5 Money Mistakes To Avoid In Your 20’s (So You Can Prosper In Your 30’s)

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This is a guest post by Charles Tran.

When you’re a twentysomething, long-term financial planning is often not a high priority. Fresh out of college, the future can seem so remote and uninteresting. Everything is all about the moment, the here-and-now, the Friday nights with friends and the Saturday nights with your significant other. Tabs at the bar and swipes of the credit card are quick decisions, and are often not thought of again until the bill comes.

Unfortunately, those good times do come to an end eventually. By the time you hit the 30s, a decade of unfocused financial habits can start to take its toll.

That’s why it’s important to plan ahead. (And really, whatever decade you’re on, you can take action to improve your situation so that the later version of yourself doesn’t get overwhelmed). In that spirit, here are a few mistakes to avoid in your 20’s so you can prosper in your 30’s.

1. When Possible, Avoid Deferring Student Loans

It’s hard to turn down the option of deferring a loan, but by delaying payment on your student loans, you extend the debt burden into a time when you will be starting a family and buying a house. The sooner those college loans get paid down, the easier it is to manage this next phase of your life. Creditors tend to view student loans as “good debt,” but even so you’re best off making a good dent in them before it’s time to settle down.

2. Don’t Put Off Starting a 401(k)

Retirement may seem too remote to even consider, but if you start a 401(k) with $100 a month at 22 years old, by the time you reach retirement age at 65, you would have $243,000 (assuming a conservative 6% interest rate), as opposed to accumulating just $125,000 if you didn’t start until age 32. Basically every 10 years of that $100/month contribution could double your money by 65. While you can’t go back in time, this is a case of better now than never. Get your retirement savings going now, take advantage of any employer match, and consider upping your percentage if you already do participate.

3. Avoid Running Up Unnecessary Credit Card Debt

If you were a typical college student, you probably had a credit card before you had your first job. While credit cards serve a valuable service by providing convenience and helping you build a credit history, they can also tempt you into living beyond your means. In our 20’s, we generally earn our lowest incomes, which can make our credit card bills seem overwhelming. And that makes it tempting to pay only the minimum balances. However, if you fall into the minimum payment trap, it will cost you lots of interest later on. So whatever age you are now, figure out how to free your future self by coming up with a more powerful debt repayment plan.

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4. Don’t Forget to Map Out a Housing Strategy

Many us move more frequently in our 20’s than any other time in our lives. We move from the crowded comfort of the college dorm rooms to apartment living with roommates. Perhaps those roomies move out, leaving you with the full rent. Or you move in with friends who lose their jobs and rely on your to take on more of the burden. Or you just take on more space than you can really afford because you didn’t factor in the cost of utility bills, parking and Internet. Overextending ourselves comes with the territory of youth. The only way past it is to do some tough-love math and figure out what you can realistically afford. Also, it’s not too early to start planning whether (and when) you’ll want to buy a home someday.

5. Don’t Ignore Your Credit History

Late payments, high credit card debt, missed payments. It’s easy to damage your credit score while you’re trying to establish yourself, especially when you don’t even grasp the importance of good credit. But here’s why it matters: your score is what lenders use to judge how much they’re willing to lend you, how much they’ll charge you (interest and fees), and whether they’re willing to give you a hand at all. This becomes so important in your 30’s if you choose to begin home shopping, looking for a new car, or even starting your own business. Here is a good article on how to improve your credit to reverse the damage you did in your 20’s.

Above all, remember that no one is perfect! Even if you’ve already made some mistakes, it’s not an indication that you can’t be successful at managing your finances – on the contrary, it’s just a learning experience that will make you that much wiser in the future.

What mistakes did you make (or avoid) in your 20’s? Share them in the comments below!

Image Credit: Matt Gibson

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  • Billiam

    Some money mistakes I made during my 20’s:

    Credit card overuse to compensate for lack of decent income.

    Failure to foresee the trouble that occasional credit card use without the means to pay in full would cause for ‘future me’.

    Failure to make progress/gains during advantageously cheap housing years, i.e., while living with parents.

    Cashing out an old 401k from a previous employer instead of converting it to an IRA.

    Not treating credit card debt with enough urgency.

    Not automating at least the minimum payments, and as a result ending up with insanely high finance charges.

    Hanging out with friends who were spenders.

    Paying with the credit card for frequent trips home from college to see friends.

    I didn’t do the payoff calculation. I just thought surely I would eventually have a better income, and that hope was my only plan.

    Not understanding the importance of investing and its role in building wealth toward financial independence.

    – –

    There are more, but the important thing is that the past is past. I’ve learned from the mistakes and have taken step after step away from that mode of toxic thinking. Dwelling on past mistakes can be depressing, so instead I use that frustration to positively fuel more purpose and motivation.

    With each payment we buy back our freedom, bit by glorious bit.

    Keep up the good work RFZ peeps.

    • Wow, great comment! The things you list (using credit cards to supplement income, being influenced by friends, not treating debt with urgency) are things that so many of us go through.

      And you’re so right… the most important thing is to move forward and start making decisions that will set you up for a future of financial freedom! Keep up the great work.

      P.S. If you ever want to write about your experience for our blog, just let me know!