Five Common Money Mistakes People Make in their Twenties

Hey There!

I’m Haley Kowalewski, founder of Femme Financial Coaching, where I coach Millennials and Gen Zers how to navigate the wild world of personal finance and investing.

See below for 5 COMMON MONEY MISTAKES TO AVOID that young adults are making:

1. NOT MAKING A DEBT REPAYMENT STRATEGY

Among the class of 2019, 69% of college students took out student loans, and they graduated with an average debt of $29,900. The first money mistake I see young adults make is not taking a hard look at how much they owe in student loans, car payments, credit cards, etc., along with the interest rates on all of these. What this does is potentially costs you hundreds to thousands of dollars paid in extra interest! How? By not making a plan for which debts to prioritize paying off first, you are susceptible to just paying them off at random or not trying to pay them off early. When you make a strategy to pay off the debts that are costing you the most with interest, you know exactly where to allocate any extra money and ultimately save you a lot more. Of course, keep making the minimum payments on all your loans; I'm talking about any extra money going to a specific debt first based on a strategy. I can't tell you how many people I have talked to who got a bonus or extra cash and put it towards their student loan with an interest rate of 4% when they have 8k credit card debit with an interest rate of 24%. Organize your debt to pay off highest interest rate debt first!

2. LIVING ABOVE YOUR MEANS

I get it, you want to live your twenties up! But you do not need the nicest car or the apartment that costs over half of your take home pay because you want to live alone in LA. Your twenties are not supposed to be about high-class living. Nobody cares if you have roommates, are working an extra job to make ends meet, or not driving the nicest car - as long as you are trying to build wealth! You should be aiming to save 10-20% (and eventually more!) of your take home pay and NOT TOUCHING that money. If you are eating out every meal and living paycheck to paycheck, start tracking every expense you are making for a month in the notes app on your phone and take a hard look at where your money is going.

3. MISUNDERSTANDING CREDIT

I’ve had SEVERAL coaching sessions where my clients who are in their 20's have 5-7 credit cards!! All with a couple hundred to a couple grand on each of them! Why?? They think to build credit they need to have a lot of credit cards open and carry the balance for a long time which is incorrect. You can put a purchase on a credit card, but get in the habit of paying that off within the week, if possible, and you will still be building credit! If you don't have to, DO NOT carry a credit card balance into the next month because that is when you are hit with the 17%-26% interest rate. I’m fine with you having 2-3 cards max, I can’t say I understand holding more. Lastly, a lot of these cards you have open have annual fees you are also paying just to hold the card that is keeping you in debt. You are young, your credit will build naturally over time as long as you are paying off these balances.

4. NOT BUILDING AN EMERGENCY SAVINGS

Life happens. No one could have predicted a massive pandemic would hit in 2020, but here we are. Building a 6-month emergency savings in your twenties is crucial so when life happens, you have a cushion. How do you start building a savings? Open up an online high yields savings account with Marcus Bank, CIT, or Ally Bank, etc. (there are so many amazing online brokerages). Set it up to auto-deposit ~$50-$200 (or more) a month until you hit your six months savings, then do nothing. Do not touch that money, let it sit there and grow. Only use it in case of an emergency!

5. NOT BEING A PERSON OF VALUE AT WORK

When you are starting your professional journey, I don’t care if you are just getting coffee orders all damn day, you better be the best coffee runner in town! Prove yourself and pay your dues! This role you are in is TEMPORARY, and the quicker you ADD VALUE to the company you are at and prove you deserve a raise or promotion, the quicker you will be MAKING MORE MONEY! I have seen new people start at my company, and granted the work is a grind, but this is their first job and they are coming in late, not networking at all, and then leaving early because they see others on their team who have earned the right to do that are leaving early, etc. The next thing you know they quit because they are not getting results! Your first few years, I want you to GRIND, this type of work will create for you a reputation that you will be very proud of and the money will come quicker than you could have imagined.