Seven Financial Mistakes To Avoid In Your 20s

In this blog, we’re going to be talking about seven financial mistakes to avoid in your 20s. Now I’m currently 25 years old, and I was just thinking the other day about how fast time flies by in your 20s. But this is the most important time in your life, and really even into your 30s, because this is when you’re starting to earn some more money, and you can set up a solid financial foundation for the rest of your life if you make some smart decisions.

Unfortunately, I’ve seen a lot of people around my age, including myself, make some pretty common financial mistakes. So that’s going to be the focus of this blog. Now, some of these mistakes are ones that you might expect, but what I’m going to do is sprinkle in a few unique ones throughout this blog that will hopefully get you to think and maybe avoid those if possible.

1. Living In a Luxury Apartment Building

The first financial mistake here is one that involves most people’s largest expense, and that’s their living expenses. That mistake is living in a luxury apartment building. These new luxury apartment buildings are popping up everywhere across the country, and they offer some cool amenities, some nice locations, and a couple of good features within each apartment, like some shiny new appliances.

But like you’d expect, that comes at the cost of higher rent, and sometimes there are extra fees added on top of that rent that can add up to a few hundred dollars each month, like parking fees or amenity fees. Now I definitely toured a few of these apartment buildings and even considered signing a lease, but then I re-evaluated my options when I was deciding on my first apartment to move into after I graduated from college, and I eventually landed on this apartment in Philadelphia.

The studio apartment was expensive, but I got it for less than $1,200 a month with all utilities included and no extra fees. Even though it did not have a dishwasher and the laundry was in the basement, it really had everything that I needed, and I was able to live there comfortably, but I didn’t have to overpay for something that I really couldn’t afford. 

Now, I’m not saying you have to live in a closet-sized apartment with no kitchen or holes in the wall or anything like that, but I am saying that you should put a lot of thought into where you’re going to live because your living expense is likely to be one of your largest expenses, and if you can keep that down, you’ll be able to save more quickly.

So if you’re just graduating from high school or college, see if you can go live with your parents for a little while. I know that not everyone can do this, and everyone has their own situation, but what I did is, after I graduated from college, I moved back in with my parents at their house, and then I lived there rent-free for a year before I decided to go on and move to Philadelphia.

That year that I lived at home, I was commuting an hour and fifteen minutes by car or an hour by train to work every single day, and while I’ll admit it wasn’t that fun, I’m glad that I made the sacrifice so that I could save up for a year while I still could.

2. Buying The Wrong Car

Financial mistake number two is going to be buying the wrong car. So transportation is going to likely be your second largest expense after housing like it is for most people, so it’s really important that you try to minimize this expense as well if you can. I’ll begin by saying don’t buy a new car. You’ve probably heard this many times before, but as soon as you drive a new car off the lot, it’s going to depreciate by thousands of dollars.

I would recommend that you get a reliable used car that’s going to get you from point A to point B safely without all the unnecessary add-ons that a newer car might have. What I did after graduating from college was buy a certified pre-owned Nissan Altima with about 25,000 miles on it. And the only reason I got a car in the first place was that I needed to get to work.

As I said, some days I was driving an hour and fifteen minutes each way. Some other days I was actually driving all the way down to Washington DC; in those areas, the car was necessary for me. But if you’re living in a city or an area that’s highly populated and you get around on foot or by public transportation or something like that, then I’d also recommend that you hold off on getting a car if you think you don’t need it.

And this is totally up to you and your own personal situation with whether or not you need a car. But if you don’t need one, not only are you going to be saving yourself the cost of buying that car, but you’re going to be saving yourself the monthly expenses that come along with it like gas, insurance, and other maintenance that you have to do, which is easy to forget about.

3. Too Much Video Games or TV

Now on to financial mistake number three, and this is one that’s more of a lifestyle mistake, but I’m going to explain the financial aspect of it as well, and that is playing too many video games or watching too much TV. Let’s start with how watching TV and playing video games can truly be an escape from our lives or a way to take our minds off of things.

And that’s definitely not a bad thing when it’s done in moderation because you need some sort of outlet that’ll help you decompress and stay mentally healthy. But too many times I hear people talking about how they spent all Sunday afternoon binge-watching five straight hours of some new Netflix show or how they spent hours after work playing Fortnite or Call of Duty or something like that.

I think when you start to spend more than one hour per day watching TV or playing video games, it turns it away from being something like a relaxing activity and instead turns it into something that takes away your productivity from other areas of your life. I personally don’t play any video games but I’ll watch an episode or two of TV or I’ll put on the Sixers or the Eagles of Theron TV and just relax at night and times.

But what I like to do outside of my nine-to-five job is go to the gym so that I can clear my head and focus better on the things that I have to do later on in the day. Or I work on this website, researching, writing, and editing because I like the process of producing something more than I like consuming something, like I would if I were watching Netflix or playing a video game. So my advice to anyone in their twenties who is reading this blog is to find something that you’re passionate about and start a side hustle around that, whether that’s a blog, YouTube channel, Instagram page, or some sort of product or service. 

By taking those extra hours that you would normally dedicate to watching a TV show or playing a video game, you can instead put them towards a productive activity that could generate an extra stream of income for you and help you get ahead in your career in your twenties. Trust me, when you use your free time to produce something that other people find valuable, it’s way more satisfying than just binge-watching all of The Office for the fifth time.

4. Betting On Sports

The fourth financial mistake to avoid in your twenties is betting on sports. Now sports betting is something that’s really taken off in recent years because many more states have begun to legalize it, and it’s even easier now, especially with the fact that you can place sports bets through apps on your phone.

