1. Not opening a 401k.
Typically, when you land a full-time job with benefits, signing on for the company’s 401(k) is a perk you’re given upfront. In signing up, your company will often offer to match your full contribution, which is as close to free money as you can get. From a growth perspective, your 401(k) will always do better when you start contributing earlier, simply because there are more years between you and your retirement. In your 20s, the money you put in your 401k has the potential to grow for 30+ years, so time really is of the essence. Avoiding this mistake is simple; if you’re offered a 401k with full matching, sign up immediately.
2. Prioritizing student loan debt over credit card debt.
Credit card debt accrues interest the fastest and is, therefore, the most likely to get out of hand. The average APR (annual percentage rate) is about 15% on credit cards, in comparison to student loan interest rates, which are closer to 4%-6%. In general, get-out-of-debt-quick plans should start with credit card debt, because that is probably the biggest blemish on your financial health record. To avoid mistakes like these, make sure you understand the fine print that comes along with any debt you sign on for. It’s not enough to only know the Reader’s Digest version of your financial picture.
3. Not talking about money.
Especially in your 20s, you’re going to have a lot of money questions that you don’t have the answers to. One of the biggest mistakes you can make is ignoring those questions. Ask a professional. Ask the internet, but make sure you’re researching on credible sites, and looking at multiple sources. Ask your friends, family, or someone you trust who is good with money. Don’t just be silent.
4. Keeping a running balance on your credit card.
Let’s get one thing straight: the words “keeping a balance on your credit card will help your credit,” when arranged in that order, are BLATANTLY FALSE. A running credit card balance isn’t improving your credit. Paying your statement balance in full every month is improving your credit. Keeping a few thousand dollars in debt on your credit card is costing you more than just that money — it’s also costing you the too-high interest rates. The easiest way to avoid this is to only put things you know you’ll be able to pay off within the billing cycle on your credit card.
5. Living somewhere that’s way too expensive.
The often-cited rule is you should not be paying more than one third of your income. However, 20-somethings who have just moved to a new city tend to favor walking the line of this rule. When you add utilities, other bills, 401k contributions, and student loan payments to a rent that’s a third of your income, you’re paying out quite a bit of the money you’re bringing in. If you’re moving for a job, don’t forget to ask about relocation costs and find out if they are willing to reimburse you for those expenses. And while it might be a frustrating choice, opting for a longer commute for cheaper living expenses might be the way to go for your first couple years out of college.
6. Taking out student loans you don’t need.
When you’re in college, it can almost feel like taking out an extra loan to pad your living expenses is encouraged. And while living expense loans in college make sense for some, taking out more than you really need (like the college students who took out loans so they could cover their not-so-necessary shopping) can catch up with you later. The thing to remember is that you’re not just borrowing the money to buy a new purse. You’re also paying interest on that purse, possibly for the next 20 years of your life. If you’re looking to avoid taking out too much, calculate your tuition and cost of living (per semester or per year) before dealing with the bursar’s office and loan disbursements.
7. Not saving an emergency fund.
An emergency fund is your first line of defense against credit card debt. However, when your rent prices are rising faster than your salary, it’s not surprising that saving an emergency fund doesn’t occur to a lot of people in their 20s. To avoid this mistake, start small and get consistent. Put away whatever you can afford to each month, and try to stick to a goal amount, even if it’s only $20 a month. Ultimately, your emergency fund should end up being three to six months of living expenses, but obviously, Rome wasn’t built in a day.