Part of growing up is learning from our mistakes and moving forward. By this point, at age 36, I know that. I’ve made more than my fair share of mistakes along the way (which I suppose means that I’ve also learned more lessons than most, ha!)
Note: This post contains affiliate links.
We rarely get “do-overs” in life, and our finances are no exception.
So, I cannot change a thing I did in my 20s from a financial standpoint, darn it. However, I CAN write about my own stupid mistakes and hope that it helps some of you (or someone you know) from making the same ones! Especially if you have the dream of retiring early, having your ducks in a row in your 20s is going to be important, if not critical.
Money Advice I Would Give to 20 Year-Old Me
1) Be EXTREMELY careful when you take on debt
I know, it seems like everyone takes out student loans for college. It almost seems impossible to do it without borrowing since college has gotten so crazy expensive, right? And it seems like everyone has a credit card. Probably lots of people you know have car loans, too. Isn’t is normal to have debt in your 20s? I know it certainly seemed like it for me! I knew people with all of those types of debts, which sort of took away the stigma. After all, if my friends, co-workers, boss, and neighbors all had debt, what was so wrong about that?
Everything! Throughout my time in undergraduate and graduate school, I had all of those types of debts. I mostly paid the credit card bills off every month, and the car loan didn’t last very long, but the one that really bit me was the student loan debt. As I’ve written about before, I made some pretty stupid mistakes in grad school, but by far the biggest was living too high on student loans. I’m ashamed to say that part of the reason that I felt so comfortable spending so much money when I was living off loans is because most of my friends in grad school were living similarly- so I was basically just doing what a lot of others were doing. That’s ok, right?
Of course, the answer is no, it’s not alright! After all, none of those people are here today almost a decade later helping me pay off the student loans that are still hanging over my head! By far, the BEST piece of financial advice I’d give to my 20-something self is to be EXTREMELY careful when taking on debt. Every single penny of debt has to be paid back, and more, since loan companies aren’t just in this ‘cuz they’re nice. No, in most cases they just want to make money off you, and they do it through charging you interest on the money you borrow from them. Taking on too much debt- of any kind- can have a tremendous impact on your finances for years to come, and may prevent you from being able to retire early or at all.
Even though many people would consider something like student loan debt to be “good” debt, if I could do it all over again I’d take extreme measures to try to avoid it. Luckily these days there are cool websites like Scholarship Owl that help you apply to lots of scholarships at once, making it much easier to find and apply for scholarships than it used to be.
2) Start saving with your first job
The other piece of advice I’d give my 20-something self would be to start saving right away! Both for retirement and in general. As in, from the very first day at the very first job. It’s so much easier to continue saving if you get in the habit right away, as soon as you start making money.
Even having a few hundred dollars in an emergency fund can help prevent you from having to go into debt when an emergency strikes. I recall vividly an expensive fuel pump problem that my car had in college, both because it broke down while I was driving on the interstate (scary!) and because it cost me $700 to fix it. At the time, that $700 was a fortune to me. I didn’t have it. At all. Anywhere. I had to put the $700 repair bill on my credit card, and then I promptly began freaking out about how I was going to pay that $700 off. I ended up cashing out some stocks that my mother had invested in for me in order to cover that bill.
To this day I wonder how much those stocks would be worth now if I hadn’t cashed them out.
Which leads me to the subject of investing for retirement in your 20s. You don’t have to go great guns and max it out right away, the important thing is to just START. With something, anything. It’s ok to start with 1% of your take-home pay if you have to (as long as you continually increase it over time- most experts recommend contributing, at a minimum, 12-15% of your pay). But the most important thing is to just START. The earlier the better in order to let the magic of compound interest start working in your favor. And as much as possible if you want to have a shot at retiring early (I’m talking at least 20% here, although if you want to check out a really great blog post on the subject, look at this one from Mr. Money Mustache on the shockingly simple math behind early retirement).
For us, once we finally got our financial act together and started saving, using free online resource Personal Capital (review here) really helped us to see where our money was going and establish a better budget, as well as better plan our retirement savings strategy. We didn’t find this great free resource until our 30s- wish we’d found it sooner!
3) Know your numbers, including your net worth!
I started saving for retirement at age 26, which is young by some standards and old by others. However, because of some of the foolish mistakes that I made in my 20s (mainly by taking on so much student loan debt), it was not until age 32 that my (our) net worth turned positive. If you’ve never calculated your net worth, I encourage you to do it- even if it’s negative, as it was for us when we first calculated it, seeing that negative number can be a MAJOR motivator! Within six months of our first net worth calculation in October 2010, it became a positive number. It wasn’t by accident, either. Knowing that number and knowing that it was negative lit a fire under us that had never been there before.
If you have ever thought that it would be great to retire early (before age 65), you are definitely going to want to become familiar with the concept of calculating your net worth, and begin tracking it over time. Keeping an eye on this number in particular will help you know whether you are approximately on track to reach your financial goals, or if maybe you need to make some changes.
Retiring before the standard age 65 is definitely a possibility, but it is going to take serious planning. You will absolutely be ahead of the game if you start planning and take steps in the right direction in your 20s!
What advice would you give to your 20 year-old self? Were there any big money mistakes you made in your younger years that are still haunting you today?
Suggested Reading: One of my favorite personal finance books is The Millionaire Next Door. This book profiles numerous individuals and couples who are masters of frugality and personal finance- and, as the title indicates, are often millionaires. I consider this book to be one of the great must-reads of the personal finance realm, and I absolutely recommend it to anyone who is just starting out on their personal finance journey and trying to find their financial path in life.
P.S. If you liked this post, you might enjoy using our free Net Worth Calculation Template. Sign up now to receive each new post delivered to your inbox, and we will email you the template! Sign up here.
CMF’s favorite FREE money management tools!
Some of the best online tools out there for money management are at Personal Capital, and the awesome news is that they are all FREE! Cash flow tracker, 401(k) fee analyzer, investment checkup, net worth monitoring, and many more! I’m a net worth junkie, so the net worth monitor is my favorite. Check out my Personal Capital review here, or click here to check out all the awesome tools for yourself!