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The 5 Money Mistakes to Avoid in Your 20s

Posted by Wolfgang Collection on

In this video here, we're gonna be talking about the biggest financial mistakes that people make particularly in their 20's. Now some of these are mistakes that I have made myself and I'm gonna share my personal experience with each of these and others are mistakes that I'm seeing other people making out there so I hope you guys get a tremendous amount of value out of this video and if you do I would appreciate it if you would drop a like and make sure you hit that subscribe button as well.

Let's go ahead and get started here by starting off with number one, what I believe to be the biggest mistake people are making, especially as young people and that is skipping the 401(k) contributions altogether. I honestly can't blame young people for this mistake because what it comes down to is a lack of education about what a 401(k) is, what compound interest is, and how this all ties in together.

But just because the schooling system has failed to educate you on this does not mean that it is not extremely important so if you're one of these young people out there that have no idea what a 401(k) is, you don't know if you're contributing or you know for a fact that you aren't contributing, I certainly hope this part of this video motivates you to at least consider contributing a small amount of money to your 401(k). So just how bad is this problem? Well, according to a survey by Money Under 30, 51.6% of Millennials are not contributing to a 401(k). So the majority of Millennials, the majority of young people out there are saving nothing in their 401(k)s for retirement and that just absolutely blows my mind. And this is going to be a massive problem 20, 30, or 40 years down the road when this group of young people's looking to retire and their wondering why they have no money to retire. What you have to understand here is that compound interest is what we call the time value of money.

And you have to give your money a very long time to grow in order for it to grow into a meaningful amount and I wanna walk you guys through an example here. Let's say you decide to contribute 100 dollars a week to your 401(k) and that's honestly not a lot of money. That is maybe one trip out to eat or two trips out to eat every single week.

We're not talking about a crazy amount of money here. $100 a week and let's say you're earning an average return of around 8% per year over a very long period of time. Well let's say somebody decides to do that from age 20 to age 65. $100 a week going into the 401(k) earning an 8% return. Well by age 65, they would have 1.86 million dollars. A very hefty retirement, a very large amount of money there. But let's say on the other hand, one of their friends decides, well you know what? I'm not gonna start doing that until I'm 30 years old. So rather then contributing $100 a week from 20 to 65 they wait until 30 to 65, at the same exact yield they're only going to have $827,000.

So just to make this simple for you guys, that is a one million dollar mistake. By waiting until age 30 to contribute toward your retirement instead of starting at age 20, you just cost yourself one million dollars from that 401(k) on a $100 per week contribution. So that is what is important here. It's the amount of time that you're allowing your money to grow, not necessarily how much money you are investing. So if you know for a fact that you're not contributing to your 401(k), that is a very important thing you should be doing as a young person and I hope you at least are open to the idea of doing that now. And at the very least, what I always tell people is if your employer is matching your contributions, oftentimes you'll see employers matching up until a certain amount, always maximize what they're going to match.

One of my former employers, they would match 50% up to 3% and so I would contribute 6% of my pay into my 401(k) and they would give me 3% for free. It's literally free money that so many people are not taking advantage of. It just completely blows my mind. Okay, mistake number two is buying an expensive car. Now this is something I've done myself and it's a video I did on my channel way back before I had a lot of subscribers. I'll link up to it in the description below and it's how I lost $9,480 in one year by owning a car that was a flashy car. Now the scary part of this is, I bought a car that was a 2007 and this was back in, I believe 2016. So this was a nine year old car that I still managed to lose just shy of $10,000 on in the course of one year and that was largely due to the fact that I overpaid for it and then I traded it in.

I basically made every mistake you could make in the book when it came to buying and selling that car. But the scary part is it could've been a lot worse if I bought a brand new car. A one or two year old car right off the lot or something like that for example. You can end up losing a massive amount of money by buying an expensive car. So if you guys wanna check out that video, I'm gonna link it up in the description below but cars are what you call a depreciating asset. The assets that you want in your life are appreciating assets like stocks and bonds, and real estate, things that tend to go up in value. While a car is technically an asset, most cars are depreciating assets meaning every single year they are worth less and less money and if you make this mistake of going out there and buying a brand new car or buying an expensive car you're gonna end up upside down on that car to the point where basically how much you owe is more than what that car is actually worth and you're gonna be stuck paying back this car payment for years to come on a car that's not even worth what you owe on it and it's just a really bad situation to be in and I see so many young people making this mistake.

Now you might be asking yourself well how much money should you be spending on a car and I wanna share with you guys what my opinion of this is. So in my opinion, your total monthly vehicle expenses including your insurance and including your car payment should be no more than 10% of your pre-tax monthly income. This is a pretty conservative number but I can pretty much guarantee you guys this is gonna keep you out of trouble when it comes to your vehicle expenses. So let's say for example you made $5000 per month in pre-tax income, that means that your total vehicle expenses should be around $500. So maybe it's a $400 car payment, and a $100 for your monthly insurance payments. Where you run into trouble is when you see somebody with $3000 of pre-tax income per month with a $750 vehicle expense a month. It just does not make financial sense and there are so many people out there that are making maybe $30, $40,000 per year driving brand new Ford F150s or cars that they just can't afford and then they wonder why they have no money at the end of the month.

