Here are the top 5 money mistakes that people make when they are just starting out in the working world, in their 20’s and 30’s.
My first job out of college was rather inauspicious: A salesperson at Radio Shack. I made basically minimum wage, except for when I sold a certain amount of product, which would add on a bit to my base wage. A few days in, I asked my coworker how long it took to start earning more than your base wage. He laughed and said it never happened.
I quit after two weeks.
Having graduated out of my 20’s and 30’s, I can see where I and others around me made good decisions, and also rather regrettable mistakes.
So I thought I’d stop to collect what some of those mistakes are.
Table of Contents
1. Not taking advantage of employer retirement benefits
Not everyone who’s starting out in the workforce gets a full-time job with benefits. But many do. And when you get benefits, they are almost always worth taking advantage of.
You will often get access to a company 401(k) plan, where you can defer some of your paycheck into a tax-advantaged investment account. Oftentimes, these are “opt-in” plans, meaning, that if you do nothing, you won’t enroll.
Because of this, too many people don’t start putting away money for retirement at the point where their money is the most powerful, with the most time to grow.
Sometimes people don’t want to do anything that would reduce the amount of their paycheck, and so they don’t put any money away. Same mistake.
Money put away at that age might have the ability to grow for 40 years. If you put away $10,000 and let it grow in an 8% mutual fund for 40 years, you’d have almost $250,000. That’s a ton of missed opportunity for a few hundred or few thousand extra dollars in your paycheck.
2. Not putting any money away
Getting in the habit of putting money away—for emergencies, for savings goals, etc.—will serve you well the sooner in life you start doing it.
You may think that when you don’t have much money coming in that you can’t afford to put money away. But I’d argue that it’s the opposite; when you have so little money coming in, you can’t afford not to put any money away! It’s not like emergencies don’t happen until your income goes up.
And when an emergency (or something else big) comes up and you don’t have the money for it, that’s when credit cards come in. And debt is just a drag on your ability to build wealth.
Your goal can be modest: put away $25, $50, $100 a month. Or really, any amount greater than zero. Set it and forget it, and you’ll find that money will come in very handy one day.
3. Buying a new car
Mobility is empowerment, as they say. And who doesn’t want to feel empowered?
So you go to the car dealership, as that’s where you get a car, right? And while they were a little pushy, they convinced you that a new car was the most reliable option, and it had the newest tech.
So you drive off, with a car payment that ends up being $700 a month for the next six years.
Big mistake.
It’s been a long time since cars lasted 10 years and then disintegrated. I drive a Toyota that has 120,000 miles on it, and every single time I talk to a mechanic (which isn’t often), they say something like, “oh, that car’s just getting warmed up.”
Mind you, this car is over twenty years old.
Buying a new car is expensive, and will sap your financial means at just the time when it’s best to be building it up.
And it’s totally unnecessary. You don’t need to buy a clunker, but you can find a 5-10 year old car that will last you 5-10 years, easily. And you don’t need to go to a junkyard either. You can use Craigslist, and maybe even Facebook Marketplace or eBay. Stay away from the dealers and do your research, and you’ll be fine.
Buying my first car for $1,200 and keeping it for over a decade was not only one of the greatest financial decisions I ever made, but is one of the reasons why I was able to buy a home years later.
4. Using a credit card for all your spending
People don’t come into adulthood with enough financial literacy these days. Because of that, people can be easily swayed by forces that don’t have their best interest in mind.
Many people get credit cards in college, and that’s fine, nothing wrong with that. But just because you have a credit card doesn’t mean you should use it.
Not everyone truly understands cause and effect I guess. I personally knew people who were astonished to find that what they put on a credit card needed to be paid off!
A credit card isn’t a license to buy things for free. You’re not paying for things with a credit card; you’re making a promise to pay later.
And if you don’t have the money to pay later, you’re going to have a big problem. This can really stifle your ability to build wealth later on in life.
Speaking of…
5. Using Buy Now Pay Later services
Buy Now Pay Later (BNPL) services, as I’ve written about many times before, is a new take on getting people to buy things they can’t afford, with the same pitfalls. BNPL is to credit cards the way vaping is to cigarettes; they claim to be different and better, but it’s really just the same thing, if not worse.
But BNPL is marketed heavily, especially to those who are often online. When you see something for $200, and the button below it says “or $50”, you might not really realize that that means you have four monthly payments of $50. And if you get in the habit of purchasing things like these, you can very easily get to the point where you can’t afford any of it.
Bottom line
The nice thing about just starting out in the world is that most mistakes are fixable.
We can argue about plenty of other actions that some might consider mistakes. But I think we can all agree that these are five mistakes that many people make in their 20’s and 30’s that can most adversely affect their financial health, without providing a ton of benefit in return.
If you think I’ve missed something, I’d love to hear. Leave a comment below.
