There’s a lot of advice out there on money mistakes, savings, how to get rich. Why not add a few more tips to your tool kit for saving money? Here are some money mistakes to avoid in your 20s.
Money Mistake #1: Not Socking Away a Bit of Money for Retirement.
When I was 19, I opened a Roth IRA with a little money I had received from a car accident I was involved in. I always hear, if you leave it alone and let it grow, it will [insert: “double,” “triple” “turn into a million bucks”]. None of that happened. I did not continue to contribute any money to it, and it whittled away until I realized the brokerage fees were ruining any chance of having more than $10 in 20 years. So I rolled it over and learned a lesson – you need to help your money work for you.
Once I got my first job after college, I was still a little jaded, but decided to start saving in my employer’s retirement fund. I couldn’t afford much with high housing costs, student loans, car payment, paying for groceries and such life expenses, but I tried to do a tiny bit.
Experts agree that if you can save 10% starting in your 20s, your money can go a LONG way. Forbes has some great advice on how to set up retirement funds, and how to try to get to 10% if you aren’t there yet. As one example, if someone is in their early 20s can manage saving up to $5,500 annually (the current IRA maximum for 2017), he or she could have around $1,000,000 socked away by the time he or she turns 65, assuming a 6% annual return on that investment. Definitely worth trying to budget for!
Money Mistake #2: Not Taking Advantage of Employer Matches on Retirement Account (If offered).
Not all companies offer this benefit these days, but if your employer offers matching funds (even a small amount) – TAKE IT! It’s free money that grows for you and over time can turn into a nice nest egg. It took me a few years to start taking advantage of this offer from my current employer because I wasn’t saving the full amount to maximize the matching offer, but now that I do I don’t know what took me so long.
Money Mistake #3: Not Establishing Credit.
When I was 18 my dad sat me down and gave me the “talk.” No, not that kind of talk. The talk about how to become an adult in the system of the credit world. I learned that even though I had little to no income, a credit card would help me establish credit that later would help me when I needed to buy a house, a car, or even get a job (employers do sometimes check credit scores!). My first card was an American Express Blue Card. It was so pretty. It also had a super tiny credit limit. But I just used it to buy gas each month, and made sure to pay the entire balance every month (so couldn’t afford to spend much each month if I wanted to pay it down). I have this card 20 years later, and my interest rates are great and the card is still so pretty!
Money Mistake #4: Not Paying Off Credit Card Debt.
This goes with #3 – it doesn’t do much good to establish credit if you’re establishing bad credit. To build credit to help you do things later in life, you should try to reach a good credit score, and pay off your credit card debt every month. If like most of us you end up accruing some debt, figure out a plan to pay down your balances with the largest interest rates early. Freezing cards isn’t really helpful for me, but relying on cash is a better way for me to know what my budget is every month.
Money Mistake #5: Not Getting that Emergency Savings Account Started.
Financial Planners differ on this (and note I’m not a financial planner), but before I pay off my credit cards in full, I’ve built up an emergency savings account. This may be because I grew up seeing financial issues in my house. Or it could be because of the late 2000s recession and seeing so many friends and family suffering.
Suzy Orman is a great guide for me, and she’s always recommended having at least 6-9 months emergency savings set aside. For us, we shoot for the peace of mind of having 6-8 months of savings socked away in case something happens to Ryan or I. It’s come in handy when something has come up – car problems, a situation where we need cash and can’t leverage credit cards. We replenish it as soon as possible, and once we have that cushion established, our goal is to pay and keep credit card balances low.
I’m not a financial planner by trade but these tips have worked for me to save money. Please check with a certified financial planner to make sure you are doing the right things for your accounts and future.