Your 20s are an interesting decade for most people. Many graduate from college, get a first job, date a little, and maybe even get married. That’s a lot of important financial changes in a decade! Maybe that’s why it is so easy to make big money mistakes when you’re so young. I’m in my mid 20s now and I have made plenty of mistakes that still make me cringe. However, I have luckily avoided any large mistakes that have set me back dramatically (*knock on wood*). Here are some big money mistakes to avoid in your 20s.

1. Invest NOW

One of the biggest money mistakes people make in their 20s is not investing early enough (or learning how to invest). Investing is important if you want to avoid the dangers of inflation (the tendency for prices of everyday goods to get more expensive over time).

Consider this, assuming 3% inflation over the next 25 years, all the cash you have today will essentially be worth half as much! Investing is the only way to protect against inflation and build wealth over the long-term. It doesn’t matter if it’s stocks, bonds, real estate or other asset classes.

The earlier you invest, the bigger the benefit you’ll reap down the road. This is because of the magic of compound interest. Even if you don’t have a large sum of money to invest, you should still do it. Even little amounts can become big over time.

If you invest $200 every six months in an index fund that earns 7% a year, by the end of 15 years, your semi-annual investments will have snowballed into a sum of $10,325!

If your company offers a 401k match, you should always take advantage of it. They are basically giving you free money.

Investing early will dramatically improve your financial well being! For anyone interested in getting started today, I highly recommend using Motif Investing.

With Motif, you can buy a basket of 30 securities for one low commission of $9.95. Most other online brokerages (Scottrade, Fidelity, E-Trade, Schwab, etc) all charge $7+ for commissions to trade one stock! That means it would cost you $210+ to buy a portfolio of 30 stocks like what Motif offers.

Related:

Active vs. Passive Investing

2. Avoid large debt

One thing you really want to avoid in your 20s is a ton of debt. These days, people are coming out of college with a small mortgage. If you can avoid a massive amount of student debt, you’ll already be ahead of the curve.

If you’re still in college, apply for scholarships and grants. Every year thousands of dollars worth of scholarships go unclaimed. If you look long enough, one may be right for you.

If you just came out of college with debt, I would highly recommend paying it off first before you start saving or investing. Nothing will give you more confidence than finally being debt free. Also, if you still have a sizable undergraduate student loan balance, it’s probably not a good idea to go to grad school and get saddled with additional debt.

When you first get out of college and start making money, it can feel great! You finally have a little income and can buy whatever you want! Gone are the days of cheap ramen and PB&J sandwiches!

Don’t get carried away, however. Credit card debt can quickly spiral out of control if you’re not paying attention. It’s fine to use a credit card for everyday purchases, but always pay off your balance at the end of the month. Credit cards charge very high rates of return on their debt (typically 10%+) and that’s not something you want.

If you have any debt, Jacob over at Power Over Life wrote a great piece on how to create a ‘debt destruction plan’. I highly recommend readers check it out!

3. Don’t get married

I know many people might not agree with me here, but I think for guys especially, you should not get married in your 20s. I’ve heard this advice numerous from some older friends (both guys and girls), so I’ve taken it to heart.

Most guys are still relatively immature in their 20s. And if you don’t have your financial ducks in a row when you’re married, things can get off to a rocky start. Money doesn’t solve all problems, but it does make life easier and reduces stress.

Most don’t even know what they want in life at this age, how can they possibly know who is the right girl? Again, there are exceptions to this.

Moreover, weddings are incredibly expensive. A coworker I knew spent $10,000 on a very small wedding with less than 15 guests. Imagine how much it would cost to have 50+ people at your wedding (the average cost of a wedding is $26,000)!

Also, bachelor parties can be another big wedding-related expense. A close friend of mine went to Vegas for his bachelor party and spent over $10,000!

