7 Financial Mistakes I Made in My 20s (And How YOU Can Avoid Them!)

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#1 I waited too long to open a retirement account.

Saving for retirement when you’re about 40 years away from it can feel pointless, but that’s actually the best time to do it because you can take advantage of compound interest.

Because I’ve been self-employed since age 23, I thought I had no options for a retirement account since I had no employer. Usually, as an employee, you’ll have access to a 401K plan, which is sponsored by your employer. But I didn’t have that.

It turns out, all along, I could’ve opened a Roth IRA.

My retirement account is also the ONLY money I HAVE NOT TOUCHED in the past almost three years. Even though I can withdraw from a Roth IRA without any penalty, there is something about having it in a separate account that makes me forget about it and makes me reluctant to touch it.

To open my Roth IRA, I simply signed up online via Vanguard.

#2 I lacked self-discipline (and paid for it later).

I think this is a common thing among millennials (and all young people): We live in the now. We don’t want to think about the future because it feels so far away and it feels like it’s not guaranteed.

So I would do things like quit my job and go to Europe for five weeks, charging everything to my credit card, and ending up with $4,000 in credit card debt that took me over a year to pay off.

That brings me to my next financial mistake…

#3 I used credit cards when I didn’t have the cash.

Something that was extremely frustrating for me in my mid-twenties was that I realized I was actually more wealthy when I was in college than when I had a job post-graduation!

Because in college, I didn’t have a credit card. I also didn’t have any student loans. So I wasn’t in debt. I had a positive net worth.

But once I graduated and got credit cards, I began accruing debt because I was charging things that I couldn’t immediately pay off. So I actually had a negative net worth even though I was making more income!

If I could go back, I would cancel all those credit cards, not because credit cards are bad (they’re not!), but because I lacked the self-discipline to use them responsibly.

#4 I failed to save.

Saving is really hard for me. So what I’ve learned is I have to “hide” money from myself. I have to make it harder for me to access it by removing it a few steps.

Here’s what I mean: When I have money in my checking and savings account, and I can see both when I log into my online banking portal, it becomes way too easy for me to transfer money from my savings to my checking.

So what I need to do is keep my savings in a separate bank account, one that I never log in to use.

I also recently invested in mutual funds through a Wells Fargo financial advisor. When you do that, while you can always withdraw the money, you don’t have direct access to it. You have to go through your financial advisor if you want to withdraw your funds—and it takes three days for the advisor to do so. That makes it much harder for me to blow my money on an impulse purchase.

#5 I had no idea of CASH FLOW.

Here’s a crazy thing that happened to me: For years, I had dreamt about making $50K a year in my business. I finally did it. I was making more than $50K a year—but I was still broke and in debt!

You know why? Because I was so focused on income that I disregarded my cash flow (money coming in and money going out). It doesn’t matter if you make a MILLION dollars if you spend $1.5 million! You’re still going to be $500,000 in debt.

One thing that helped me get a handle on my cash flow is You Need a Budget, or YNAB, a budgeting software.

#6 I viewed budgeting all wrong.

I tried, many times, in the past several years to “have a budget.” But to me, budgeting was arbitrary and restrictive. That’s because I was viewing it all wrong.

YNAB’s methodology and philosophy changed my views of budgeting. They tell you to give every dollar a job. That means you’re not just setting aside $200 for groceries, $1,000 for rent, $400 for health insurance, and then setting aside the remaining $500—no, you give those $500 a job.

So even if those $500 have a job of being your emergency fund, so be it! Or maybe $150 of those dollars has a job of going to your upcoming summer vacation, $100 goes to that tire change you know is coming up in the next 12 months, and $250 goes to your emergency fund. If you give every dollar a job, you’re less likely to overspend because you’ve allocated every dollar to a certain fund.

If you don’t allocate the money to a specific fund, here’s what happens: You’ll look at your savings account, see an extra $500 just lying around, and you’ll spend it on impulsive or unwise purchases.

Here’s the other thing I LOVE about YNAB’s philosophy: You no longer say, “I can’t afford that.” Instead, you start asking, “How can I afford that?”

For example, let’s say that, in YNAB, you budgeted $200 for groceries, $100 for entertainment, and $150 for a summer vacation. BUT your friends just invited you to a really cool concert, and it’s going to cost $120 for tickets.

In my old way of budgeting, I would get all sad and think, “Well, I only budgeted $100 for entertainment this month, and $120 is more than that, so I can’t go. I hate budgeting!” That would lead to feelings of restriction and resentment, which would eventually lead to impulse buys and overspending.

But looking at it from YNAB’s point of view, here’s what you do: You move dollars from one fund to another.

So let’s say you need $120 to go to this concert (if you really want to go) and here’s how much you’ve used from your budget so far:

  • Groceries: $50/$200
  • Entertainment: $0/$100
  • Summer vacation: $0/$150

You would simply move $20 from either “groceries” or “summer vacation.” Let’s say you move $20 from summer vacation, so you can only allocate $130 this month to that upcoming trip. With YNAB, you can see how much more you’ll have to allocate in the next months to make up for the loss, or you can see how much longer it will take for you to reach that goal.

So YNAB teaches you that you can afford things, if you are willing to sacrifice in other places and plan things differently. That way, you still have full control and awareness of your financial situation.

#7 I feared investing.

When I thought of investing, I thought of old men in suits on Wall Street. The Stock Market was above my head, and it intimidated me.

But investing isn’t just limited to buying stocks in the stock market.

Just start somewhere. For me, I went to my local Wells Fargo branch and asked to speak with a financial advisor. He helped me get started in mutual funds, and he advised me on what would best meet my goals.

Another great option I wish I had known about earlier is Ellevest. It’s meant for women, and you can literally start with $1. You don’t have to have thousands to start investing!

And yes, there is greater risk in investing than, say, stowing your money away in a savings account—but there’s also the possibility of much greater return if you invest your money. In the average savings account, you get 0.01% APY! That’s nothing. But in the mutual funds I invested in, for example, the average annual interest over the past decade or so has been 7%!

Your money can go much further if you invest it; just understand that there is risk involved and you must give it time to grow, so make sure the money you invest is not something you’ll need to use in the next five years or so.