The 5 WORST Money Mistakes To Avoid In Your 20’s

What's up you guys? It's Graham here. So, I recently came across a video by Phil Town's number one rule in—no, wait, Phil Town's rule number one in investing. I think that's it. Anyway, I digress. He made a great video about the six money traps that you should avoid in your 30s, and that video got over 1 million views. So, I thought to myself, you know what? That's a good concept. I'll get a million views too!

But since I'm 28 and haven't made money mistakes in my 30s yet, that I know of, I'm going to be talking about the 5 biggest money mistakes people make in their 20s and how to avoid them. And if you're not yet in your 20s, still watch this video anyway and hit that like button so you could avoid these disastrous money mistakes.

So, let's start here. Number one. Probably the biggest money mistake I see a lot of people making in their 20s is getting into substantial student loan debt. And right now, honestly, this is a crazy epidemic, and I simply just don't understand it. A recent study determined that the average student loan balance for the class of 2016 was $37,172. What I mean? This makes absolutely no sense. And what's even worse is that it's projected that the outstanding student loan balance is going to reach two trillion dollars by the year 2022. Come on, you guys, that's absolutely ridiculous!

The end result of this is that you graduate from college owing nearly an average annual U.S. salary as debt. Instead of beginning your career and investing as early as you can, your priorities then turn to, "How can I pay off this substantial student loan debt before it simply eats me alive?" The amount of time and money it's going to take you to pay off that student loan balance while simultaneously starting your career out at the lower end of the pay grade is going to set you back decades in terms of building your wealth.

Now, I understand that college is expensive, but it's really important to understand a few things. Number one: What do you want to do with your life, and does that require a college degree? If the answer to that is no, it doesn't, then you may want to reconsider going to college, especially if you're gonna rack up a ton of student loan debt. And if it does require a college degree, is it worth it to take out a ton of student loan debt in order to achieve that degree? If not, then reconsider going to college in the first place, or take the first two years of your college education at a community college just to save money.

And if you've answered yes that a college degree is required, just make sure you have a high-paying job or some sort of marketable skill that you can use by the time you graduate. When it comes to me, I never went to college. I don't have any sort of college degree, and I'm a firm believer that college is not a requirement if you want to make money or be successful. Many of the wealthiest people I know never went to college or never used anything that they ever learned in college.

The reality is that in terms of education, as long as you have the self-discipline to actually go and apply yourself, you can pretty much learn everything you need to know on the internet and by watching YouTube videos. Now, I also totally understand that this is not for everybody, and if there are some people out there that simply prefer the steady paycheck of having a nine-to-five, for them having a college degree is simply just a means to an end.

If that's the case, just go to a community college first for the first two years to save the money. Honestly, it makes absolutely no difference. I've seen so many of my friends go this route. They save a ton of money by the time they graduate and transfer. It makes absolutely no difference whatsoever, except to their bank account, which is a lot bigger than those who took out substantial student loan debt to pay for a more expensive school.

So, save the money! Go to a community college or just reconsider college altogether if you really don't need to go.

Okay, so now number two. The second biggest mistake people make in their 20s is buying avocado toast. A study conducted by an MIT professor in 2017 found that the average price of avocado toast was hitting $10, and that prices of avocado toast was rising rapidly. In June of 2014, Americans were spending on average of seventeen thousand dollars annually on this breakfast compared to June of 2017, where this rose to eight hundred and ninety thousand dollars.

Because of that information, I highly recommend that everyone in their 20s budget approximately 5% of their salary towards avocado toast and expect to increase that to six to seven percent for inflation and rising cost of avocados. Otherwise, you're not going to get that. That part was entirely a joke. Gotcha! No, I just made that one up. Totally kidding!

But for real though, the second biggest mistake people make in their 20s is waiting to invest. The reason for this is that one of the biggest advantages that you have in your 20s is the power of time. See, not only can you withstand any short-term market fluctuations in price, but you have the advantage of what's called compound interest. This is because the money that you invest gives you back interest, but when you reinvest that interest, it gives you even more interest, which just gives you even more interest, which just gives you even more interest! And then pretty soon, you have a trillion dollars!

