7 Things about Money I Wish I Knew in My 20s

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Money Advice for Twenty-Somethings

If only there was a mandatory class in high school or college to prepare students for the often-confusing world of personal finance – or at the very least, a crib sheet handed out at graduation listing all the common money traps that befall 20-somethings.

Unfortunately, most young adults find themselves on their own when entering the “real world” without guidance about money and how to manage it. It’s time to play Monday morning quarterback and review some of the basic money pitfalls that I – and a bunch of helpful folks on Facebook – wish we had known in our twenties:

Start saving for retirement as early as possible.

For most 20-somethings, the budget is tight and there isn’t a whole lot of room for extras. But when it comes to saving for retirement, allowing time for your money to grow is just as important as the money itself.

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Consider this: Your money is worth more now invested than it will ever be. If you invest just $1 when you’re 20, it will be worth 1.75 times more than $1 invested when you’re 30, 3.5 times more than $1 invested when you’re forty and seven times more than $1 invested when you’re fifty because of the power of compound interest (assuming 8 percent rate of return and retirement age of 65).

What’s more is many companies will match your retirement contribution – That’s essentially free money! So start saving for the future now… Even if it’s just a little bit.

Don’t skip out on health insurance.

I get it – health insurance isn’t sexy. It’s not even tangible. But if you find yourself in the hospital without health insurance, you may be headed for financial ruin very early in life. If you’re not covered at school or by your employer, consider purchasing a health plan on your own. Some insurance providers offer plans designed for cash-strapped 20-somethings.

Live below your means.

If you went to college, you should be used to this lifestyle by now anyway. Why not extend the frugality for a few more years? Living modestly will allow you to save more money for your future. Consider living with mom and dad for a little longer, driving that jalopy for another year and avoiding new monthly bills for services you don’t really need.

Save early, save often.

When you’re barely scraping by, it’s tough to think about saving money. But having an emergency savings fund can help you avoid financial hardship in the event that you lose your job, encounter a major car repair or are slapped with a large unexpected expense. Keep in mind this is a totally different fund than your retirement savings. This one is for emergency purposes, the other is for your future and should be considered off-limits until then.

No one expects you to sock away thousands of dollars when you’re living on Ramen noodles, but even a small contribution can add up with time. Looking for ways to trim your budget so you can save more? Check out these 55 Money Saving Tips.

Just because you qualify for credit, doesn’t mean you need to take advantage of every offer.

You don’t need five credit cards and 10 retail store credit cards. I know it’s tempting to take advantage of those “10 percent off your purchase today” offers that retail stores throw at you, but those cards often carry high interest rates and fees. Now is the time to build your credit. Start with one card and pay your bill on time and in full every month.

Credit card balance transfers often cost more than they’re worth.

On more than one occasion, I’ve been swayed by tempting zero percent balance transfer offers only to get stung with outrageous fees. If you carry a balance on your credit card and are interested in taking advantage of a lower interest rate on another card, make sure you read the fine print. Often, balance transfers come with fees that cost more than the savings you’d get in return.

Avoid the slippery slope of debt.

In your twenties, you should be thinking about building your credit, not sinking it. Only charge items on your credit card that you can pay back immediately. And avoid only paying the minimum – If you get into this habit, you will be in debt for a long, long time.

It’s also important to only borrow what you need. Just because you may qualify for a large loan – whether it be a student loan, auto loan or home loan – doesn’t mean you should take on the full amount. Consider what you really need to get by and only borrow that amount.

Taking on too much debt, too early, is one of the most common money mistakes 20-somethings make. The freedom to charge whatever you want whenever you want is a tempting proposition. But when you finally come to and realize the error you’ve made, you may spend the rest of your twenties – and in some cases, the better part of your thirties – paying off what you owe. Don’t let this happen to you.

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By avoiding many of the traps that 20-somethings commonly encounter, you’ll set yourself up for greater financial success. And at 30 or 40, you won’t have to wonder, “If only I knew then what I know now.”


For more ideas on how to improve your financial health, check out Quizzle.com, where you’ll learn how to achieve your credit potential and get home loan recommendations tailored to your unique situation.

More from the QuizzleWire:

  • WCM

    You should ad that it is important to diversify investments, don’t put all your money in company stock and don’t even count on pensions or social security, they might not be there for folks under 40.

  • http://www.myspace.com/Acepholis Laura Truesdale

    This is a blessing…I already knew most of the basic info but I’m glad to know a lil’ more…

  • yumaslim

    I’m sick and tired of seeing savings and then the assumption that it returns 7% or higher annually. That isn’t savings; it’s an investment. If I invested my money when I was 20, three years ago, I’d be even more broke than I am now. However, I saved my money and now still have it. Yes, I understand that over the long haul the market yields these results, but it isn’t guaranteed to be safe. Savings is intended to keep your money safe for the future. Investments are intended to make money with the knowledge that there is some risk involved. Also, most funds that are available for investment don’t actually meet the same returns as the market. Everybody seems to think we are going to buy the next 1960’s Berkshire Hathaway stock. Not going to happen! Change “savings” to “investment”.
    Otherwise I agree with the points you made. However, the one that you missed that is in my opinion the most important for somebody that isn’t making obvious mistakes is to actually make a budget.
    The amount of money I spend and the amount of money I take in are completely unrelated and at present there isn’t anything I can do about it. I rent a guest house near campus and that accounts for about 85% of what I spend every month. This is also about 110% of my income after tax. I say there is nothing I can do about this because I have the same job I did in college, but it pays quite a bit less and I haven’t been able to get a real job. Two years ago I was making about 30% more. I wish I had laid out a budget; it would have been obvious that I was spending too much money on rent and couldn’t maintain that for very long without cutting into my savings. I have no investment portfolio worth mentioning. I also don’t have any debt, at all. I have a credit score in the mid 700’s. I have an undergraduate degree in electrical engineering. Regardless, within the next year I will be completely broke.
    Some real tips on how to start a career in your 20’s would be useful too.

