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I feel like I have a pretty good handle on my finances for my age. Do I spend too much money on Seamless delivery and overpriced drinks at douchey bars? Yes. Have I perhaps ordered an unnecessary appliance from Skymall (or whatever the new magazine is called) after having several gin and tonics at 22,000 feet? Maybe a time or two. However, like many of us, I’m definitely living paycheck to paycheck, and often wonder what mistakes I’m making, and why I’m not flush with cash at age 24. After reading TIAA.org’s list of Mistakes Millenials Are Making With Their Money, I have some thoughts on actual steps you can make to be more financially stable in your early twenties.
1. Running up huge debts
Student loans, car loans, credit cards: Most of us launch our lives overloaded with debt. Avoid holding a credit card balance and borrow for school judiciously. One rule of thumb: don’t borrow more than your expected entry-level salary.
As someone who has two student loans and several credit cards, I agree, debt sucks. But to say anyone who takes out more student loans than their expected entry-level salary is making a mistake isn’t just wrong, it’s prehistoric. I went to an extremely averages state school, lived in the cheapest dorms (that were later shut down due to a toxic mold infestation), and I walked away with about $30k in debt. That’s a very reasonable amount, and was indeed less than my first job offer out of college, but I got lucky. If you want to go to an out of state school, or a school that cracks Forbes 100 Best list, or god forbid, a private university, there’s no chance your loans are going to be covered by your first salary. This advice may have been true for our parents, but not for us.
Realistic Tip: Don’t spend $70k on an English Lit degree. Know what your earning potential is and see your loans as an investment in yourself. Go in-state if you live in a cool state, and try to get scholarships if you have to get out of West Virginia or some other shithole.
2. Not building an emergency fund
What if your car breaks down or you lose your job? Mom and Dad can’t bail you out forever. A good emergency fund should cover 3 to 6 months of your living expenses.
An emergency fund is crucial. Life is never perfect, and most likely a financial emergency will hit when you just got home from a weekend in Vegas and have $28 and a broken flip-flop to your name. That’s just how life works. Having enough to cover six months of living expenses is ridiculous, especially given all that debt I just talked about.
Realistic Tip: Have a grand stored away. It shouldn’t be hard to save up that much, and that can cover most emergencies, or at least duct tape your life back together until your next paycheck. If, like me, you have a habit of thinking you’re Warren Fucking Buffet when you get drunk, store a $1,000 in cash in your room so you can’t drunkenly spend it on bottle service.
3. Not planning for the (very near) future
Pop quiz: What do a wedding, a honeymoon, and a home down payment share in common? People typically incur these expenses during their 20s or 30s, but many don’t consider these costs until they’re imminent.
Sometimes it seems like everyone you know is either getting married or getting pregnant on purpose. Aside from the crippling self-doubt this inflicts on your, it also is a bank account killer. Just when you were ready to take a much-needed trip, you get another invite in the mail and realize you have to spend that sweet vacation money on your buddy’s wedding in fucking Napa (“The Same Wine You Can Buy At Bevmo, But Double The Price”).
Realistic Tip: Don’t be afraid to let bitches know how little they mean to you. If it’s your pledge brother’s wedding, then yeah, you have to go. But your third cousin that you met once when you were ten? Fuck that, he’s not worth a grand and a weekend of your life. The more friends you lose, the fewer events you have to pay for. Win-win.
4. Not being strategic about graduate education
Thinking about graduate school? Weigh the job placement rates and average starting salaries against your financing and student aid options to see if the math works out.
I graduated undergrad with a gentleman’s 2.6 GPA, so graduate school was never even a blip on my radar. I get the appeal of wanting to stay in college forever, but it seems like a lot of work and money for a small chance of a good ROI.
Realistic Tip: Stop lying to yourself and don’t go to grad school. Unless you’re trying to be a doctor or a lawyer, going to grad school isn’t going to be worth it. You and I both know you’re dropping eighty grand to stave off the real world for just a few more years. Sack up, get that shitty entry-level job, and don’t toss more debt on yourself.
5. Not having health insurance
You may feel invincible, but you’re not. A low-premium, high-deductible policy is far better than nothing at all.
These are tips for your EARLY twenties, not for when you’re an old geezer. Who cares about health insurance? I’ll be on my parents until I turn 26.
Realistic Tip: Don’t do anything so awful that it would make your family disown you. Ride that sweet, sweet free insurance into the sunset.
6. Not having long-term disability insurance
Your greatest asset is your ability to work. Buy disability insurance that protects you if you’re incapacitated.
I had no idea this was a thing you could buy, to be honest. I thought if you got hurt and couldn’t work the government just paid your bills or something. I really need to do some research on how to live as an adult. What’s the minimum amount of injury you need to collect this shit? I dropped a keg on my toe at work, can I just get insurance checks for the rest of my life?
