The transition from a teenager into your 20s is an exciting time. You finally get to explore the world, make your own choices, study what you want to study, do what you want to do.
More importantly, you finally learn how to be independent. You start making your own money, start spending your own money, you might look to move out of home, go travelling, buy a car, etc.
The point is, LOTS happens in the decade between turning 18 and reaching 28.
Full disclaimer: I still have a lot to learn about this chaotic 10-year period. I’m not an expert, and I won’t pretend to be one.
But, I do know a thing or two about money and I do understand what a bad money move is.
So, I thought it would be fitting to share some of my own mistakes, some of the mistakes I’ve seen people make, and some of the mistakes I wouldn’t wish you to make so you can read, learn and avoid doing the same.
Steering clear of these 10 mistakes over the next 10 years will save you A LOT of money, time and energy, allowing you to better enjoy the freedom of being a 20-something year old!
Table of Contents
Mistake 1: Using a Credit Card Wrong
I recently heard Robert Kiyosaki say “Debt is a double-edged sword.”
I think this sums it up perfectly.
Debt can be your best friend, a powerful tool to help you grow your net worth quicker than you could by using cash alone. But, it can also be the reason you never retire if you aren’t careful.
Credit cards are the first experience many people have with debt. You turn 18 and all of a sudden you have all these banks trying to sell you their credit cards.
A credit card is dangerous for two reasons:
- It gives you the false impression that you have more money than what you actually do.
- Once you miss the first payment, the amount you owe begins to snowball. Before you know it, you owe more money in interest than what you actually used the credit card for.
The biggest reason that credit cards are so costly in your 20s is that we aren’t disciplined enough. We see “FREE MONEY” instead of “COSTLY MISTAKE”.
Credit cards will bury you for decades if you use them irresponsibly…
How to Avoid the Mistake
I’m not saying you shouldn’t get a credit card. Credit cards are a fantastic way to improve your credit score in preparation to one day buy yourself a house.
I’m saying that IF you decide to get a credit card, it’s super important to begin and stay disciplined each and every month.
It’s also important that you choose the right card from the outset. Don’t worry about a big rewards card as your first one, you won’t get approved, and if you do, the fees will be much worse than they should be.
Instead, I want you to focus on finding a low fee (or no fee) credit card such as the ComBank Low-Fee Credit Card (this was my first one) so that you don’t get eaten alive by fees.
So, how can you be sure to avoid the credit card mistake? Follow these steps:
- Before you make your first purchase using a credit card, work out exactly how much money you are making every month, exactly how much you are spending every month, and exactly how much you usually have leftover to put towards savings/investment.
- Link your credit card to one of your spending accounts (easier to do if the credit card is with the same bank as your transaction account) and set up automatic payments. Make sure you select the option to automatically pay your credit card in full on the due date.
- Only use the card for larger purchases. This means no using it for food or coffee, only large ticket items (say nothing under $50). This should stop the balance from creeping up on you.
- Check the total owing at the end of every week (I mean EVERY week!) and make sure you have more in your transaction account than what the owed total is.
- I’d also suggest you manually pay off the total owing at the end of each week for the first month in order to establish the channel between your transaction account and the credit card.
- I never want you to spend more money on your credit card than what you have directly available to you in cash.
There you have it, one of the biggest financial mistakes made by pretty much 80% of young adults. You now know exactly what not to do with credit cards. Learn how to use them to your advantage when you read mistake 10.
Mistake 2: Brand New Car
I remember the day my mate bought his first car. It was a brand new $50,000 Toyota Hilux. I was extremely jealous when I compared this to my 2003 Mitsubishi Lancer with thousands of km’s on the clock.
After wanting to go out and get a loan like he did, I started to think about the scenario in context.
He had about $20,000 saved up after working full-time as an apprentice for 3 years. He got a loan for the extra $30,000 at close to 5%. The brand new car lost about 20% of its value the minute he drove out the door. It lost another 20% after about 2 weeks of P-Plater-Esque driving with surfboards, tools and bush-bashing.
This means my mate used all of his savings, plus around 35k of his future savings, all for a new car that he’ll have to pay even more for every week due to insurance, rego, petrol and taxes.
To be fair to him, he needed a ute for work. What he didn’t need was a brand new ute that cost him more than 3 years of work…
Where am I getting at, you ask?
The point I’m trying to make is that he is now stuck to spending all of his money on this ute until he’s at least 23. That’s a solid 5 years (at a minimum) of his savings down the drain to pay for a thing that won’t even make close to half that money back when he sells it.
Let me make this clear:
Cars are a liability. They do not put money in your pocket, they take money out of it. This is not what we want.
How to Avoid the Mistake
But, cars are a necessity. Once you discover the convenience and freedom that having your own car gives you, you’ll never want to go back to busses. I promise.