Okay the third huge financial mistake that people are making in their 20's is getting into debt with student loans. Now I'm not saying that college is necessarily a bad thing. I went to college. I got a two year degree in Electrical Construction and now here I am making YouTube videos so obviously I'm not using my college education but it cost me altogether $12,000 over the course of two years and I was fortunate enough to have some money from my grandfather that paid for college so I was blessed to not have to go into debt but even so, I went community college to keep that expense as low as possible. The problem you run into here is when people are going to college for what I call, a non-marketable skill. Something that is not very useful. A degree that is not going to allow you to make decent money and then you are in debt. In some cases, six figures of debt with a degree that's not gonna earn you any money.

It just doesn't make sense to do this. One of the things I frequently talk about on this channel is getting involved with skilled trades, whether it's being a plumber or an electrician or a carpenter, these are skills that don't require you to go to college or go into debt that are going to allow you to make a lot of money. But at the end of the day, the number one thing, the most important piece of this is you're doing what you are passionate about and if you don't wanna be an electrician, obviously don't do that but I always recommend if you're going to go to college, at least have some kind of plan as to what you're gonna do after college and how much money you can make with that degree. One of the things I always like to say when I'm talking about looking at the trades versus looking at college is let's say it's midnight and all of a sudden you find out you have a burst pipe in your basement, you're gonna be calling a plumber, you're gonna be going oh shit, I need a plumber.

You're never gonna be in a situation where you go oh shit I need a art history major. It's just not a skill that's gonna be in massive high demand and so it's just something that people don't consider is the demand and the need for that service. Again, plumbing is not for everybody but it is a skill that is in high demand and when you need a plumber, you really need one and that's when you're gonna be opening your pockets and shelling out some dough. Financial mistake number four, I know it's going to get me some flack in the comment sections below but I just have to say it, I have pets myself. I have two cats named Ava and Stormy, I'll put up some photos on the screen here for you but pets are one of the biggest financial mistakes that people make in their 20's.

Like I said, I have two cats, I love them, they're one of my favorite things that I own and so I would never change the fact that I have two cats. I really enjoy the companionship and everything but at the end of the day, if you strip away the whole emotional attachment to your pets and you just look at the dollars and cents, this is a huge expense every single month to be a pet owner. Now I'm not saying that you shouldn't own a pet if you really want to. It's a very important part of your life but you should consider the financial obligations involved with owning a pet and a lot of people don't do this. They end up buying a dog or adopting a cat or adopting an animal thinking okay, you know what? This dog's only gonna cost me $1000 or $500 and that is literally just the beginning. I've ran the numbers here for what I'm paying for my cats but I know just from owning dogs my entire life, it is way more expensive then you think going in especially when all you look at is the dollar value you're paying for that pet at the very beginning.

So just for me for an example with my two cats, every single month I spend about $25 on food, $40 on litter for my cats, $120 per month on pet insurance, now pet insurance, the one that I have it covers everything. Shots, vaccinations, spaying, anything that comes up it's covered and personally I would rather be paying for pet insurance rather than having these unforeseen expenses but you don't necessarily need to have pet insurance. And then I also have to pay pet rent at my apartment coming up to a grand total of $210 per month.

Now for me, that's really not that much money but for some people that is a significant chunk of change and it's something you need to consider when you are buying an animal. I would say for a general rule of thumb, it's gonna cost you about $150 per month for a pet and you also have to consider if you're not gonna go the route of getting pet insurance, there's gonna be those unforeseen expenses along the way and you should really be planning for those that way you don't have to end up putting it on a credit card but that can be a huge financial burden for people is buying a pet when they're not thinking about the long-term costs of owning that animal. Alright and finally number five here, the fifth huge financial mistake young people are making it's a mistake that I almost made myself is avoiding risk.

Now I know this might sound kind of weird to you guys because you might be thinking, risk, maybe you're thinking of the lottery, maybe you're thinking of, I don't know, something you're gonna lose money when you're risking your money, but risk can be one of the greatest things that you can do in your life is risking something. Risking the time that you're putting in something, risking your money and I'm not talking about the lottery here what I'm talking about is something that comes up in your path that might not necessarily seem like the right thing to do on paper but you decide to do it anyway because you have all the years ahead of you to offset that risk.

And I wanna share with you guys my story about that to show you what I mean by this. Like I said, I went ahead and I got my two year degree in Electrical Construction. I worked for the local power utility for a little bit over two years and I honestly hated my job. I did not enjoy what I was doing day to day and so on the side I started this little YouTube channel. I was making videos in my room, drawing stuff on a white board, making financial videos and I really enjoyed doing this and I said you know what, I would absolutely love it if every single day this is what I did. I put together ideas on paper, I made YouTube videos, that would be a lot of fun. But I looked at the numbers here and I said okay at my job I'm making, I was making about $60,000 at the time and when I was looking at my YouTube channel, I was making less than $1000 per month.

So financially, looking at those numbers, it would make absoluty no sense to quit a union job with great benefits earning 60k a year guaranteed six figures within five years but I made the decision anyway to say, I don't wanna do this anymore and I went all in with this YouTube channel and now I've scaled this up to a really great online business for myself. Had I been afraid to take that risk and take that leap of faith, I would still be stuck in a position doing this job that I really did not enjoy. And so you can't always look at everything as dollars and cents on a piece of paper.

You have to look at it as what are you going to enjoy doing at the end of the day, and do not be afraid of taking some risks as a young person. Avoiding risk is in my opinion, a huge financial mistake that people are making and it's one that I almost fell into myself. But anyways guys, that's gonna wrap up this video. This is what I believe to be the five biggest financial mistakes to avoid in your 20's.

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