For many people, their 20s is a decade spent learning the ropes of adult life during the final years of college and the first years of a career. Looking back, it's a time of growth and wonderful opportunity, but it's also a time when you can potentially make enormous mistakes for which the consequences last the rest of your life.
Many of those mistakes are financial in nature. Most of them have to do with digging a financial hole, one that at the time you thought would be easily fixable by your high-earning future self, but later you discover wasn't quite as easy as you thought.
Here are five big financial mistakes that people in their 20s often make, and you should avoid.
Mistake No. 1 -- You added extra debt to your student loans. Many students end up making big changes to their college plans in the middle of their studies, migrating from one major to another and often adding another semester or a year to their schooling. Other students simply choose to take out the largest student loans that they can in order to enjoy a large apartment or a MacBook Pro.
Such choices are mistakes that will cost you for many years after college. Those kinds of choices will increase your student loan payments every single month for as many as 20 years after college. Those kinds of choices will handcuff you to jobs based solely on salary and will limit the career choices -- and thus the personal choices -- available to you.
A better route is to find ways to minimize your college expenses. Live as inexpensively as you can with multiple roommates, and get a smaller loan. Take on as many credits as possible each semester, and buckle down when it comes to studying. Look into work-study programs and other opportunities to reduce your tuition.
Mistake No. 2 -- You didn't sign up immediately for the 401(k) plan at your first "real" job. One of the things that will be offered the first time you take a job with good benefits is a 401(k) plan or some variation thereof. Often, a good employer will offer matching funds for that 401(k) plan, which basically means free money. Still, people often don't sign up for those plans. Why? They're afraid of receiving a slightly smaller paycheck.
The truth is there will never be another time in your life as effective as right now in terms of signing up for a 401(k). The more years between right now and retirement, the better, because that means more years for compound interest to work in your favor. Sign up for a 401(k) plan as soon as possible to start building a secure retirement.
Mistake No. 3 -- You spent to bring happiness into your life. It's often tempting during those post-college years to open up the wallet and start spending on things you didn't have when you were in college or to continue an inflated parent-funded lifestyle. A big television. A brand new cellphone. A brand new computer. Video games. Clothing. Expensive meals. It goes on and on.
The catch is that buying stuff doesn't bring any lasting happiness into your life. The joy that comes from purchases is a fleeting burst of pleasure, one that fades quickly and is often forgotten, leaving you back where you started. Not only that, you're in a worse position than before because you don't have as much money, and you feel the need to have another burst of happiness.
Just avoid it entirely. Live cheaply and upgrade from there based on things you actually use or actually need. Keep your spending within your means, and seek out non-monetary ways to find lasting happiness. It's a lifelong journey, but it's a journey that will have far more rewards than just spending money.
Mistake No. 4 -- You didn't have an emergency fund. Many people overlook the basic step of having an emergency fund for life's little crises. They'll tell themselves that their credit card will handle it or convince themselves that an emergency won't happen to them.
Then, you lose that credit card or have it cancelled. Then, the car breaks down. Then, the company fires you. Then, you find yourself with an unexpected dependent. Then, you get very ill and can't earn any money for a while.
These things happen, and that's why having a cash emergency fund is so important. Tell your bank to start automatically moving a small amount from your checking to your savings every week, and don't ever look at the savings balance until you need it in a true emergency. You will be so glad that the cash is waiting for you.
Mistake No. 5 -- You maintained credit card debt. Credit card debt, carried over from month to month, is the bane of financial progress. It represents the power of compound interest working against you, except the interest rate is ludicrously high so it feels like a steamroller.
Credit cards make purchasing so easy that people often forget the connection between using the card and the resulting bills and then find themselves crushed under the weight of the debt.
Avoid it entirely. Never get into credit card debt. That means learning how to live within your means, which can be a challenging lesson, but it creates a brighter future with every smart choice you make to leave your credit card in your pocket. If you do have credit card debt, pay it down as fast as humanly possible.
These steps, taken together, will get you going in a great financial direction in your 20s and set the right tone for the rest of your life.
Trent Hamm is the founder of the personal finance website TheSimpleDollar.com, which provides consumers with resources and tools to make informed financial decisions.
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