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The Biggest Financial Mistakes People Make in Their 20's

1. Substantial student loan debt

A recent study found that the average student loan amount for the class of 2016 was $37,172(!) Even worse, it’s forecasted that the total outstanding student loan balance will reach a whopping $2 trillion by 2022.

College is often termed the "$1 million investment" in terms of the extra income it generates for people over that time. But you also need to understand whether what you're paying for in money (and time) and the debt you're going into is going to pay for itself. With the way the total cost of college has ballooned over the past 30+ years, the reality is that the ROI is becoming less and less or even negative for many students.

Absolutely re-consider if college is the right choice and if you need a degree for what you want to do. If so, consider a community college for 2 years to save the money, then transfer. It makes little difference (except to your bank account).

2. Waiting to invest

One of the biggest advantages that you have in your 20’s is time.

Not only can you ride out any short term fluctuations in the market, but you can fully take advantage of what’s called compound interest. This is why the money you SAVE and INVEST in your 20’s is arguably the most IMPORTANT money you have your entire life.

You can basically get 40 years for your investments to grow into something massive, simply because you have time on your side, working in your favor.

If you have $50,000 in savings by the time you're 25, what happens to $50,000 when it compounds for 40 years instead of 30 years (if it takes you until 35 to save that up)? Assume 7% annual return.

The difference is staggering. Instead of having $748,723 you will only have $380,613. That's almost double, or an extra $368,000 earned off that $50,000 just by starting 10 years earlier.

40 years

30 years

3. Buying an expensive car

Assuming you’re just a car enthusiast and want a fun car to drive, there’s nothing wrong with buying a nice car in your 20’s. Just make sure you can afford it.

Ideally, less than 10% of your take home salary should go to a car payment. This means just get a Miata or S2000 instead of a Porsche 911. Take the budget route until you’re in your 30’s.

4. Renting an expensive apartment

Renting a place is awesome, especially if this enables to you to save and invest elsewhere. And you should also live somewhere you’re happy with.

But throwing a TON of money at a cool apartment in your 20’s is a waste. An expensive apartment in your 20’s is simply going to take away from the lifestyle you can live when it does matter.

It’ll take away from future financial security, from future investments, and from future retirement. The more money you can save here, the more money you can have elsewhere.

5. Not keeping track of your finances

Very few people actually do this, but it will make a massive difference.

To do this, just sign up on or - it’ll automatically track your spending.

From there, you can reasonably start a budget, track your finances, and then cut back or save as needed.

If you do this, you’re going to be ahead of 99% of the population. And it doesn’t take much time to do this. Maybe 10 minutes a week, if that. This is really, really simple stuff.

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