Realistic Tip: Get the best disability insurance money can buy, and then obtain the least painful injury that would allow you to collect said insurance. Maybe have a friend “accidentally” drop a dresser on your hand while moving. If you can’t type, you can’t work, right? Just take a few Vicodin before the “accident” and enjoy your paid vacation.
7. Not saving for retirement
Two words: compounding interest. The earlier you start investing for retirement, the more your money will grow. Don’t wait until your late 30s or 40s to begin investing. Start now.
Usually, after I pay off all my loans and bills I invest the rest of my paycheck in Halligans, a local bar with great drink deals. However, I would like to be able to not work at some point, so retirement appeals to me. I think making enough money to not have to work is secretly the American dream.
Realistic Tip: Don’t take those last two shots when the bar is closing. Put that money in your retirement fund. Not only will you have enough to lounge around Boca Raton when you’re 65, you’re a lot less likely to wake up in a strange apartment with nothing but your socks and an excruciating headache.
8. Not grabbing their employer match
If your employer offers a retirement contribution match, maximize it. Otherwise, you’re leaving “free money” on the table.
If your employer is offering to match your 401K, take it. This isn’t a mistake anyone should be making. This is the first piece of advice I completely agree with.
Realistic Tip: Read above.
9. Not optimizing tax-advantaged opportunities
Think carefully about whether to invest in traditional or Roth retirement accounts. The difference between “tax-deferred” vs. “tax-exempt” can make a substantial difference down the road.
I have zero knowledge of either of these terms and which is a better investment. My retirement nest egg is currently sitting at $86 and several half-filled Panda Express gift cards.
Realistic Tip: Ask your parents which retirement account is better. Accept that you’re going to be subjected to an hour-long lecture about managing your money and several “when I was your age” statements in exchange for their advice.
10. Investing too conservatively
Scared by the market meltdown? That’s no reason to stick to an all-bond portfolio. If you invest too conservatively while you’re young, you might not have enough for retirement. That’s frightening.
Stop being a pussy. You have to spend money to make money, right? Put on your big kid pants and go get yourself a big ole check.
Realistic Tip: Cash out your savings and invest it on an Atlantic City roulette table. Go big or go home (to your parents’ house because you don’t have money for rent). .
[via TIAA]
Image via YouTube
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Nick Arcadia
The opposite of a life coach. Email or DM me if you want some bad advice: nickarcadiapgp@gmail.com
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Only a single grand in emergency savings??? Dude I hope you never have a real emergency or you’re seriously fucked. It might be hard, but try to get up to $10K for your emergency fund (take lunch to work, pregame longer instead of buying overpriced drinks, cut back on frivolous spending).
As far as insurance, I was always told to be close to bullet proof as possible. You never know when illness or accidents can strike. Get the premium.
And go for the Roth 401K if offered because you’re paying the taxes up front now while you’re in a lower tax bracket, whereas if you go the traditional route you’ll be paying more taxes later in life.
You should have 3 months of expenses saved for emergency.
And 6 months if you’re on commission
I’m not sure how I could possibly save up enough for a 10k emergency fund. That’s ridiculous.
Completely disagree about credit cards. As long as you pay them off fully each month, you can take advantage of amazing perks that various cards offer. Whether it’s for travel points or cash back or doubling warranty on your purchases or matching a lower price if you find it within 90 days of purchase, being smart with credit cards can save you lots of money.
Also, the myth about having many cards hurting your credit score is total BS. Your debt to credit ratio is a big component of your credit score and more cards means more credit, which translates into a lower ratio and a higher score.
Easy way to build credit as be safe, get a card with travel perks and then put all your utilities and other recurring monthly payments on it. You would have been paying them each month anyways so you automatically have the money to pay them off. Might as well get an awesome FICO score and a few free flights off it.
Shocked I’m the first person saying this – be single. Also do not buy coffee out, thats nearly 2k back in your emergency fund automatically.
Love the veiled dig at Madoff when you called West Virginia a shithole
Also, I’m in grad school and only paying $4k a semester; I think that’s a pretty decent investment.
Shoutout to Halligans tho…
Also go ahead and make some sort of budget. Being able to track where you’re spending money really puts things into perspective.
I use mint.com, shows me exactly where my paycheck is going.
Long-term disability insurance? When you’re in your 20s? Unless you’ve got a physically intensive job, fuck that noise.
Your love for halligans makes me trust you more than it should
Wow this gave me anxiety.
Pro Tip: Max out the taxes taken out of your paycheck and reap the sweet rewards come March/April and take your ass to Mexico with the return.
…or just have a damn savings account.
Sounds great if you have self control
This is an awful idea, why let the government hold your money for you 11 months out of the year. Throw it in a CD or something if you’re bad with extra dough
CDs have shitty interest rates though
You think the government refund includes interest?
I’m not advocating for either. Just be an adult, have a set amount your paycheck direct deposited to a savings account and retirement fund and then don’t touch it.