you’ll never use it, but if you need it, you’ll be so grateful you had it.
17. Not having health insurance
When you’re young and healthy, it’s tempting to go without health insurance. After all, if you rarely see the doctor, why do you need to spend all that money? But the cost of a medical emergency can multiply quickly and leave you bankrupt.
Even just a trip to the ER can leaving you floundering in unexpected debt. And going years without medical care can cost you thousands later on, when medical problems you’ve been putting off suddenly creep up.
18. Not discussing finances with your significant other
It can be so awkward to talk about money with a significant other -- who wants to deal with that? But if you’re getting serious with someone, it’s time to have “the talk.”
You can start by having general discussions on your views about money, how you deal with big purchases and how you invest and save. Have honest, open discussions about your views on money and work on coming up with financial goals together.
19. Going into debt for a wedding
You’ve found your one and only, and now you want to tie the knot. Awesome! It’s your big day -- but remember it is just one day. Come up with a budget and look at your options carefully before saddling yourself with long-term debt.
Consider this: the average wedding can exceed $31,200. That’s more than half of the median household income of $55,218 and just shy of putting 15 percent down on a median-priced home of $228,700.
20. Starting a family without a financial plan
It will cost a middle-income family approximately $245,300 to raise one child from birth to 18 years -- not including pregnancy, loss of income during maternity leave or college for your bundle of joy. If baby is on the way, it’s time to start working on a plan for maternity/paternity leave and a post-delivery budget, including diapers and childcare.
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This article originally appeared on Entrepreneur.com. Minor edits have been done by the Entrepreneur.com.ph editors