When you’re in your 20s – especially your early 20s – it’s easy to feel as if you will never get old. What if you do make a few money mistakes? Heck, you have like 30 years to fix them. The problem is that if your goal is just to have a good time, that you think time is on your side and you’re forgetting to plan your money and your future, you may be making mistakes that will haunt you for years to come.
It’s easy to forget about money
Unfortunately, money is one of the things we forget about most when in our 20s. You have your first job and it pays an amazing $65,000 a year. You can’t get over how lucky you’ve been what with your friends that are still living with their parents and have hardly two dimes to rub together. You don’t worry about saving because you have so much time ahead of you to start sticking money away for your retirement. What you need to do at this point is create a budget where you’re saving at least 20% of your net pay for the future, spending 30% on your essentials and having 30% left over for your lifestyle including all that fun and partying. Beyond this, one Ted Talk speaker, Alexa Von Tobel, recently identified the six financial mistakes made most often by people in their 20s that may come back to haunt them in just 10 years.
Renting an expensive apartment or house
Now that you have that amazing salary it can become very tempting to go all out and rent an incredible house or apartment. Where we live an 800 ft.² apartment now rents for about a thousand dollars a month so if you want something roomier it might cost you more than $2000 a month, not to speak of what a three-bedroom home rents for. One of the big money mistakes is that when you rent an expensive house or apartment you’re basically stealing from your future because that’s money you’re not saving. And in a worst-case scenario by the time you pay that rent you might not have enough money left over to furnish that cool house or apartment.
Failing to make a budget
Budgeting is boring, right? It just takes a lot of time and who needs it? Well, the reason you need a budget is that it’s the only way you can live below your means, which frees up money you could save for the future. And trust us. You will definitely need more money in the future than today. Your future will probably include a husband or wife and a few children who will want a home. Children also mean school fees, additional food, clothes, and toys. Your parents will be growing older and may need financial help from you. So make a budget so you’re not just burning through your money.
When you’re in your 20s and you’re all caught up in your work and your other activities, it’s easy to forget about the payments on your student loans, which is one of the biggest money mistakes. If you miss just one payment your loan becomes delinquent. This will have a very adverse affect on your credit rating. In addition, your wages may be garnished, the government could withhold your tax refunds. And you would lose your eligibility for future federal and state financial aid.
If you are having a problem with your student loans, here’s a short video about all the options for repayment, one of which could be better than the one you’re on now.
Failing to negotiate your compensation package
When you’re in your 20s and offered your first job it’s easy to just accept whatever compensation package you’re offered. You feel just amazingly grateful to be offered anything. But before you leap to say yes to a compensation package, you need to be willing to speak up and do some negotiating. If you fail to negotiate the best salary package you can and if you don’t ask for periodic raises, you’ll be pretty much stuck where you are for years to come. What can you do if the idea of negotiating your salary package kind of terrifies you? Go buy a good book on successful negotiating and take notes.
Not creating an emergency fund
Into every life there comes unexpected and unbudgeted expenses. A big money mistake is if you fail to put money away to cover that expensive car repair, to pay for that trip to the emergency room or to buy a new laptop because yours just dropped dead, then guess what? You’ll have to borrow the money, which again is stealing from your future. You should do your best to build up an emergency fund the equivalent of three months of your living expenses. That way, when one of those unexpected expenses hit you’ll be able to cover it without adding new debt.
Neglecting to save for retirement
Whether you want to think about this or not, you will eventually grow old. And when you do you’ll probably want to have a decent retirement. This means you need to start saving now. You could start by saving just $25 out of each paycheck. That might not seem like much but thanks to the power of compounding interest that $25 will eventually grow into a nice-sized sum. Of course, you will want to increase that $25 as your earnings increase. If your employer offers a 401(k) plan, jump on it – especially if it provides matching funds as this is like getting free money. If there is no 401(k) plan where you work then open an IRA, invest in just index funds and leave them alone.
If you make these money mistakes
When you’re in your 20s and just starting out in life it’s easy to get lost in today and fail to think about your future. But if you do this and make some or all of the six money mistakes you’ve just read, they could still be haunting you 10, 20 or even 30 years from now.