Now consider this: If you invest $100 every single month beginning at the age of 20 at an average of an 8% return, by the time you're 65 years old, you're going to have $504,000 invested. But instead, if you just figured, "You know what? I'm going to spend that extra $100 a month on avocado toast, and I'm gonna start investing when I'm 25. I'm young; I can do this anytime. I've got the rest of my life to invest; I'm just gonna eat some avocado toast instead."

So anyway, assuming you start investing that $100 a month at the age of 25 instead of at the age of 20, by the time you're 65, you're only going to have $337,000 invested. That is a $167,000 difference by just waiting an extra five years! That means that the $6,000 that you invest in between the ages of 20 and 25 turned into a one hundred sixty-seven thousand dollar amount later in life. That is huge!

This is why the money you save and invest in your 20s is arguably the most important money you're ever going to have in your entire life. You basically get forty years to have your investments grow into something massive simply because you have the advantage of time working on your side! Every year that goes by right now that you don't invest is another year where you're not gonna be seeing some insane growth thirty or forty years from now.

Now, your money might not be worth a lot right now, but trust me on this one. By the time you're ready to retire and golf on the beach somewhere in your Ferrari, you're gonna be thanking yourself for saving and investing in your 20s.

And that brings me to take number three, and that is buying an expensive car in your 20s. Now, this is a tough one for me because I like cars a lot, and I totally appreciate why people buy them. I get the fun; I totally understand it! When I was 19, I went and bought a 2006 crumb orange Lotus Elise in cash. I drove the SH out of it, and I absolutely loved that car! It was the best money ever spent!

But you really need to understand what this is going to cost you, the reasons you're buying it, and how this might end up setting you back. My reality of buying a Lotus at 19 was that it introduced me to so many great friends from car meets that I never would have met otherwise. It introduced me to so many great clients, and a $35,000 car ended up probably making me over two hundred thousand dollars in extra commissions. Some of my biggest commissions as a real estate agent were from people I met at car meets or friends I met at car meets that then referred me other business. Plus, it was just an all-around great experience that I would not trade for any amount of money!

But for most people in their 20s, they're not in a sales industry where they can then leverage the car to get more business. I've seen high school friends buy $50,000 cars on a $40,000 salary, meanwhile they're living with six roommates, barely scraping by, and wondering why they're always broke. But hey, you know what? They got a cool car! And sure, yes, they may look cool driving around in that car. But let's be real here; most of the attention you end up getting in a cool car is usually just from other guys. Nothing wrong with that, of course!

But if your goal is to try to look cool in front of girls and maybe get laid, a car is probably one of the worst things that you could do. Most women really don't care about how loud the car is, what it looks like, or how fast it goes. And if anything, it could actually work against you because all of a sudden it starts seeming like you could be trying too hard, or maybe you're trying to compensate for something.

If you want to buy a car that women like, my honest recommendation is probably a 1965 Ford Mustang or an older Ford Bronco, a convertible. For some reason, a lot of women seem to like that car, and obviously the Lotus Exige. So anyway, assuming you're just a car enthusiast in your 20s and this is just a fun hobby for you, there's nothing wrong with getting a car as long as you can afford it. Ideally, less than 10% of your take-home salary is going to go towards your car.

So this just basically means, if you're not making a ton of money, go buy a Miata or S2000 instead of buying the Porsche 911 Turbo.

So now number four. The fourth biggest mistake is renting an expensive apartment in your 20s. Now, just like the third example, I have seen this happen way too many times, where someone gets a great job out of college or maybe they start making some decent money, and then they proceed to spend half of their paycheck on a really cool luxury apartment.