And I’ve seen firsthand how some people, especially guys like me who are in their twenties and who love to watch sports, can get carried away with sports betting. It’s like a rush of adrenaline when you bet on a team and they cover the spread, you don’t hit the over, or something like that. But I think people need to take a step back and see sports betting for what it really is, which is pure risk.

There’s no way to know what will happen in the game that you just bet on, and no matter how much research you do, there’s still a very good chance that the bet is going to fail. But where people get carried away is when they think they have a hot hand on a winning streak or a pick they just can’t lose, and they start betting more and more, and then eventually they end up losing way more than they originally planned for.

I think people get disconnected when they forget that they worked hard and spent a lot of time to earn money, and then they take that money and load it into their sportsbook app, and in their minds, it turns into something else. So to avoid this mistake, you really just have to recognize that sports betting isn’t worth your time or your money.

Your money is way better off being invested in something that actually has the potential to grow. Now I really don’t bet much on sports, but if I ever do want to play some bets, what I’ll do is just put $50 into my account at the beginning of football season or something like that with the full intention of losing that money over the course of the whole season. If I manage to lose a lot and drain all that money in the account, that’s fine; hopefully, I had fun placing those small bets, but I’m not going to put any more money into my account, and I hope other people will follow this advice and do something similar.

5. Not Using Credit Cards

Okay, now on to financial mistake number five, which is not using credit cards. So if you’ve come across this blog and my website, then you might know that I love to write about credit cards because I love all the benefits and points that they can give me so that I can travel for free. But that’s really just the fun part of using those credit cards responsibly; the main benefit is that they help you build your credit score.

Now, whether you like it or not, the credit system in the United States is something that’s so important to your future financial health, even though many people know so little about how it actually works. But basically, credit scores will help you get lower interest rates on mortgages and other loans, which will help you pay a little bit less for certain types of insurance.

They might even help you get a certain apartment that you want to rent. And, as previously stated, they can assist you in obtaining premium travel credit cards that will allow you to earn a large number of points and miles to travel for free. Unfortunately, I see many people who just use one credit card for every single purchase or who use a debit card or cash.

But worse, I see some people using credit cards and then forgetting to make a payment or carrying a balance month after month and paying a ton in interest. All of these things are either not going to help your credit score at all or will have a negative impact on your credit score. But here are just a couple of quick tips. Look at some good no-annual-fee credit cards first, like maybe a secured card or even a student card if you actually have no credit score or a very low credit score.

Use those cards for your everyday purchases, and then pay off your statement every single month and never miss a payment. Then, after a year or two of that, along with a few other good credit habits, your credit score should see a pretty positive impact. You can start to look at some other credit card options at that point. And like I said, higher credit scores help you get better interest rates on things like a mortgage. So in the future, if you do end up buying a house, you’ll end up saving yourself tens of thousands of dollars by getting a lower interest rate.

6. Not Investing In Retirement Accounts

For financial mistake number six, and this is something that’s so important to pay attention to when you’re young, that mistake is not investing in retirement accounts. These accounts, like a 401k or an IRA, may not seem that exciting because the money that you’re using to invest in them today cannot be withdrawn without paying a penalty first until you’ve reached the age of somewhere around 59 and a half.

But investing for your retirement in your 20s, or really as early as possible, will have your future self thanking you because you’ll be taking advantage of compound interest. Now, I’m not going to get into a full explanation of what compound interest is in this blog because there are a million other posts out there explaining it in more detail.

But basically, between the time that you’re in your 20s and the time that you maybe retire in your 60s, you’re giving yourself a ton of time for your money to grow through compound interest, so that way when you’re in your 60s, you’ll hopefully have enough saved up. You’ll be able to live very comfortably and then hopefully do whatever you really want to do with your time.

If you work for a company, see what they have in terms of retirement plans because if they offer something like a 401(k), oftentimes what they’ll do is have a company match where they’ll match your contribution up to a certain percentage. So if you can afford to do that according to your own financial situation, then I recommend that you do that because that’s what I do, and I’m able to get some free money out of it going into my retirement account in my 401k because of that.

You can also look at IRAs, which are individual retirement accounts, and out of those options, I like the Roth IRA because that’s what I have personally. It has a lot of nice tax advantages when it comes to investing for the long term, and I’ll write a future blog talking about retirement investing in a little more detail as well. 

7. Not Thinking For The Long Term

Now, this gets me into financial mistake number seven, and this goes along a little bit with talking about retirement accounts. That error is not planned for the long term. What I mean by this is that you need to have a long-term vision for where you see yourself and your financial health well into the future.  So, if you just go about your normal day-to-day life for the next 40, 50, or 60 years, spending money spontaneously, and you’re not able to break out of that cycle, it’s going to be very difficult for you by the time you reach your retirement age of 65, 70, or whatever it may be because you weren’t planning for it long term even when you were in your 20s.

You need to really just sit down and ask yourself, “What do I want out of life?” Do you want to drive fancy cars, buy really expensive clothes, go out to dinner five times a week, and have a country club membership? Or do you want to accumulate enough assets to then generate enough money for you to live on each year? That way, you can live comfortably and be financially free at the same time. Then, just sort of work backward from those long-term goals until you get to your shorter-term goals, and eventually you get down to your day-to-day goals.

What can you accomplish today that will push you in the right direction to reach those long-term dreams, and what habits can you change or add to your daily life that will be in your best interest? Now I realize I’m only 25; there may be some people reading this blog who’re thinking, “Oh, he’s just young.” What is he doing now? But the point of this blog is really just to get you to start thinking, especially if you’re in your 20s or even younger. These are just some of my own thoughts and personal experiences, but you probably have your own thoughts and opinions too. So, tell me in the comments section below what other financial mistakes you made in your youth or witnessed others make in their youth.