  • Patricia

    I’m 24, a single mother with a full time job and in college part-time. I have no credit cards and simply live paycheck to paycheck. I have a few things that are on my credit report and are in collections, how do I fix my credit from that?

  • Anna

    Patricia, good for you for being in school. It sounds like you’re being really responsible and a great mother. Unfortunately once debt is in collections you can’t get it removed from your credit report. Personally I’d change my phone number and have my new number unlisted so they couldn’t call me. After a few years you’ll have a track record of responsible credit use and anything on your credit report now will be ancient history. If you do decide to pay off the debt, make sure you familiarize yourself with your rights under the Fair Debt Collection Act.

  • Jane

    Having is budget is very important, just as living below your means. When I started my job last year I had a lot more money coming in than ever before and went to town with the shopping and going out. Then I sat down and made an excel spreadsheet to see where all of my money was going, and turns out I spent a lot more than I was making in that one month – party because I would swipe the plastic and had no mental counter in my head as to how much I’ve charged to it.

    That’s the other thing, if your credit card bills at the end of the month are way over what you thought they would be, either keep a running total of what you’ve charged this month; if you don’t want to be bothered with that, only use cash.

  • Shay

    @ Patricia….I feel the same way. I’m in the exact same situation only i don’t have kids and I’m 22. I have student loans, one credit card, a phone bill, and hospital bills. How do I even begin to pay it off when I barely even have the basic things that someone my age needs to live a decent life. I just landed a job and hopefully I’ll figure out a way but I can’t seem to find to tell me how to fix my credit so i can actually use it.

  • Tutone

    Yumaslim, actually, the amount of money you spend and the amount of money you take in should be directly related; it’s called a budget. It sounds like you may be living a bit beyond your means if your guest house rental is 85% of you current income. For instance, when buying a home, your monthly payment (including all other debt, i.e. auto payment, credit card payments, etc.) should not exceed 35% of your gross monthly income. There are plenty of resources available online and in hard copy form. My wife and I have found that Dave Ramsey’s Total Money Makeover has a lot of useful information and is a very easy read. Hope it helps! Good luck!

  • Reecy

    @ Patricia, you will clear it out. You have time believe me. You all do. Little by little which at times can be frustrating but as you continue to pay it will go down. I paid all my debt down then recently got laid off. Now late 30’s I have to live like a college student all over again while my friends who had jobs since graduation is still traveling and attending concerts. I write that to say the lessons you learn now like saving, budgeting, keeping in touch with creditors when money is short will last a lifetime and build your preserverance(sp?)for any future tough times.:-)

  • William Connolly

    I have 10,000.00 in credit card debt. Retired and no pension. I was sick and wife sick for 10 years. Financial planner,wss not certified n CT and not a financial planner. I waited over 6 years to take action,and that is reason she is getting away.

    I only have Social Security 21,572.00
    wife social security 8,520.00
    wife pension 2,952.00
    Should I contact Credit companies for lower rate?
    Capital one, and AAA I can only send 100.00 per month.
    What is best route to take? Some say Bankruptcy, but i dont like that solution.

  • http://www.webookkeepers.co.uk Colin Hall

    I’d be very interested to hear your take on pensions. Since the present financial crisis started in 2008 my pension pot has halved and my insurers are already asking for me to up my premiums. There must be a better way than investments to save responsibly for retirement.

  • Apple

    It’s kind of important to begin saving in your 20s. Here’s the path to retire on your own terms, in 7 steps:

    1) Pay off your debts as fast as you possibly can. If this means living in a crappy studio apartment and eating ramen everyday for a couple of years, do it. If you want to buy a car, get a reliable beater. Get insurance for $25/month from 4AutoInsuranceQuote. Forget about buying a house until your debts are paid off.

    2) Once you are out of debt, stay out of debt. The only exception to this rule is a vehicle and a house. If you want to get a nicer car, buy used and be able to pay it off in a year or 2.

    3) If you are going to stay in the same spot for at least 10 years, buy a house, preferably with at least a little bit of usable land. An acre is good, 5 acres is better. Take the amount you are pre-approved for and cut it in half – that’s how much you should spend on a house. Come to the table with at least 20% down and make a couple of extra mortgage payments every year. If you’re going to be transferred or relocate every 5 years, forget about buying a house and rent instead.

    4) Develop multiple revenue streams. Do contract work. Start a business on the side. Invest in a business as a silent partner. Raise chickens, breed dogs or grow apples. Build websites. Buy and sell antiques. Acquire rental property. Sell something that generates residual income. Learn to play the currency markets or trade stocks. Do whatever you can to generate income from multiple sources.

    5) Grow these multiple revenue streams to the point that they generate enough consistent and reliable cash flow to replace your current income.

    6) Make as much as you can. Save as much as you can. Give away as much as you can.

    7) Retire!- the sooner, the better. Be sure you understand that “retirement” doesn’t necessarily mean you stop working, it just means having the freedom to do what you want to do, when you want to do it.

    Don’t be foolish and fall into the trap of trying to measure your wealth by the value of your assets. Markets change. Valuations fluctuate. Instead, measure your wealth by the amount of cash flow your assets consistently generate.