So, that leaves us with two options to avoid signing your money to the devil at the ripe-old age of 18:
- Don’t get a car – I mean wait as long as possible before you buy a car. This will let you avoid the delicious freedom associated with a car. I mean, you can’t miss what you never had, right?
- If you’ve already discovered such freedom, buy a car that works well, runs cheap, and is reliable. Don’t go buy a brand new car.
When buying a car, I want you to use Uncle Nathan’s 50/50 rule.
- The car shouldn’t cost you any more than 50% of your savings. This means you HAVE TO buy it in cash. For instance, if you have $10,000 saved, the car can’t cost more than $5,000 (tax and insurance included).
- Buy something that can run on $50 of petrol every fortnight. I know this one is very dependent on your situation but basically, I’m saying don’t go buy something with terrible fuel efficiency!
To avoid the new car trap, remember these things:
- Your mate with the new car will still be paying his (now old) car off when you’ve got thousands saved up.
- Only buy a car that you can afford twice in cash!
- Get the car checked by a mechanic before you buy it. The last thing you want is to be two weeks in with a failing engine that costs you twice the value of the car to be replaced.
- Don’t worry about looks. You’re at an age where a shitty car is not only acceptable but expected!
The aim is to buy something that will get you through the awkward phase between school and full-time work. Then after working for a few years, you can upgrade to something nicer (in cash of course) that will last until you’ve made your millions and can afford your dream car. For a literal walkthrough on making those millions, check out Uncle Nathan’s secret to being rich…
Mistake 3: Living Off Personal Loans
Did someone say free cash?
No. No one said free cash. Ever.
Free cash is a myth. It does not exist. The closest you can get to free cash is through investment returns, interest on your savings, or Super Matching (government matches your salary sacrifice contributions $0.50 for every $1).
What’s a personal loan?
You know the ads you see on TV with those really awkward families wondering how they can afford a new cat after their old one just ate a toaster and died?
And then a random dude appears with a superhero outfit and in a creepy voice says you can get “super quick and easy cash” with Wallet Wizard or the likes…
That’s a personal loan. It’s basically when a bank-like institution offers you quick cash to use on whatever you want. It’s literally someone just giving you money and expecting an insane repayment fee (interest rate).
The catch is this:
- You are expected to repay the loan in full
- Plus the 50% interest rate that they charge (no kidding, it’s been 47% since 2016 and hasn’t changed)…
I hope this has already turned you off personal loans, but if it hasn’t maybe this will:
Let’s say you take out a personal loan for $2,000 so you can afford to go on a boys trip in a few weeks time.
You use the borrowed $2,000 to pay for accommodation and then spend another $1,000 cash on food and drinks while you’re away.
You’re now back home, $2,000 in debt and with $1,000 less in your bank account.
If you couldn’t afford the $2,000 accommodation in the first place, how are now expected to pay back the $2,000 plus $1,000 (50%) in interest after already having spent an extra $1,000 in cash?
A $3,000 trip that you couldn’t afford in the first place (which is why you got the loan), is now costing you $4,500. It’s just plain stupid…
How to Avoid the Mistake
Avoiding this mistake is super simple:
DON’T GET A PERSONAL LOAN. EVER.
End of story!
Mistake 4: Full-Time Work at 18
*finishes school
*starts working full-time
*realises they can’t go on Schoolies, or have a Thursday off for a beach day, or go for a midday run, or sleep in on a Monday
See that, that’s you if you decide to work full-time.
Don’t get me wrong, full-time work is necessary at some point in your life to make enough money to provide for your family. But that point is not now!
You are young, you have no debt (hopefully), you have no children (hopefully!), no spouse, no house, no rent to pay, no dinners to cook, pretty much no responsibilities.
Please explain to me why you would work full-time?
Now I know you’re there like “bro, how could working full-time in your 20s be a money MISTAKE? I’d be making a tonne of money and saving it too…”
You’re right, it’s not really a money mistake. The mistake is that you’re wasting your life making money without taking the time to spend it on experiences while you aren’t tied down to anything.
One of the most valuable things you have in your 20s is freedom. The freedom to be spontaneous is something that declines with age and I can promise that you’ll regret wishing it away.
So, if you don’t have any obligations, don’t tie yourself down to a full-time job. It’s much easier to just not start one than it is to start one and reduce your hours later.
How to Avoid the Mistake
The money mistake here is making money instead of spending money on experiences. Being young gives you the right to enjoy life, so enjoy it!
Avoid working full-time because all it will do is whisk away your youth quicker than you can fathom.
Get a part-time job, make enough money to cover your lifestyle, save lots, invest lots, spend lots.
I don’t mean spend it on crap. I mean spend it on experiences. A spontaneous trip up the coast, a random night out, a day at a theme park, stuff you can do when you don’t have to work.
