“Remember that time when…?”
The memories from my early twenties were really a bit hazy. As a newlywed, recent college graduate and first-time homeowner, life seemed like a whirlwind. I had just settled into my new job while simultaneously digesting the news of my husband’s upcoming deployment. Embarrassingly enough, the only thing I knew about our money situation was how much we got paid. I didn’t know the first thing about budgets, taxes, or retirement. So many things were happening at once, my focus just wasn’t on financial matters.
Can you relate?
My husband and I often joke about those early years of marriage when we simply had no clue what we were doing with money. We had no plan. We had no particular focus. We were just living life. You don’t know what you don’t know, right?
Looking back now, I can clearly see all the things we failed at financially. Whether it was pure naivety, or unawareness, I’m not sure if I’ll ever know. What I do know is if I knew then what I know now, I would’ve done things a whole lot differently. It’s sometimes difficult to think long-term in your twenties, which is why I’m sharing my mistakes with you today.
However, despite the craziness of that season, I somehow managed (honestly by the grace of God) to still fumble my way through it all. But not without some costly mistakes along the way. Anyone else out there learn things the hard way? If you are in your twenties, or know someone who is, please don’t repeat the same mistakes I made. If I could turn the clock back ten years, here are 5 things I would do differently with money:
1. Borrow less student loans.
Are you guilty of clicking “accept all” when it comes to student loans? I certainly was. As a junior in college, I remember cruising through my FAFSA, and selecting all the student loans awarded to me. My college savings ran out, and my part time job wasn’t going to cut it, so I blindly checked the boxes and received $9,000 in loans, without even batting an eye. I felt like I had a lot of money! What I didn’t realize, is that because this money was borrowed, I actually owed a lot of money. Had I known then what I know now, I would have taken the time to figure out how much I needed and taken out the bare minimum in student loans. If you find yourself applying for financial aid to get through college, don’t do as I did. The smart move isn’t to take as many student loans as possible, but to adjust the numbers to what you actually need. Of course, it’s easy to take out the total awarded amount if you’re thinking, “well, just in case I need it.” That mentality could cost you tens of thousands of dollars in debt in the long run because of compound interest working against you. If compound interest is a foreign concept to you, take five minutes and read my post here.
Trust me, you will be happier and financially in a better place in your 30’s if you do some math in your 20’s (or younger) and avoid taking out every loan offered to you.
2. Earn more income.
If you are young and single, with no kids (or no mortgage) you may not realize just how much freedom you have at this stage in your life. And if you do, kudos to you. Freedom with how you spend your time is harder to come by if and when you get married, buy a house, raise a family, etc. Looking back now, I felt like I never had much free time, after my 40 hour/week job. But actually, I did! Had I just recognized it, I would’ve used it differently. One of the things I wish I would’ve done in my early twenties was take on a part time job on nights or weekends in addition to my full-time job. I think back to the year of my husband’s deployment and I regret not spending more of my free time earning some extra money while he was away. What a prime opportunity I passed up all because I simply wasn’t aware of how I could be better using my free time. Hindsight really is 20/20. Flash forward a decade, and the opportunities for side hustles are nothing compared to the options back then. Things like Uber, Doordash, and Instacart weren’t even around yet. Use this to your advantage! Are you a teacher? Why not pick up a seasonal job during the summer months? Or could you spare a few nights each week earning extra money as a delivery driver? Do you love animals? Why not get paid to pet sit or walk dogs? Or sell something you made on etsy. Whatever you enjoy doing, find a way to generate some side income from it. Get creative; the options really are endless!
3. Invest, invest, invest.
The huge advantage of investing money in your early twenties is time. It’s literally the one thing you cannot get back. As a twenty-year-old, time is on your side! If you’re a beginner, you may want to consider meeting with a financial advisor to help you assess long term goals and set up an investment plan based on those goals. Or maybe you feel comfortable learning the stock market on your own. In that case, you may want to check out highly-rated investing apps like E*Trade, Robinhood, or Merrill Edge that offer zero fees per trade and require no account minimum. I remember being 20 years old and not even giving a second thought to how much money I’d need in retirement. That just seemed too far away, and I thought, “I’ll figure it out later when I’m older and ready to retire.” Big mistake. Again, you don’t know what you don’t know, so let me reiterate, you can never start investing too early. Money has more potential to grow if you start investing at a younger age. Don’t miss this!
4. Save for a down payment.
Are you sick of feeling like you’re wasting your money by renting? Or are you getting married and ready to buy your first property as a couple? If so, it is a good idea to start saving for a down payment on a house. I didn’t realize things like down payment assistance or private mortgage insurance even existed when my husband and I bought our first house. Maybe you’ve heard of these things, but if you haven’t, keep reading. Basically, home owners who can’t afford 20% of the value of their home, end up paying an extra cost, called private mortgage insurance, or PMI. This protects the lender (bank, etc.) in case you default on your loan and can no longer afford your mortgage payment. For example, if you’re approved for a $75,000 loan, it would be wise to put $15,000 down (20%) to avoid paying PMI. Not all loans are created equal. I’ll explain why in the next and final money mistake, #5.
5. Improve my credit history.
Have you every applied for a car loan only to drive off the lot with loan interest rate of over 10%? Maybe you thought that was a good rate, or maybe you didn’t even notice. I certainly didn’t know what the interest rate was when I bought my first car. I couldn’t even tell you if my credit score was excellent, good or poor. And I certainly didn’t understand how my credit history or lack thereof, would impact the interest rates of future loans I’d take on. As I mentioned earlier, lenders determine how risky you are to borrow money to. This is based on a range of factors. They use these factors to assess your creditworthiness. Someone with no credit, or bad credit (a low credit score) won’t receive a good interest rate on a loan. They will end up paying more overall for the life of the loan because of this higher interest rate. On the contrary, someone with good credit (a high credit score) has the advantage of obtaining more favorable interest rates on their loans.
Here are a few things you can do to bump up your score and get yourself in a favorable position before taking on a loan: Pay your bills on time, don’t max out your credit card (only utilize 30% or less), lower the amount of debt you owe overall (student loans, credit cards, car loans, medical debt, etc.), and the length and diversity of your credit history. These factors let the lender know how risky it’d be to borrow you money. I would never advocate to take on more debt than necessary, or encourage someone to open a credit card and spend recklessly just to build their credit score. But, if you are someone with no credit or bad credit, and are looking to buy a house, for example, building your credit history and increasing your score will help land you a better interest rate on your loan, which means less money you’ll have to pay to the lender (which is a good thing for you!). When I opened my first credit card (which I no longer use), I would start small by charging one thing to my card each month. It was usually something small, like $20 in gas. Although I don’t do this anymore (I only use cash or my debit card), it was a good starting point for me to bump up my score in order to leverage better loan terms. After years of working on this, my credit score is now 807, and I plan to keep it that way!
The common theme here among all these mistakes is that money has a rippling effect. One area always impacts another, whether directly or indirectly. If you spend too much or take on too much debt, that will impact your loan terms (like interest rate), ultimately effecting your home-buying experience. Not to mention, your ability to save, invest and give will be impacted as you prepare for your future (retirement, passing on wealth, and giving to charity.) can diminish because of those debts or unfavorable interest rates. Each act and decision effects the other in some way. And since finances are interconnected, it’s not a huge mystery why it matters how we handle money. I hope this post helped you take a closer look at your financial picture and encouraged you to make some changes, if necessary. If you found this post helpful, please let me know about it or share it with a friend!