The thing one thing you don’t want to do is get divorced. It can be a messy and expensive process (lawyers are not cheap!). Plus, you could potentially lose up to 50% of your net worth! Use your 20s to date instead of getting married.

4. Learn to budget properly

Budgeting is a lifelong skill you want to have. Some people may think budgeting is tedious or even boring. I tend to think it is fun. Regardless, it is a necessary skill you need in order to achieve financial freedom/success.

The concept of budgeting is simple. It just means you need to spend less than you earn. How much you budget depends on your financial condition, goals, and lifestyle.

Here are a few budgeting tips to help you out:

1. Differentiate between “needing” and “wanting” something.

2. Be realistic and don’t budget for money you won’t earn. In other words, always underestimate what you will make. 

3. Keep track of expenses so you know what to cut.

4. Always set aside cash for emergencies. Trust me, they happen more often than you would think!

5. Take advantage of Personal Capital; it is an amazing FREE wealth management tool that will help get your finances and investing goals in place. Check out my review to see how it can help you save money.

5. Eating Out Too Much

Eating out once in a while is great. It’s fun to try out new foods, eat at different restaurants, and explore the city; just don’t do it every night. Spending $20 for dinner every night can add up (it’ll set you back $7,300 a year).

Not only that, but a lot of restaurant food is not healthy (fried chicken anyone?). Even Chipotle has gotten in trouble recently about the labeling of calories.

Cooking is an amazing skill that has many benefits. The biggest benefit is that you save a ton of money. It is very achievable to have a great and healthy home cooked meal for less than $2. Also, by cooking meals yourself, you control all of the ingredients. This way you know exactly how healthy the food is. Finally, cooking is a great way to seal a date 🙂

6. Not maintaining your credit score

Having an established credit score is important if you want to make big purchases in life. Unless you’re a big billionaire (in which case you probably wouldn’t be reading this blog!), you’ll need credit to make big money purchases in the future (like a car or house).

A credit score ranges from 300 (bad) to 850 (excellent). Ideally, you want to be in the higher end of the spectrum (740+).

The biggest determinants of your credit score include:

1. Credit card utilization: The more credit you have outstanding as a percentage of your available credit, the more “risky” you are from a financial perspective.

2. Payment history: The percentage of payments you’ve made on time.

3. Age of credit: The average length of time your credit accounts have been open. A longer age of credit is more beneficial.

4. Derogatory remarks: If any collection agencies, bankruptcy foreclosures, tax liens, or similar claims are on your account, it will negatively impact your credit score. If you see any errors on your account, I would highly recommend disputing them.

Having a poor credit score can really hit you when you make a big purchase on a car or home. John Oliver has even talked about credit scores in a very funny segment before:

Consider this:

• A 30-year $500,000 mortgage at 4% interest will have a total cost of $859,348

• However, the same 30-year $500,000 mortgage at 3.5% interest will have a total cost of $808,280 ($51,068 cheaper)!

Getting your credit score is easier today than it has ever been. I use CreditKarma’s FREE service to keep up to date on my credit score. Sign up and get yours today!

7. Not Hitting The Gym

When you’re young you have the big benefit of a faster metabolism. Maybe you can afford to eat ice cream five times a week and drink like a drunken sailor and not gain a ton of weight. However, the older you get, the more important it is to eat right and exercise right.

Having all the money in the world doesn’t matter if you’re unhealthy and dying. Being in shape will dramatically reduce your medical bills the older you get. Your health is one of the most important investments you’ll ever make.

Getting these habits in check in your 20s will make you light years ahead of the crowd.

Check out my post on how I stopped making excuses and started going to the gym.

Conclusion

It’s easy to make big money mistakes in your 20s when you’re young and feel invincible. However, several simple steps can eliminate all of these potential headaches. As long as you don’t make big mistakes, building long-term wealth is very achievable for everyone.

Readers, did I miss any big money mistakes to avoid in your 20s? Do you disagree with some of the ones I listed? Let me know in the comments!