6 Mistakes People Make in Their 20s and How to Fix Them

Like many people, you may have blown through your 20s making financial decisions that served you well in the moment, but may not have been particularly responsible. Dinner out several times a week, iced coffees every day, credit card bills you barely looked at and luxury cars way beyond your budget — life was practically a party!

But now, the party’s over. You’ve woken up in your 30s and realized that all the overspending is going to cost you big — and it’s going to cost for years to come.

Luckily, there’s hope. It’s not too late to fix the financial mistakes we all make when we’re young and blissfully ignorant.

Here are six of the most common mistakes people make in their 20s and how to fix them:

1. The mistake: Racking up credit card debt

Maybe you were broke while in college, but desperate for a good time, so you swiped your way through vacations and nights on the town. Or maybe you knew you were falling into the debt trap to cover student-related needs on a shoestring budget. Unfortunately, it didn’t just go away like you’d hoped.

The fix: Get a lower credit card rate and start paying off your debt

It’s time to be an adult and own up to your mistakes. Learn how to say no to impulsive purchases and live within your means. Create a budget to help monitor and track your discretionary spending instead of mindlessly plowing through your paycheck each month. Also, consider getting a credit card with a lower interest rate and transferring the balance so you can start paying off your debt at a lower rate. Radiant Credit Union’s credit card rates are typically several percentage points lower than those offered by large banks and retailers. Next, work on paying off credit card debt instead of only making only the minimum payment. Look through your credit card bills and crunch some numbers until you know exactly how high your credit card debt really is. Then, choose one bill to pay down first and begin making the maximum payment your budget will allow, while still making minimum payments on the others. Once you’ve paid the first one off, divert all those funds onto the next bill until it’s gone; repeat until you have no more credit card debt. Paying down your debt and minimizing how often you use your credit cards will greatly improve your score. Learn more about Radiant credit cards here: https://www.radiantcu.org/loans/credit-cards.shtml

2. The mistake: Ignoring your credit score 

Aside from being the gateway to endless spending, aggressive credit card balances have probably handicapped your credit score, making it difficult or impossible to obtain a personal loan. When you are offered a loan, a poor credit score will burden you with an unfavorable interest rate…and that means you could be paying off the mistakes of your 20s for years to come.

The fix: Know your score and use your rent payments to raise it

It’s never too late to fix a credit score. Begin by monitoring your score. You can order a complimentary credit report once a year from each of the three major credit agencies at annualcreditreport.com. You can also check out your score on sites like CreditKarma.com and Bankrate.com. This will give you an idea of where you stand as you work on climbing out of financial hardship. 

Did you know you can also use timely rent payments to raise your credit score? If possible, make sure your rent payments are tracked and reported to Experian RentBureau, the only major credit reporting agency to include on-time rental payment data on its reports. Use of timely rent payments to build and boost credit scores is relatively new, and many people don’t know about it yet.

If you’re already leasing a home, or looking to find a suitable property to lease, ask your management company if your payments are reported to Experian RentBureau. And if you pay rent to an individual rather than a management company, you can still take advantage of a service that collects your rent payments electronically, pays your landlord, and reports to Experian. It may be possible to include your excellent rent payment history, too.

3. The mistake: Skipping student loan payments

When you’re facing a debt in the tens of thousands of dollars while earning an entry-level salary, it’s tempting to just pretend it doesn’t exist. Unfortunately, though, that’s the worst thing you can do for your loan and your credit.

The fix: Work it into your budget

Call your lender to work out a more feasible payment plan. You can also check to find out if you qualify for a student loan forgiveness program. Most importantly, make your student loans a part of your debt payment plan so you never miss a payment.

4. The mistake: Neglecting your retirement

Planning for your decades-away retirement may be one of the last things on your list. However, starting to fund your retirement later in the game means missing out on years of compound interest gains.

The fix: Think of it as a fixed expense

Don’t think of retirement savings as an extra; think of it as a necessary, fixed expense that belongs in your budget like your rent and phone bill. Work with the most you can afford and max out your contributions to an IRA or your company’s 401(k) plan. Also, if your employer matches up to a certain percent of your salary for 401(k) contributions, allot the MAXIMUM contributions every month to this fixed expense. If they match up to 6%, you contributing anything less than 6% is like leaving money on the table. 

5. The mistake: Not having an emergency fund

Life’s great — who needs to think about emergencies? Unfortunately, you do. Scrambling for funds to pay for a large medical expense or to live off of during an unexpected layoff can be a nightmare. Turning toward credit cards to help you get through a rough time can also be the beginning of a debt cycle whose effects are felt for years to come.

The fix: Start small

Experts recommend socking away 3-6 months’ worth of living expenses, but if that’s just not possible for you, start small. Work with whatever you can to make monthly contributions to an emergency fund. Set up an automatic monthly transfer so you never forget. It’s best to keep your emergency money in an account that offers an attractive earnings rate, but allows you to withdraw funds without paying a penalty. At Radiant Credit Union, our Even-Up Savings Account can help you save without thinking twice. For every purchase you make with your Radiant Nickel Back Debit card, your purchase is automatically evened-up to the next dollar, and the balance is transferred from your checking account into your Even-Up savings account. This high-yield account has a 4.00% Annual Percentage Yield (APY) on balances up to $4,000, so you can start saving money when you spend money! Learn more about Radiant Savings Accounts here: https://www.radiantcu.org/accounts/savings.shtml

6. The mistake: Not creating financial goals

It’s understandable not to have your entire life planned out yet, but it’s important to set some financial goals.

The fix: Create goals now

Take some time to set some financial goals. Do you want to buy a house within the next decade? Do you dream of opening a business? Are you hoping to retire at 55? Having a concrete goal in mind will help you stick to your budget and manage your money responsibly.

Messed up while in your 20s? It’s not too late to get your finances on track! Follow our tips for a financially sound future.

Your Turn: How are you fixing the financial mistakes of your 20s? Let us know in the comments!

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