The other day we covered steps to make your twenties a success. On the flip side, let’s look at some things better avoided today. Personally, looking back, I probably shouldn’t have moved to one of the most expensive cities in America (seriously, it’s #3 on Kiplinger’s list and the average apartment is $2,630/month – which is right on the money) three weeks after finishing grad school with no job prospects. I also should’ve put major effort into figuring out how to fund my Master’s degree instead of borrowing and drying up my savings account.
Here is some helpful advice on what NOT to do:
1.) Consider credit cards “free money.”
Free money doesn’t exist. If it did, do you really think it would be a secret? You will have to pay back anything you put on a credit card. Honestly, lots of twenty year olds should probably barely be using a credit card at all. You should open one to establish credit, and if you can’t be trusted with it, setup a single bill to go to it and make sure you pay that off each month. Not considering whatever you put on your credit card as a real purchase will bite you in the butt right quick. And could eat up the next twenty years of your life paying it off – think about that before you buy another pair of shoes.
2.) Pay your bills late.
Paying your bills late incurs fees and dings your credit score. For 5-7 years afterward. Totally not worth it.
3.) Pay only the minimum on your credit cards.
If you’re paying down a lot of credit card debt, it will take you forever only making the minimum payment. A huge chunk of that payment goes into interest and doesn’t do much to lower the balance. Do your best to pay at least double, but if you can, pay off your credit cards as fast as possible. The interest rates are ridiculous.
4.) Make your wants, needs.
I think this is something Millenials particularly suck at. We think need all these things we really don’t. They make life a lot easier, sure, but we don’t need them. We need food, clothes and shelter. We do not need Macbooks and iPhones. Honestly, you don’t even need a computer in most colleges. Everyone I’ve ever been in has a computer lab. Would it suck to have to sit in a computer lab for 8 hours writing a term paper? Yes. Will it still get all the work done? Yes. The same goes for your phone. Honestly, you don’t need one at all, but I’ll give you that it’s a good investment, especially while job hunting. A prepaid one works just fine and will cost you a fraction of what a smart phone would. Even clothes. Do you need a new sweater? I mean, what are you wearing right now? I bet you don’t. Do you need Starbucks every morning? No.
5.) Make impulse buys and avoid shopping around.
I totally get the dopamine rush when you buy something new, but impulse buys add up. Wait 24 hours before buying anything. And see if you can find it cheaper or find a coupon on-line. Even if you order it from the on-line store, you can go through website like MyPoints.com and rack up free gift certificates over time.
6.) Think that anyone will ever pay you back.
Seriously, I love my friends and my brother, but when another twenty-something asks to borrow $10, you’re probably never going to see it again. If you can’t afford or deal with that, don’t lend out the money.
7.) Rush into buying a house.
This is a huge commitment and the 20’s are a pretty nomadic time. I know I’ve paid rent in 3 different states and 2 different countries during this time frame. I can’t imagine committing to stay in one place to at least 5 years (the average time it takes to recoup your investment in a house). Also, a down payment and a mortgage are a gigantic expense. Think real carefully before committing to home ownership.
8.) Keep relying on your parents for everything.
We covered this in reverse on the “to do” post, but it bears repeating. Chicks don’t dig dudes who live at home (without a heck of a good story why). Sever the cord on your own when you can do it step by step, before Mom and Dad get wise to you and cut you off a’la Girls’ Hannah Horvath.
9.) Leave all your cash in a checking account.
Checking accounts, the most common account for teenagers and college students, don’t really do anything for you. You need to open a savings account. It’s very easy. Google “best interest rates savings account” and sign up for the highest interest rate you can get. Then start funneling money into it. It will make you think twice about using it and it’ll make you a little money too.
10.)Succumb to lifestyle inflation.
So you finally make it to the next step on the career ladder. Now is the time to up your savings – not go on a trip to Tahiti, buy a new stereo and eat out every night this month. If you got a 5% pay increase, your savings and emergency fund contributions should see the same bump.
11.)Become completely self-centered.
It’s easy to become overwhelmed and miserly in your twenties. They’re a pretty narcissistic time and it’s totally encouraged by everything that we see advertised. That doesn’t mean you should forget about things that are important to you like charities and religion. If cash is absolutely impossible, you could donate your time, but money-wise, it’s still best to stick to giving 10% to others. Whether it’s a tithe for your faith or the ACLU or clean drinking water in Africa – if it matters to you, try to find ways to help others. One of my roommates from college and I have split a monthly payment for a Compassion International kid since we were freshmen in college (horrifically, that child is nearly college aged now) and I think it helped us organize our financial priorities a little, because we felt like this kids welfare was in our hands and we always had to make sure we could each find $19 a month.
12.)Develop a tobacco, alcohol or drug dependency.
Because tobacc-y is whack-y. Or whatever those commercials used to say (personally, I loved the one where they sang “you don’t always die from tobacco, sometimes you just lose a lung”). But really, because it’s freaking expensive. I mean, everyone is going to die someday, so I think it’s totally up to you if you want to have a hand in how you get there, maybe you think it’s worth it. But we’re talking about finance here and fact is cigarettes, rum and meth are pricey. And they don’t really make many coupons for heroin.
13.)Borrow money for a wedding.
Lots of girls dream about their wedding forever (I personally advocate eloping). The web is overflowing with budget tips to have awesome, inexpensive weddings. The average wedding costs $28,000 these days. That’s freaking ridiculous. What a crappy way to start a life with someone. If you dream of a big deal big day, you should start saving for it ASAP, even if you’re not dating anyone right now. And if you’re a more realistic, practical girl, possibly start checking out those DIY websites and start stocking up on empty wine bottles, corks and photo booth props now, even if you’re not dating anyone right now either. And, of course, there’s always Vegas or Niagara Falls.
Even when you finish school, you should continue to grow skill sets that are useful to your career, because most of the money you make in your lifetime will come from this career. Workshops, seminars and lectures are all useful investments of your time (and money, if necessary, but especially in big cities, tons are free) and nice little additions to your resume.
15.)Rush to pay off student loans.
Everyone talks endlessly about paying off debt, but make sure you prioritize it. Interest from student loans can be deducted from your taxes, which is nice. The same is not true of credit card interest. So if you’re picking between them, always PAY OFF CREDIT CARDS FIRST. Also, paying off student loans, especially federal ones with low interest rates, should not come at the expense of saving for retirement. So make sure you’re building up your 401(k) and/or your IRA before making extra payments towards your student loans.
To learn more about managing your finances the right way, check out Dave Chilton’s awesome book The Wealthy Barber. You can enter to win a copy here.