What money moves should you make in your 20s — and what should you avoid doing? Rhiannon Payne, editor in chief of Feminspire, reached out with a fabulous guest post on this very topic. I think her tips are solid however old you are, particularly if you’re just starting a new career with more money (like I was at 27, my first year in BigLaw). Thank you for guest posting, Rhiannon! (Pictured: Lodis Accessories Audrey Cassie Cell Case with Wristlet, available at 6pm for $36.99.)
So you’ve finally landed that amazing job, the one that pays you enough to not only cover your rent and other basic expenses, but also affords you the luxury of having money left over – money that you’re not sure what to do with. The options seem limitless. While you once had to count up the pennies in your change jar if you wanted to buy a new outfit, you’re suddenly thinking about all the exciting ways you can improve your life with your new funds. Things you would have never considered are suddenly options – a tablet for working on the go? A newer, shinier car to replace your old model? The fancier silverware sets from Bed Bath & Beyond?
This is a trap that a lot of young people fall into, especially when entering the workforce after college or going straight into the professional world in their early 20s (the latter was me – I set my sights on an industry where a degree was more of an option than a requirement, and I didn’t want to risk a negative ROI on my tuition). Unfortunately, the financial education provided to American students, in both high school and college, is generally pretty limited. When a young person starts earning a healthy income, they often have no idea what to do with their money. Thus, some unfortunate financial decisions usually occur. This is especially true for women, who not only make less (on average, $0.77 to the dollar) than men, but are traditionally given even less financial guidance than their male peers.
It wasn’t all that long ago that I got my first “real” job. And the scenario above? Completely inspired by real events. I suddenly had money that I didn’t know what to do with, and unlike Kat who started putting away $100 each month at the age of 22, I made irresponsible choices.
Even though I was making enough money to support myself, it took me awhile to pull myself out of the financial hole that I dug myself into. The saddest part was that I didn’t have any serious financial issues until I started earning a decent living (why does that happen?). So take it for what it’s worth, but as a young 20-something who has been there, here’s what I would do differently (and am currently doing differently) when it comes to managing my money:
- Seriously, don’t start upgrading everything. The first mistake a lot of young people make is spending more money than they really need to. When I got my first full time job, the first thing I wanted to do was find a bigger apartment, get a car, and fill my closet with silk blouses and expensive pencil skirts from Bloomingdales. This is a bad idea. I’ll even spell it out for added emphasis: B A D. If you were getting by with your lifestyle choices prior to your job, don’t start rushing to change them by spending money that could be going other places (such as a savings account). For me, getting my own one bedroom apartment would cost at least $500 a month more than living with roommates or in a bachelor. A car would be another $500 a month or more expense, especially considering the cost of gas in my city (Los Angeles). These are mistakes for a lot of reasons, and are especially big ones in an uncertain job market. If you lose that awesome job of yours, you’re suddenly going to be stuck with a lot of big expenses and no way to pay (been there). Live with roommates, keep taking the bus, and treat yourself sometimes but not to the point where you’re spending your entire paycheck without putting anything away. I know how tempting it is to step up your lifestyle, but do it in baby steps, not leaps.
- Keep your expenses down across the board. This advice probably seems pretty obvious, and I’m sure everyone has heard it before, but when you’re in your early 20s and focused on your career and social life it can be easy to forget or simply disregard. My advice: don’t disregard it. The cost of convenience isn’t worth what they’re selling it for, and by “they” I mean Starbucks, the cute café on the corner where you buy a $10 salad every day, and the trendy bar where you spend $15 per cocktail on Saturday nights. Sure, you can afford to buy $3 coffee every day and pricey lunches and drinks, congratulations – but that doesn’t mean you should. If you add up the amount you spend on little conveniences, you’ll probably get a huge number – and that’s an amount that would be put to much better use in a savings account. So take a flask to the bar and just order a coke (don’t turn your nose up at this, we’ve all done it), make your own lunches, and brew your own coffee. When your car breaks down or you have to pay for an expensive medical bill, you’ll thank yourself.
- Don’t get into credit card debt – just don’t do it. Yes, more obvious advice. But if you’re anything like 20-year-old me, you might be prone to totally disregarding this as well. My best advice is to not open up a line of credit at all, but sometimes things happen, and there’s also the whole “building your credit” thing that we all have to do in order to get approved for things like apartments and cars. So if you decide to get a credit card, budget for every expense. When you have extra money to pay some of it down, do it immediately. Prioritize it right under your rent and groceries. The faster that debt is gone, the happier you’re going to be. The longer you let that debt accumulate, the more miserable you’re going to be – believe me.
- “The best time to start a savings plan is before you’re used to having extra money.” Oh man, do I wish I knew this a few years ago. This is advice from David Armstrong, a top-ranking financial advisor, so I can’t exactly take credit for it – but above everything else I’ve written here, this is something I think every young person should hear. His suggestion is to calculate 50% of what your paycheck is after taxes, then use that for the things you absolutely need like rent, transportation, your phone bill, etc. Then take another 35% for your wants. The last 15% goes into savings – period, no question. Pretend that 15% doesn’t exist if you have to, just don’t spend it. While this exact method may not work for everyone (we all have different expenses and income levels), find a version that works for you.
Were you good about managing your finances when you were young? Share your secrets with us. If you made the same mistakes that I did, feel free to commiserate with me in the comments.
Rhiannon Payne is the Editor-in-Chief of Feminspire.com, a women’s media website that publishes the thoughts and stories of women around the world. She lives in Los Angeles and is still “figuring it out” when it comes to life, money, and all the rest.