If you snagged a copy of my first book then you are well aware of the fact that I had a very detailed system when it came to my finances. I have a savings plan, automated finances, and I went into excruciating detail of how I split stuff up and made my money work for me.
Unfortunately, I talk to a lot of millennials who are still falling into financial traps that are easily avoidable. Here are the 10 ways you are stopping yourself from financial freedom in your 20s.
1. Credit Card Debt
This is the real kicker, isn’t it? How many of you have spent your way into oblivion? Given the statistics concerning credit card debt in America probably quite a few of you. In fact, the average college graduate walks into the real world with about 20k in debt. Furthermore, the average credit card debt for 25 to 34-year-olds has increased 40% between 1989 and 2004. Credit card debt has also been inching up since the economy started improving.
Seriously guys, what the hell are we doing to ourselves here? Using a credit card is one of the most expensive ways to borrow money. Sure, if you use them responsibly they can be a great asset, but clearly, we’re doing something wrong here.
2. Not having a budget.
No one likes the word budget. The word itself seems tedious, boring, and even really scary for some. Unfortunately, there’s really no way around having to create one so you’re just going to have to tackle the monster head on – unless, of course, you’d just rather live in ignorance about your finances.
When working with Money Mindset coaching clients, I usually have them start off with a free tool like Mint or Personal Capital. These free online tools can help you create budgets while making sure you stay on top of your bills, your net worth and your debt repayment.
Pick your fancy:
3. Not contributing to a 401k or IRA.
If your employer is matching any part of your 401k contribution you’d better sign up ASAP, otherwise you’re just giving up free money. If your employer doesn’t offer a 401k I’d suggest opening up an IRA. All you need is $100 a month and you’ll be well on your way to saving for retirement.
If you’re self-employed like me or you just want to invest outside of your company plan, I highly recommend checking out Betterment. This is what I use to invest in Vanguard index funds and I can invest whatever extra money I have. Click here to read my full review of Betterment.
4. Using debt to pay off another debt.
This is possibly one of the stupidest things I’ve heard people do with their money besides burning it. For the love of all things good and holy do not use a credit card to pay off another card. Or your student loan to pay off your car loan. Or a personal loan to pay off a business loan. It doesn’t solve anything – you still owe the money!
If you’re really in a bind with your debt you can consider consolidating or refinancing.
5. Not even bothering to invest.
Since we came of age during The Great Recession, I can’t totally blame Gen Y for being scared of investing. What I can blame you for is not doing your research anyway.
The American economy is proven to be pretty damn resilient and you’re young enough to ride out the craziness we’re experiencing. Besides, it’s easier than ever to invest wisely thanks to robo-advisors like Betterment or micro-investing apps like Acorns.
6. Not developing a side hustle.
I may be a bit biased here because I made extra money as a freelance writer on the side of a day job for years, but it’s with good reason that I’m constantly telling you guys to start your own businesses.
It’s liberating, puts you in the driver’s seat, and it’s good to know that you have a way of making extra money in case your day job doesn’t pan out. If you need some help deciding what kind of a business you should start checking out these side businesses you can start on your own.
7. Not knowing the difference between what you need and what you want.
I still suffer from this all the time. We grew up in an age of consumerism so we like shiny things. A new iPad is coming out? Let’s buy it for way more money than it’s actually worth. There’s a new Android phone? Let me buy a new one NOW instead of waiting until I get my upgrade.
We really need to stop doing this. The next time you feel an urge to buy something expensive and shiny step back, take a few breaths, and come back to grips with reality – you don’t actually need it.
(Although I do love my Mac 😉 I just won’t buy one every time they upgrade it. )
8. Buying a brand new car.
Why on earth would you buy something brand new that will undoubtedly depreciate in value over time? Better yet why would you take out a loan for something that will depreciate in value?
A car is not property, which always has the possibility of bouncing back. It’s not a student loan which in theory is supposed to get you a better paying job.
It is not an investment – or well, it’s a horrible investment. In case you didn’t know, your wheels lose value as soon as you drive them off the lot. Save up your money to buy a car. Or buy used. Or, do what I do – take the bus and walk (Seriously, public transit saves you a ton of money and forces you to exercise. Win!).
9. Sticking to a big bank.
Another good thing to come of out of the stolen wallet fiasco is that my big bank. Instead, I switched to an online-only bank which is a low-cost operator – meaning no crazy ass fees for stupid crap. They also have high yield savings accounts that provide much better bang for your buck.
10. Not having an emergency fund. (Or any savings, period.)
An emergency fund is paramount! It’s how you can handle those surprise necessary expenses like visiting the doctor or the car breaking down. It’s also good to have in case you get laid off so you can at least live off of something while you find a job (you’ll wish you’d started a side business by then).
If you think you can’t save take a look around and you’ll notice you spend a lot of money on unnecessary things. You don’t need a $4.00 coffee every single day. You don’t need to eat out so much. You don’t need to buy that many drinks at the bar. Those three alone could save you a nice chunk of cash.
Alternatively, you could also try cutting ruthlessly on things that don’t matter to you so you have more money for things you do care about. For example, I don’t really value a car so I save money on a loan, insurance, tags, and gas. Because I don’t spend a lot of money in these areas (because I quite frankly don’t care that much), I then have more money to put toward things that do matter to me like travel.
This usually works better than trying to cut all unnecessary costs because getting clear on what you want makes money management much easier. This is a topic I’ve discussed extensively with podcast guests including Jason Vitug, Lauren Greutman, and Dani Pascarella.
All of the aforementioned obstacles have solutions so you can conquer them. Granted, it may not be easy but you have to stare at your financial situation square in the face. The earlier you cultivate healthy financial habits the longer they’ll stick and the faster you’ll see relief.