Enjoy having free weekdays. One day you won’t even have the choice.
Mistake 5: NOT Investing
This one is pretty self explanatory if you know what investing is.
Investing is the easiest way to build your wealth over time. It’s much more effective than leaving your money in the bank and is the preferred method of money-making for pretty much every millionaire on the planet.
To learn how to invest, read Uncle Nathan’s Ultimate Guide to Investing. You’ll learn why investing is important and you’ll be given a complete step-by-step guide to get started.
If you’ve avoided the previous 4 mistakes, you’ll be in a great position to avoid this one.
How to Avoid this Mistake
This is an obvious fix:
Start investing right now.
Time in the market is proven to be more beneficial than time out of the market.
Read my guide on how to start investing and then throw at it whatever spare cash you have (after living expenses and emergency savings). Make sure you don’t tie down all of your cash, but my motto is to go as big as possible, as early as possible.
Mistake 6: Getting Emotional About Your Money
I reckon the most important thing I learned from my mentors during high school was the fact that emotions and finances don’t mix well.
When you start thinking with your feelings, logic no longer exists.
When making money decisions, I want you to only use logic, calculations, common sense and your knowledge. Do not let emotions get in the way.
This is super important if you avoided mistake 5. Once in the market, promise me you won’t pull your money out as soon as it goes red (because it will go red).
How to Avoid this Mistake
Avoiding this mistake will take some practice. It’s not easy to separate your emotions from your money.
But, if you want to achieve complete happiness, you have to learn to be okay with losing money.
You will lose money. The fact is, markets don’t rise all day every day. It’s just important to remember that these are all paper losses. They only become real IF you sell.
So, to avoid letting emotion get in the way of logic, promise yourself you WILL NOT sell when markets are down unless you absolutely need the money.
Another way to separate yourself from your finances is to view investing as you view spending.
Every time you make an investment, only throw in what you can afford to lose, and then assume that money is already lost.
This way, when your investment appreciates, you feel good about making money. But when it falls, you don’t care because “it’s no longer your money anyway”.
Remember that your money does not define you, your relationships do. And relationships are free…
Mistake 7: NOT Travelling
This one is similar to mistake 4 in that the mistake you are making is actually not spending money.
Travelling isn’t for everyone, I can appreciate that. But, if someone tells me that they never want to leave the city they grew up in, that’s where I really struggle to fathom their logic.
So, I don’t care whether you travel the world or just your state, but do yourself a favour and get out of town while you’re young and free.
Your 20s are full of experiences that you’ll reminisce on for years to come. Well, that’s how it should be anyway.
Don’t waste your golden years working because you’ll never get them back.
Sure, working full-time from 18 and having a home deposit at 24 sounds great. But, you literally have an entire lifetime to work and get to that house.
Why would you not spend your 20s getting out of your home, out of the city and into the unknown? Imagine the people you’ll meet and places you’ll see.
You have zero obligations, zero family commitments, zero study commitments, nothing that is tying you down to your home.
One day that won’t be the case and you’ll be wishing you could just pack a bag and head to Fiji for a week.
How to Avoid this Mistake
Not travelling is something I promise you’ll regret later in life. I mean, sure you can travel when you’re rich and retired, but it’s just not the same. You’ll be old, incapable of pulling an all-nighter and have to answer to your wife (or husband).
Avoid not travelling by spending your money on experiences.
I would classify this as an investment because it adds value to your life, value that you wouldn’t find for free.
Work a few days a week, save/invest some money, and then go spend it! Get some friends together and plan a trip to Europe (after COVID of course) or a simple week-long trip up the coast.
Just go somewhere you’ve never been before and do something you’ll never do again.
Mistake 8: Going to Uni for the F*ck of It
Please don’t go to uni to “find yourself”.
Uni is unforgiving and damn expensive.
Find yourself before you go to uni, that way you can enjoy it way more and really get the most out of the experience.
If you start a course that you aren’t interested in, I promise you’ll drown. Worse yet, you’ll probably implode and be scared of uni for the rest of your life.
Not to mention the $10,000 you’ll have to pay regardless of whether you pass, fail or drop out after the first year.
Over half of new Uni students drop out, change or defer their degree in the first year.
Over half!
I’m not saying you shouldn’t go to uni unless you know exactly what you want to do.
I’m just saying don’t go if it’s only because your parents are telling you to.
How to Avoid this Mistake
Avoiding the monumental fees of uni are pretty easy. Don’t go.
Now I’m a firm believer that uni is a great experience and really helps you grow up, learn how the world works and start to fend for yourself. I mean I go to uni and I love it.
If you know what you want to do or have an idea but you’re not 100% sure, then give it a crack.
If you don’t know what you want to do, have no passion for any of the courses there, or just think a degree would make you look smarter, DO NOT GO TO UNI.
