Young Finances

Common Financial Mistakes You Make in Your Twenties

financial-mistakes-to-avoid

For many of us in our twenties, we experience the elation of suddenly earning substantially more than we’re otherwise used to; long gone are the days of babysitting and summer jobs.

Of course we’re excited to treat ourselves for all of our hard work, but the decisions we make in our youth can haunt us for years to come.

Therefore, you should try your best to avoid the pitfalls that are all too common in your twenties!

Unlike previous generations, this wave of employees are not expected to spend 30 years at one company, building up a safe haven pension plan for their retirement.

Today’s workplace is fluid, which is just one of the reason why contributing to your employer’s retirement plan makes sense.

Even if you intend to change jobs every few years, it’s just common sense to contribute at least up to the employer match as long as you’re with every company. Furthermore, consult various saving options that will give you interest over time – by investing now, the onset of the years will allow your stockpile to grow into a sizable retirement.
Student loans – there is no doubt that they suck, especially with so many college graduates struggling to find a job.

That being said, skipping on payments will only allow this problem to fester, so avoid this common mistake, as interest will increase and your credit score will plummet.

Consolidate your loans and arrange to have the fees automatically taken from your account on a monthly basis.

Another debt that many people in their 20’s fail to adequately address is that which is racked up by their credit cards.

While you will absolutely want to have one to establish a credit score, use it minimally and keep track of your spending so you don’t fall for the temptation of spending more than you can pay off.

Don’t spend emotionally – this is something that we’ve all been guilty of in our lives, and doesn’t lead to dire disaster when done on a small scale.

However, splurging on the latest designer threads because you feel ugly or treating yourself to a trip to the Bahamas because you were dumped can lead to credit card debt that will be difficult to overcome years down the line.

You may not be surprised to learn that at least one-third of couples overspend on their weddings, which can be attributed to peer pressure, failure to budget and, of course, emotional spending!

To sidestep this, provide yourself with thorough research and insight into your combined finances before deciding upon a number.

To avoid impulsive buying, create a “shopping list” and give yourself the appropriate time to mull over the price tag and hunt around for potential savings.

Another common source of emotional spending is buying a house.

Yes, this is the “American Dream” that we have been instilled with ever since we were a child, but hastily leaping forward with this next step into adulthood leaves many people in their twenties financially burdened and bummed.

It’s all too easy to fall in love with one particular property that seems to complete your dreams, but do NOT take the leap if you cannot realistically handle the mortgage.

Counting on that pending raise or waving away concerns with “we’ll figure it out” is what gets many people in hot water down the line.

Furthermore, always budget for the maintenance that comes along with owning a home; there will be no landlord to call if a pipe bursts or your sidewalks need shoveled, so practically assess whether you can swing the yearly costs that come with upkeep on top of the mortgage.

No matter what your financials worries are, it’s easy to avoid stress if you prepare correctly for the major financial milestones.

Getting in touch with a financial investor is a great first step to getting your fiscal life in order.

If it’s an individual burden such as student loans or a cooperative investment including buying a house or getting married, always be open to communicating with your loan officers, advisor or each other.

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  • Concerned

    Traditional (and Roth) IRAs are not connected to your employer and your employer does not match. Retirement plans that are sponsored by your employer and may have employer matching include 401(k) or 403(b) (if you work for a non-profit).

  • Concerned

    Traditional (and Roth) IRAs are not connected to your employer and your employer does not match. Retirement plans that are sponsored by your employer and may have employer matching include 401(k) or 403(b) (if you work for a non-profit).

    • http://YoungFinances.com/ LaTisha Styles

      My employer offers a 401k with matching and Traditional or Roth option; however the match has to go in the Traditional bucket. Every employer is different and plans vary so you should speak with your HR rep to get the specifics on yours. Thanks for stopping by!

  • Your Daily Finance

    Great advice! The one about credit cards is tough. Schools should not allow companies to prey on students. When I went off to college I knew nothing of credit and credit cards. Within the first week I had several offers on campus to get free shirts and cups just from filling out an application. 2-3 weeks later you have a 17yr old kid with a credit card. Pass on the app and start saving for retirement as soon as you can.

    • http://YoungFinances.com/ LaTisha Styles

      I got my first credit card at college and a free t-shirt! I’m glad things have changed now with the types of incentives that are allowed to be offered. Most teens just don’t know how credit cards work until they have learned the hard way like me.

  • http://my2centopinion.weebly.com/ David @my2centopinion

    There are sooo many options to make payments on your student loan, there should be very few reason you shouldn’t be making it. They have deference, payment restructuring, forbearance. If you are having trouble with finances this is the loan should take special consideration, it can’t be written off in bankruptcy. No matter how dyer your situation this loan will follow you around no matter what.

    • http://YoungFinances.com/ LaTisha Styles

      So true! The differences between deferment and forbearance are important to understand also. I had a friend that used forbearance when she could have used in-school deferment and now she is all out of forbearance time and cannot use deferment time.

  • Paul @ The Frugal Toad

    The best advice to someone in their 20s is to start investing as soon as possible in a company sponsored retirement plan at least up to the match. It is scary to think that many will change jobs and companies several times and the effect that will have on their pension!

    • http://YoungFinances.com/ LaTisha Styles

      Yeah, sticking with the same job has a positive effect on your retirement fund. Especially when your company has a vesting schedule. In that case, you may not be able to claim the company match until you’ve put in your 5 years or more of service.

