Your 20’s are an exciting time: you’re out of college, you’re living on your own for the first time, and you’re building your career. However, it has its drawbacks; chances are, you don’t have a lot of money. 

A lack of cash can make paying your bills and saving for the future difficult. However, making financial mistakes now can have long-lasting effects. Here are five common mistakes to avoid in your 20s. 

1. Not saving for retirement

 

Approximately 48% of households headed by someone aged 55 or older have no retirement savings at all, according to the Government Accountability Office,. That’s a scary statistic; nearly half of the population will be in a terrible financial situation once they reach retirement age. Building up your nest egg is essential so you can live in comfort later on. 

When you’re young, setting aside money for a retirement that is decades away can seem silly. But if you don’t start saving when you’re in your 20’s, you’ll have to work that much harder to catch up when you’re older because your money won’t have as long to grow. 

How much harder? Let’s look at an example. Pretend you started investing when you were 25 and contributed $250 per month to your retirement fund. If you had an annual return of 8% each year, your money would be worth $872,752 by the time you reached the age of 65. 

But let’s say you didn’t get started until you reached 35. If you invested $250 per month and had the same annual return, your money would be worth just $372,590 by the time you reached 65. By waiting 10 years to get started, you’d lose out on $500,000. 

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2. Missing payments on your student loans

More than two-thirds of bachelor’s degree graduates leave school with student loan debt. If you’re one of them, you may be struggling to keep up with your payments. Between your rent, utilities, and car payments, making ends meet can be tough. However, falling behind on your loan payments is one of the worst mistakes you can make. 

Defaulting on your student loans has severe consequences. It can destroy your credit. And, if you have federal loans, your loan servicer can garnish your wages and even seize your tax refund to recoup its money. 

If you can’t afford your payments, take action before you miss a payment. Consider applying for an income-driven repayment plan or refinance your private loans to reduce your monthly payments. 




3. Using credit cards as emergency funds

Most people don’t have an emergency fund. The Federal Reserve found that nearly 40% of Americans couldn’t come up with $400 if an emergency, like an unexpected car repair or medical bill, popped up. Instead, they’d have to borrow money or use a credit card. 

Leaning on your credit cards for emergencies is risky. Credit cards have sky-high interest rates and you could end up over your head in debt. 

Instead, focus on building an emergency fund. Start small — even saving $10 to $25 per month can help — until you have at least $1,000 saved. As your career progresses and you make more money, you can grow your emergency fund until you have three to six months’ worth of expenses saved. 

4. Going without health insurance

If you don’t have health insurance because of its cost, you’re not alone. Nearly 28 million people go without health insurance each year. However, doing so is a gamble. If you go without health insurance, a single accident or illness can destroy your savings and lead you into debt. In fact, The Commonwealth Fund reported that 41 percent of working-age Americans have problems with medical bills or are paying off medical debt.

If you’re aren’t eligible for insurance through your employer or parents, think about applying for a policy through Healthcare.gov. Depending on your income and family size, you could qualify for a subsidy that makes coverage more affordable. 

5. Not negotiating your salary

Only 39% of workers attempted to negotiate their salary when offered a new job, according to the Society of Human Resource Management,. While not negotiating is common, it can cost you thousands of dollars over the length of your career. 

To get the money you deserve, advocate for yourself. Highlight your accomplishments, experience and skills, and don’t be afraid to ask for the money you deserve. You can also consider asking your employer to help repay your student loans.

Whether your goal is paying down student loan debt or starting to save more for retirement, the first step is to create a budget that works for you.

At Savingforcollege.com, our goal is to help you make smart decisions about saving and paying for education. Some of the products featured in this article are from our partners, but this doesn’t influence our evaluations. Our opinions are our own.