7 Common Financial Mistakes 20-Somethings Make (and How to Avoid Them)

Your 20s are a unique time. You’re discovering yourself and learning about what life is like in the “real world.” It’s a time for maturity and growth, all while trying to hold onto your youth. It’s also a time for milestones – you’ve graduated from college and, hopefully, will get your first professional job. Some will get married, buy houses, and even think about starting a family.

What you’ll also do, is make mistakes. And the beauty of it is, you will have time. Time to learn and grow from those mistakes, as well as recover from them.

While much of our personal growth stems from mistakes we’ve made, life is easier when we’re able to learn from other’s past mistakes. Today, we wanted to share some common mistakes made by 20-somethings along with some advice that might help you avoid the disappointment and allow you to focus on enjoying all that your 20s has to offer.

Mistake #1: Underestimating the Value of Disability Insurance

Life can change in an instant. You’re far more likely to suffer from a disability that prevents you from working than you are premature death. And the results can be catastrophic. In fact, According to the American Journal of Medicine, disabilities are responsible for 62% or all personal bankruptcies. Yet approximately 1/3 of the American population has disability insurance.

Don’t risk your financial stability just to save a little on your budget. Most employers offer disability coverage at an affordable price. If they don’t offer coverage, private disability insurers also offer affordable rates; and those policies can follow you from job to job.

Mistake #2: Not Having Life Insurance

Most young people believe they don’t need life insurance. But the reality is – this is the best time to buy. This is the cheapest your life insurance will ever be and your body is at its healthiest.

Before investing in life insurance through your employer, do your research and request quotes for individual policies. You’ll likely qualify for a cheaper rate and will still have coverage if and when you move on to the next stage in your career.

Mistake #3: Putting Off Saving for Retirement

While you have at least 45 years until retirement, it’s never too early to start saving. The earlier you begin saving, the more time you have for financial growth. The longer you wait, the more the math works against you. Saving early = a comfortable retirement.

Mistake #4: Focusing Too Much on Paying Down Student Loans

It’s only natural to want to pay down your student loans as quickly as possible. It’s the last thing tying you to your youth and it feels like a monkey on your back. While we agree, paying down debt should be a priority, many financial advisors urge 20-somethings to focus on maintaining a well-balanced budget. Many make the mistake of paying out too much too soon and find themselves in a situation where they must use credit cards to live. Interest rates on credit cards are around 20%, while student loan debt is tax deductible and comes with a much lower interest rate. Keep yourself more financially free by avoiding credit card debt as much as possible.

Mistake #5: Paying Higher Taxes

Everyone’s always excited when they receive their tax refund. But the reality is – you’ve given the government an interest-free loan using the money you’ve earned. Adjust your withholdings and use your hard-earned money throughout the year.

Mistake #6: Ignoring the Importance of a Good Credit Score

Believe it or not, you’ll have just as much difficulty obtaining a low-interest loan with no credit, than you will with bad credit. In fact, it’s no longer just banks who show interest in your credit score – employers, insurance companies, and landlords also consider your credit score when reviewing your application. Start working on your credit score now by paying your bills on time and opening up a credit card that you use and pay off each month.

Mistake #7: Living Above Their Means

When you embark on your path to adulthood, you’re pulled in a million different directions. You start out with virtually nothing, while earning the least amount of money. It’s easy to get caught up in trying to keep up with the Joneses. By the time you realize you’re living above your means, it’s too late. The damage is already done.

Rather than making big purchases on credit, set goals for yourself. If you want that new couch, make it a short-term goal and save for it. Put money away in a rainy-day fund; you never know when unexpected expenses might come up.

In the end, the best advice for continued financial independence is to learn to properly budget what money you have and stick to your plan. Often, young workers have a tendency to spend as soon as they get paid with no foresight to unforeseen costs and expenses. This may work for a while, but eventually most want more than to just get by. Especially as we age, many realize the importance of planning for your future while you’re young. The practice of budgeting and being financially intelligent is a lifelong endeavor and is made more successful by initiating positive habits at a young age. Even enacting a few steps are steps in the right direction. Get your money working hard for you now so you don’t have to work so hard for your money later.