4 Money Mistakes I’ve Made in My 20’s
I was an idiot.
$20,000+ in credit card debt. This was my financial situation in a nutshell in my 20’s. Being knee-deep in debt wasn’t an overnight thing. It also wasn’t a result of a single mistake. My money problems were due to many poor financial decisions compounded over a few years.
Here are the money mistakes I made in my 20's:
- Financially illiterate
- Living above my means
- No emergency savings
- Not saving for retirement
My hope is you don’t have to learn the same hard lessons about money as I did. I’m in my early 30’s now. After a lot of self-reflection, self-discipline, and perseverance, I’ve crawled out from the depths of debt despair. Today, my net worth is roughly $70,000. I share my net worth, not as a humblebrag, but to illustrate if a dummy like me can get a grip of my finances, so can you.
Financially Illiterate
I knew shit about money management. Schooling didn’t teach me about saving, investing, and spending money wisely. It’s a travesty that basic financial planning isn’t a required course in our school’s curriculum. Let’s be honest. Which class is more useful, anyway? Personal finance or boring-ass trigonometry? You know the answer.
My financial education starts and ends on YouTube. Dave Ramsey, Graham Stephen, and Andrei Jikh — they’ve shaped the way I view money. YouTube is such an invaluable resource because the information is FREE. Gone are the days of shelling out thousands of dollars on financial courses or “money gurus” proclaiming they can solve your money woes.
Suppose your school or parents aren’t capable of teaching you proper financial planning, no problem. Through books and the internet, it’s never been easier to become knowledgeable about money.
Living Above My Means
After graduating college, I applied to hundreds of jobs without any bites. Desperate, I accepted a job in retail selling shoes. The job paid a measly $11 per hour.
The one positive is I moved back in with my parents, rent-free. You’d assume I stashed away a significant portion of my paycheck. Nope. Remember, I was an idiot with money. The money left my bank account as easily as it went in.
Instead of making meals at home, I’d eat shitty mall food court food. Instead of making my own coffee, I’d buy Starbucks. Instead of drinking at a friend’s house on the weekends, we’d go out to clubs and bars where one drink is north of $10.00.
Live below your means. Spend less than you make. Understand the value of a dollar. These were foreign concepts to me in my 20's. If I could go back in time and sit my 21-year-old-self down for a chat, I’d tell him, “Be mindful of your spending, or else we’re fucked.”
No Emergency Fund
According to a 2020 survey done by Bankrate, only 1 out of 5 American adults had enough emergency savings to cover three to five months of expenses. Moreover, 21 percent of Americans say they didn’t have any emergency savings whatsoever. Up until recently, I, too, never had an emergency fund.
To highlight the importance of having at least three to six months of emergency savings, let me tell you my most embarrassing financial debacle.
I was in my mid-20’s with a 9 to 5 cubicle job, doing mindless data entry. I hated my job. This was also around the same time Casey Neistat started vlogging. Watching the hyperbolic growth of his channel inspired me to start a YouTube channel of my own. I thought, “If Casey can do it, why can’t I?”
The wise decision would’ve been to do YouTube while working my 9 to 5, slowly growing my channel without putting myself in a precarious financial position. But, instead, I said, “Fuck it,” put in my two-week notice, and dived headfirst into YouTube.
After posting almost daily vlogs for a few months with little growth to show for it, I eventually got burnout and quit. During my short-lived YouTube career, I accrued thousands of dollars in credit card debt buying fancy camera equipment. Keep in mind I had no income coming in and zero emergency savings.
My cautionary tale is not meant as a slight to risk-taking, but rather the significance of financial preparation. Lose your job? Have an unexpected medical expense? Decide to quit your job pursuing another venture? An emergency fund keeps you afloat without digging yourself in a deep hole of debt.
Not Saving for Retirement
I admit: I only started contributing to my Fidelity retirement account at age 31. Not saving for retirement in my 20’s is my biggest financial failure. Let’s drill down on how much money I left out there on the table.
If I maxed out my Roth IRA every year since age 20, the annual maximum contribution amount is $6,000 as of 2021. Here’s how much I’d have by age, assuming an average rate of return of 10%:
- Age 30: $60,000.00 (total contributions); $39,931.93 (total interest); $99,931.33 (end balance)
- Age 40: $120,000.00 (total contributions); $239,129.61 (total interest); $359,129.61 (end balance)
- Age 50: $180,000.00 (total contributions); $851,421.66 (total interest); $1,031,421.66 (end balance)
- Retirement Age 60: $240,000.00 (total contributions); $2,535,174.07 (total interest); $2,775,174.07 (end balance)
Now, let’s look at the stark difference contributing later at 31-years-old:
- Age 40: $54,000.00 (total contributions); $31,146.96 (total interest); $85,146.96 (end balance)
- Age 50: $114,000.00.00 (total contributions); $206,781.22 (total interest); $320,781.22 (end balance)
- Retirement Age 60: $174,000.00 (total contributions); $757,955.81 (total interest); $931,955.81 (end balance)
“My wealth has come from a combination of living in America, some lucky genes, and compound interest.” — Warren Buffett
In the above example, when I hit the retirement age of 60, I’ve contributed a small difference of only $66,000.00 between ages 20 versus 31. However, due to the magic of compound interest, waiting 11 years cost me $1,777,218.26 in interest. Damn.
The best time to invest was yesterday. The next best time is now.
Final Thoughts
You don’t need to be Albert Einstein to be competent about your finances. In my 20’s, I didn’t understand the value of a dollar. I was uneducated about money. I spent more than I made, had no emergency savings, and contributed zero dollars toward retirement.
If you’re young and in the beginning phase of understanding your personal finances, firstly, I’m jealous. Secondly, I hope you can be better and learn from my money management mistakes. Trust me: Your future self will thank you for it.
