Between student loan payments and balancing adult responsibilities, it can be easy to neglect your finances in your 20’s. Falling into money traps is completely avoidable with a little thought and planning. Try your best to avoid making these money mistakes in your 20’s.
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1. Expensive Cars
It’s a classic case of keeping up with the Joneses. Sally from work just bought a brand new, shiny luxury car, and you want one too. Before you go out get it, consider all the costs associated with it. Monthly payments, insurance, maintenance. That $100 fix could easily turn into a $1000 fix for a luxury car. Plus, the second you drive the vehicle off the lot, its value depreciates.
The bottom line? Don’t make the mistake of letting a luxury car you that you can’t afford drain your bank account.
2. No-Money-Down Offers
No-money down offers at retail and furniture stores often seem like a good option if you’d rather pay off your purchases in increments. But quite frankly, if you can’t afford that new dining table or mattress up front, you shouldn’t make the mistake of buying it. Most no-money-down offers will charge incredibly high interest rates with confusing clauses that allow the interest rates to be raised even higher. More often than not you’ll get the raw end of the deal. At the end of the promotional period, all that interest is tacked on, and you’ll owe more money than you initially thought.
Monthly subscription fees may not seem like much individually, but they’ll leave you wondering why you don’t have any money left at the end of the month. Between Amazon Prime, Netflix, Spotify, iCloud, Dropbox, cable, and that gym you’ve gone to twice this year – you can start to see how the costs add up. Really evaluate what you use, and decide which subscription services you can start cutting out of your monthly budget.
4. Student Loan Debt
College tuition is steadily rising every year, and so is national student debt. Make sure you’re meeting your monthly student loan payments, and contribute extra when you can! The sooner you pay it off, the sooner you can stop worrying about it.
If you’re currently attending college, be proactive in reducing costs. Take basic courses at community college, rent textbooks from Amazon, and don’t blow your bank account partying every night. If you’re continuing your education and attending grad school, do it for the right reasons. If you’re enrolling simply because you don’t know what else to do, take some time to consider if that decision is in your best long-term financial interest.
If you’re on the fence about going to college, do your research. There are plenty of high paying jobs that don’t require a college degree. College is certainly worth it for some, but there are other options out there if college just isn’t your thing.
5. Not Caring About Your Credit
If you ever plan on buying a house, a car, or taking out any other sort of loan, you’ll need a good credit score. And let’s face it, it’s easier to build a good credit score from the beginning than it is to repair a bad one.
Pay off the full amount every month (or as close to the full amount as possible), and pay it on time. Just remember, a credit card is not free money. Any amount you carry over will have to be paid back – plus interest and fees. Don’t buy anything you can’t afford, and stay out of consumer debt.
6. Leaving Money in a Low-Yield Savings Account
If your money is sitting in a bank that’s only earning you %0.01 in interest, it’s time to open a new bank account. Interest rates are getting more and more competitive, and rates of at least 2% are becoming the new standard. It may not seem like much, but let’s say you have a $5,000 emergency fund. Move that money over to an account with 2% interest, and you’ve earned $100 by the end of the year without any work on your part!
Some banks are even offering savings accounts with 3% – 4% interest rates. Just be sure to always read the account terms, and sign up with reputable banks that are FDIC insured. Some accounts have no minimum balance requirements. For others, you need to have a higher minimum balance (usually around $25,000) before you’ll see your interest rates that high.
7. Not Investing
The biggest money trap people fall into in their 20’s is not investing at all. If you’re not investing now, you could be missing out on thousands and thousands of dollars of compounding interest.
So how can you start investing? Check if your employer offers 401(k) matching. Sign up for a Roth IRA. Research stocks you’d be interested in buying. Learn about real estate. Look into money management firms, investment firms, and mutual funds.
But most importantly, educate yourself. There are hundreds of thousands of articles, books, and videos that can help you start learning about investing. By no means do you have to be an expert, but it’s important to learn about investment opportunities that you see value in, and start saving for your future.