  • teensgotcents2

    I am not going to take on student loan or credit card debt – but the wedding? That might be a problem! :-)

  • teensgotcents2

    I am not going to take on student loan or credit card debt – but the wedding? That might be a problem! :-)

  • Lee

    While you are young, it is important to practice not spending more than your means. When you notice that you have money problems, you should immediately learn to solve it and take control of it. It is also advised to start investing rather than spending on stuffs you won’t appreciate in the next few years.

    • http://YoungFinances.com/ LaTisha Styles

      Very true. When I think about all of the stuff that I spent my money on in my early twenties it really baffles me. But I did have all the latest gadgets! but now nothing to show for it.

  • Lee

    While you are young, it is important to practice not spending more than your means. When you notice that you have money problems, you should immediately learn to solve it and take control of it. It is also advised to start investing rather than spending on stuffs you won’t appreciate in the next few years.

    • http://YoungFinances.com/ LaTisha Styles

      Very true. When I think about all of the stuff that I spent my money on in my early twenties it really baffles me. But I did have all the latest gadgets! but now nothing to show for it.

  • http://www.carriewithchildren.com Carrie with Children

    I fall under a few of these categories and made many mistakes in my twenties. I spent money on such foolish things then when I should have been saving!

    • http://YoungFinances.com/ LaTisha Styles

      Sometimes I wonder where all of my money went! But the only thing I can do now is to not make the same mistakes.

  • Jennifer @ My Sweet Sanity

    I have a 20 year old and he definitely needs to read this and the rest of your site!

  • Lynda Self

    Good tips. I think people in their 20′s should live with Mom & Dad as long as possible and save their money. I don’t know if my kids agree with me much.

    • http://YoungFinances.com/ LaTisha Styles

      Haha! My mom would have kept me at the house until I grew grey hairs. It made sense financially but I just needed my freedom. Plus my parents live way too far from the city. But it was nice to live at home while I did.

    • http://YoungFinances.com/ LaTisha Styles

      Haha! My mom would have kept me at the house until I grew grey hairs. It made sense financially but I just needed my freedom. Plus my parents live way too far from the city. But it was nice to live at home while I did.

  • Stephanie Person

    Yes I agree with young people going out and buying a house too quickly. I am only 29 and I don’t want to be tied to a mortgage for the rest of my life nor do I want to be living paycheck to paycheck owning one. I want to travel and see the world! :)

    • http://YoungFinances.com/ LaTisha Styles

      Exactly! I love to travel and I had considered buying a house as well. But the trade off just didn’t make sense to me at the time.

  • http://www.theafropolitanmom.com/ Kira @ Afropolitan Mom

    Glad i didn’t fall prey into any of these, but you made some excellent points.

    • http://YoungFinances.com/ LaTisha Styles

      Thanks for stopping by!

  • Rachel Young

    I need to send this to my brother.. he just turned 21!

  • Rachel Young

    I need to send this to my brother.. he just turned 21!

    • http://YoungFinances.com/ LaTisha Styles

      That would be awesome, thanks!

  • cookiesandclogs

    Credit cards can create be such a trap! As for weddings, my husband and I went simple and never regretted it!

    • http://YoungFinances.com/ LaTisha Styles

      I’m not yet married but I’d like to have a reasonably nice wedding. However, there’s no way I could see myself going into debt for a wedding. You did it the smart way!

    • http://YoungFinances.com/ LaTisha Styles

      I’m not yet married but I’d like to have a reasonably nice wedding. However, there’s no way I could see myself going into debt for a wedding. You did it the smart way!

  • fabgrandma

    I think the only thing I did not do is spend too much on a wedding. We went to the justic of the peace and only paid the marriage license fee and a tip to the JP

    • http://YoungFinances.com/ LaTisha Styles

      Smart! I’ve talked about this with my friends several times and the wedding is really for your guests. It’s a huge elaborate party that you’re paying for. No need to start a marriage with debt and stress.

    • http://YoungFinances.com/ LaTisha Styles

      Smart! I’ve talked about this with my friends several times and the wedding is really for your guests. It’s a huge elaborate party that you’re paying for. No need to start a marriage with debt and stress.

  • James Rich

    Hey LaTisha,
    Great blog with nice information.

  • http://modestmoney.com/ Simon | Modest Money

    I think not saving for retirement or not even saving at all is one of the worst mistakes a young adult can make. I understand the temptation is to spend every dime that comes in and “enjoy life”, yet I argue that all things should be done in moderation. Have fun, but stash something away, your older self with thank you for that.

  • authentic

    Investment planning for young adult to help you
    create a financial plan for future

  • Hunain @ HowToSaveMoney.ca

    Young people spend a lot of money without thinking, that’s for sure. When I turned 21, I did the same thing but after a few years when you start to understand the value of money, then you will start thinking that I wish I would have saved my money instead of spending it so foolishly. So my advice to all teenagers who are beginning their 20’s, make sure to save some money for yourself later on, and create a proper budget so you can keep track of your spending and income.

  • Jennifer @ My Sweet Sanity

    I have a 20 year old and he definitely needs to read this and the rest of your site!

  • http://YoungFinances.com/ LaTisha Styles

    Thank you for sharing!