5 Financial Mistakes I Wish I Avoided Before 25
Turning twenty-five. It’s the last age that unlocks a new milestone - the ability to rent a car (unless you look forward to running for president, in which case you can count down the days to 35).
They say around 25-years-old is when your prefrontal cortex finally finishes developing, and for me, it felt like my brain truly completed its loading process when the clock struck midnight on my 25th birthday. I spent the next year reflecting on what mistakes had led me to my current financial situation; living paycheck to paycheck despite a decent salary, and in mountains of debt I didn't see a way out from under.
Through following these steps, I was able to completely transform my relationship with money, but there could have been a much easier route to financial freedom.
Now that the milestone birthday is a few years behind me, here are 5 financial mistakes I wish I had avoided before turning 25:
1. Thinking “I Have Time” (Even Though You Do)
In your early 20’s you are constantly being told, “you have time!” You still have time to pick a career, time to settle down, and time to make mistakes. While at 25, you hopefully do have a lot of time ahead of you, the danger of living in this mindset is that it allows you to continuously keep kicking the “financial responsibility can” further down the road, so to speak.
Here are some ways this thinking can manifest itself into you life:
I have time to start my 401k, retirement is so far away.
I’ll start saving when I am earning more money.
I won’t be able to afford a house in this economy anyway.
I know I can’t afford this trip, but when am I going to get this opportunity again?
I have an income problem, not a spending problem.
I have years to learn about investing, there's no rush to understand it now.
Find a way to use this time to your advantage, not as a way to avoid responsibility. I’m sure I don’t need to drone on about the impact of compound growth and how if you invest $100 a month in your 20’s you’ll retire a millionaire, but having time on your side really can’t compare to any future raise you are hoping to earn in the next few years.
2. Fear of Adulting
Sorry to the intended Gen Z audience out there, I am well aware how millennial coded the term “adulting” is. However, it speaks to my next point very well. When you are in your early 20’s there is a truth that is getting harder and harder to embrace: You. Are. An. Adult.
While the lifestyle of adults in 2023 looks quite different than in 1983, there are still some responsibilities that cannot be avoided; like filing taxes, booking your own dentist appointment, or learning what a deductible is. When it comes to your finances, there are some tasks people avoid that they shouldn’t; like contributing to our 401k, opening a high-yield savings account, or learning the basics about investing in the stock market.
By calling these tasks “adulting”, we put them one degree removed from the current life we were living, when we should be embracing them.
3. Money Avoidance
When you are in the throes of financial irresponsibility, the simplest way to cope with your finances is to simply not look.
Have you ever caught yourself doing any of the following?
Avoiding checking your bank account balance for long periods of time.
Avoiding your credit statements or bills.
Avoiding creating a budget in order to keep mindlessly spending.
Overspending to cope with the guilt and shame of growing debt.
Avoiding talking honestly about your finances with other people.
Choosing to not confront your situation is like playing hide and seek, closing your eyes, and hoping you become invisible to the other person. It wasn’t until I decided to take inventory of my debts and my spending habits that I realized the damage these avoidance tendencies had done. Coming from the other side of this behavior, I can guarantee you, the anxiety of seeing the numbers is far less overwhelming than the anxiety of not looking and guessing what they are.
4. Treat Yourself Toxicity
Number four may be a bit unpopular, but remember, I am speaking about personal experience here.
In the last few years there has been a push back to the whole rice and beans mentality around budgeting, where you get to spend little to no money on anything outside of bills and minimal groceries if you are working on paying down debt. This rebellion has come in the form of a treat yourself mentality.
While I by no means subscribe to the idea that if you never buy a Starbucks coffee you'll be able to afford a home in 2 years; I do think there is a fine line to be drawn between creating a budget that is too restrictive, and affording yourself too many treats. Treats can be a great motivator, but without guidelines of what constitutes a treat and when you deserve them, it can turn into overindulgence.
Overindulging in the treat yourself mentality may look a little something like this:
I'm running late to work, I'm going to skip breakfast at home and treat myself to Starbucks on the way.
I have an upcoming event, I’m going to treat myself to a new outfit instead of rewearing something I own.
Today was a bad day, I’m going to treat myself to a dinner delivered by Doordash instead of cooking.
One idea I love is celebrating Treat Yo’ Self Day, as inspired by Tom and Donna on Parks and Recreation, where their self-splurging is narrowed down to one day a year. This is a day you can prepare for financially, and get excited for mentally. Afterall, it's the best day of the year!
5. Learn APR Before You Buy A Car!
Society loves to convince people in the early 20’s that they need to be in debt before they even know what debt is!
The journey to a debt-ridden 20’s usually goes a little something like this:
Want to go to college but can’t afford it? Take out student loans.
Have no way of getting to your classes? Take out a car loan.
Can’t afford your day-to-day living expenses? Get a credit card.
Having trouble paying these debts down? Consolidate, or take out a personal loan.
It doesn’t take long after graduation to realize that all this debt they promised would lead you into the next phase of your life is only holding you back once you get there. Your first paycheck at your first career won’t be going towards a fun splurge, or into your savings, it will going towards paying off your debt.
The truth of the matter is, we all make mistakes in our early 20s, some more monumental than others. I know I certainly did. But when it comes to managing your money, the more you learn and the quicker you grasp it, the more grateful you'll be in the decades that follow. (And turning 30 will seem a lot less scary!)