You’ll spend a lifetime paying off the uni debt that you incurred literally for nothing.
Instead, take a year or two after school to really figure out what you enjoy, where your passions lie, and how you want to spend the next 10 years. This will probably change during those years, but going in with a plan is much better than going in blind.
Don’t shoot your future self in the foot by doing a degree you hate, only to drop out and pay for it later in life.
Mistake 9: Neglecting Your Superannuation
“Nath, wtf is super?”
Oh boy, oh boy. Think of super like your very own baby, or like your Call of Duty account.
It’s this thing that grows and grows the more you pay attention to it.
In blunt terms, super is the Aussie government’s way of saying we are all shit savers. And they’re right, we are.
The government forces your employer to pay 9.5% of your salary into a separate account every year. You can’t touch that account until you retire at 65. At which point, the plan is to have enough money to live off until you die.
Sounds boring, doesn’t it?
For the most part, it is boring. But, that doesn’t mean you should ignore it.
Putting just a little amount of time into your super while you’re young can set you up for a damn good retirement!
More importantly, neglecting your super when you’re young could set you up for a miserable retirement, or worse yet, no retirement at all.
How to Avoid this Mistake
Don’t neglect your super!
Listen to me now and you’ll thank yourself in 40 years. Here’s what I would do if I was turning 18 tomorrow:
- Speak to my employer (AKA boss) about how they pay my super. Remember, you should be getting 9.5% of your wage every year. This can be taken from your wage or on top of it, ask your boss.
- Make sure I don’t have multiple accounts open.
- Super costs money. You pay fees every month.
- Multiple accounts = multiple fees.
- The number 1 reason why many people have small super balances in their 20s is that they change jobs heaps, open all different super accounts and then forget about them.
- Go to the myGov website and click ‘super’ then ‘manage’ then select ‘transfer super’ to see if you have multiple accounts. This will bring all of your accounts together into one place, allowing to pay just one set of fees.
- Adjust the investment portfolio to match my circumstances.
- For most young people, an aggressive portfolio is good because it has higher potential returns and you won’t be touching the money any time soon. Most super accounts are set to a balanced portfolio as default.
- Contribute up to the threshold each financial year. This is known as salary sacrificing and it means you are putting some of your savings into your super.
- I know this doesn’t sound appealing, putting money into an account you can’t touch for 40 years, and it is a bit annoying in the short-term, but the government will match any contributions you make up to their threshold 1:2. That means you will literally get paid $0.50 for every $1 you sacrifice to your super. It’s free money!
Okay I hope by now you understand why super is important and why it’s beneficial to spend some time consolidating and nurturing it now. You’ll either be hating (if you neglect your super) or thanking (if you avoid this mistake) yourself in 40 years.
Mistake 10: Neglecting Your Credit Score
Like super, most 20-year-olds have no clue what a credit score is. This is for good reason too, I mean they don’t teach it to you in school and it wouldn’t have affected your life at all up until this point.
But rest assured, your credit score will matter to you very soon!
Your credit score is basically the number that banks look at to decide whether or not to loan you money. It tells them whether or not you’re a reliable borrower (meaning you pay back loans on time and in full).
This really starts to matter when you want to get a credit card, or buy your first house.
Everyone starts with an average credit score. That means it isn’t bad, but it also isn’t considered good.
Before you look at buying a house, you want to get your credit score as high as possible so the bank doesn’t have a reason to charge you excessive interest rates.
How to Avoid this Mistake
Neglecting your credit score is one of the most catastrophic money mistakes you could make in your 20s.
You’re better off just staying away from debt altogether if you think you won’t be able to pay back the loan in time. This means no credit cards, no car loans and no personal loans.
If you do think you can be disciplined enough to pay back your debt in full every month, then a credit card is a brilliant way to improve your credit score.
The only way to improve your credit score is to prove that you’re reliable. But, be careful. Once you default a loan the first time, your credit rating will suffer for years.
Only get a credit card if you are certain you:
- Know what you’re doing – i.e. you know how much you can afford to spend every month
- Can pay the card off (before interest) each and every single month
If you think you can do that, then get a credit card and start building up your credit score. Read my step-by-step guide to doing just that right here. The future house-buying you will be grateful!
When it comes to your credit score, whatever you do, don’t make it worse…
Damn, that was long.
I hope you read the whole thing, but I wouldn’t blame you if you just read the titles.
My hope is that you now know WHAT NOT to do with your money during the crazy time that is your 20s and exactly HOW NOT to do it.
If you have any questions please drop them below or shoot me an email, I’ll reply ASAP.
Always,
Uncle N.
The information on this page is for informational and educational purposes ONLY. It does not take into account your personal financial needs, objectives or situation. For specific financial advice, speak to a registered financial advisor.