Usually where they live never even matters because they're never home anyway—because they're always at work to pay for the apartment. Then they go home, sleep, and do the entire thing the next day to pay for the apartment that's way too expensive. So here's what I'm getting at: Renting a place is awesome, especially if it enables you to save money and invest elsewhere. And you should also live somewhere you're happy with.

But throwing a ton of money at an expensive, cool luxury apartment in your 20s is just a waste. I mean, you're 20 years old! People don't expect you to live the life of luxury. They expect you to live on a futon in your friend's garage because it's cheap and you're still saving up. Now is the time where you can actually get away with living like this. You could save and invest the difference while it's still socially acceptable.

Think about it for a second: You're living on your friend's couch, paying $200 a month. No one bats an eye because you're 21 years old! But try doing that when you're 43—it's not a good image, and everyone loses their mind. So, you may as well just get away with everything now while you still can for the sake of saving money and investing it for the future.

An expensive apartment in your 20s is simply going to take away from the lifestyle that you could have later in life when it does really matter the most. The more money you save here, the more money you get to have elsewhere. Just think about it for a second: If you save up enough money, you're going to have enough to start the business you've always wanted to. You're not gonna have to worry about quitting the job you absolutely hate because you need it to pay the bills. You might have enough money one day to even buy a Lotus Exige S 240!

This is why it's so important that in your 20s, now is the time where you get to live cheaply without any fear or any repercussions of whether or not it's socially acceptable, because people don't expect you to have anything to begin with.

Okay, now number five. This is probably one of the biggest mistakes people make in their 20s and where most people just entirely screw up, and I'm here to expose it. And that is, you guys, the vintage Starbucks iced latte for an average price of $4.15. It just makes absolutely no sense why people would ever spend money on this! Instead, just go and order a normal coffee with two pumps of vanilla and then get a cup of ice for free on the side. Then all you need to do is pour your own milk and then pour that over the free ice, and then all of a sudden, right there you have saved $2.65 by doing some of the work yourself.

Think of just how much money that would save you. $2.65 every single day over 40 years equates to about $372,000. I'm just making all of this stuff up, by the way.

Now for real though, let's go to number five. The last mistake people make in their 20s is not keeping a budget or tracking their expenses. Of most of the people I know in their 20s, I would say probably less than ten percent have any sort of budget whatsoever, and even fewer of those actually go a step further to actually track their finances. The rest of the people might have a vague idea of somewhat what they spend just based on how much money is in their account, but for the most part, they just don't even pay attention to it.

One of the best things that you can do when it comes to saving and investing and really making the most of your time in your 20s to have a ton of money later in life is really budgeting and tracking everywhere your money goes and everything you spend money on. Now there's a saying out there that says, "What you measure improves," and it sounds cliche, but it's absolutely true.

Now to do this, just go and sign up on mint.com or personalcapital.com. Both of those are great resources to use. Just go and type in your information, and all of your accounts will come up, and it will automatically track all of your income, expenses, and everything else that you choose to type in there. It's amazing! I've used this myself personally for over six years now, and if you actually go and do this, you're probably gonna be ahead of 99.9 percent of the population out there that simply has never done this in their lifetime.

And it really doesn't take that much time to do either! I mean, realistically, I might spend five to ten minutes a week just looking through mint.com and just checking that everything's there—less than the time it takes to watch one of my videos and hit the like button. That's how easy this is!

By actually going and doing this, you're gonna have a realistic expectation of how much money you really need, how much you spend, what you don't need to spend money on, and where you can start cutting back or expanding as needed based off your current spending habits. Which, most people will be shocked at the number of little $3, $4, or $5 purchases throughout the day that just add up to something large over a long period of time.

So anyway, with that said, you guys, those are the five biggest money mistakes that people make in their 20s and how you could avoid them. If you guys enjoy videos like this, make sure before you click out of this to smash that subscribe button, then smash that notification bell so YouTube notifies you anytime I upload a video. Also, feel free to add me on Snapchat and Instagram; I post pretty much daily, so if you want to be a part of it there, feel free to add me there. Thank you again for watching, and until next time!