In this article, we’ll be discussing some of the most common mistakes people in their 20s make when it comes to personal finances. I have witnessed these mistakes throughout my life, as well as made many of them myself. I hope to provide some balanced information on this topic so that you can avoid these costly mistakes.
If you can avoid these mistakes, you will be in much better financial shape than most people, roughly 10 years older than you. You will also have many more options, opportunities, and resources available to you with your greater earnings potential and savings capacity.
Personal finance mistakes to avoid in your 20s
I’d tell my 20-something-year-old self the following money mistakes to avoid:
1. Believing that you’re too young to concern yourself with retirement-related matters
You’re never too young to start saving for your retirement. In fact, if you begin saving as soon as you can upon entering the workforce, your money will have decades to grow and give you a nice head-start on more mature savers who waited until their 40s or even older to begin putting money away.
Young people often don’t think about saving for retirement because they don’t know what lies ahead. But, the earlier you start saving and investing, the more your money can grow and compound over time.
2. Not preserving your retirement savings when you change jobs
This mistake can be very costly if you change jobs and fail to rollover your retirement accounts from the old job. You may lose a lot of money due to the fees associated with the account. Many people today have several employers over their lifetime, so it is important to make sure that all of your former employers have your current address so you can keep track of your retirement accounts.
3. Relying too much on debt to meet present-day needs
This isn’t an issue for those who work toward financial security and not “things.” But, if you’re the type of person who spends a lot of money on material items such as cars, televisions, clothes, etc., then you are likely to get yourself into huge trouble by relying too heavily on loans for your everyday needs. Furthermore, you will probably go into debt on some of these items only to find out later that the item is worn down and needs replacement.
4. Not talking to your family about money matters
It can be beneficial to run your finances by someone who cares about you. With any family situation, there are bound to be some disagreements on money topics. However, talking with your family members can help you clear up any differences of opinion and prevent costly financial mistakes.
5. Going at it alone.
Working with a financial advisor can help you comply with all the rules and regulations accompanying your retirement funds and other investments. It is best to seek out an investment professional who has the required licensing and credentials to provide advice on your finances, such as a Certified Financial Planner (CFP).
The most important thing for you to remember is that you don’t have to make the same mistakes. Learning from other people’s bad experiences can help you plan and avoid costly pitfalls.