Financial Hindsight From 30-Somethings for 20-Somethings


If you're in your 20s, chances are you don't spend too much time thinking about your finances. Budgeting isn't nearly as exciting as planning your Friday night.

But, if you don't start making good financial decisions now, you could be in for a rude awakening in your 30s. Bankrate interviewed three 30-somethings who know all about that rude awakening. Read on to learn how to avoid the same financial mistakes that they made.

Melissa, senior investment associate, age 32

When Melissa got her first post-college job, she thought she needed a nice new car and new clothes to match her career success.

She was able to find the car she wanted and a monthly payment she could afford. The catch was that she had to finance the car for six years instead of five, which added a lot more interest to the loan.

As for new clothes, Melissa thought it would be cool to have store credit cards for her favorite stores. The cards gave her discounts on her purchases, so she figured, why not? However, Melissa didn't realize that the cards carried very high interest rates, and she made the minimum payments on all the cards.

In just a few years, she had managed to rack up about $20,000 in debt. "I had to get real with myself and understand that I was living a lifestyle that I couldn't afford," Melissa says.

Fortunately, after consolidating her credit card debt, refinancing her car loan and seeking help from her parents, she was able to pay off her debts in just a couple of years.

Negotiate a deal on your terms

Melissa's story illustrates the need to be very cautious when making big financial decisions.

"Negotiate and always buy used, especially with cars," says Grant A. Webster, CFP and investment consultant at AKT Wealth Advisors LP.

Webster prefers certified used cars over new cars because cars lose a significant portion of their value after you drive them off the lot.

He recommends that people in their 20s follow the 48-hour rule when making big decisions. If you're buying a car, don't be afraid to ask questions and even walk out a few times. But wait two days before making a deal.

"If they say the car's going to be gone tomorrow, that's fine. It's not worth getting sucked into (a bad deal)," Webster says.

Find out what you're getting into

If you're thinking about getting a new credit card, call the credit card company and tell them to walk through every part of the contract -- particularly the interest rate and how high it can go. A lot of times you'll get a low introductory interest rate for the first six months, and then the rate will double. The card may also have a high annual fee.

"If it sounds too good to be true, it probably is," Webster says.

Melissa's story also illustrates the need to spend smartly in your 20s.

Don't just live within your means, live so far below your means that your lifestyle resembles that of a broke college student, says Kimberly Palmer, senior money editor at U.S. News and World Report and author of "Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back."

"Living like you don't have that bigger paycheck is how you get ahead," says Palmer.

Raymond, graduate architect, age 39

In his early 20s, Raymond broke his neck and became a quadriplegic. If his injury had occurred just one month later, he would have had no insurance coverage -- he was on his mother's emergency medical policy, which expired the next month.

The emergency medical policy covered the MRIs, surgery and his rehabilitation. In rehab, he quickly learned how to deal with his physical limitations and become independent. That gave him the courage to go to an out-of-state college.

"Having a financial cloud over my head would have really taken away the enthusiasm to go and do that," Raymond says. That's why he advises young people to get health insurance before they get sick or seriously injured.

Don't count on being lucky

One bad accident or injury could ruin you financially for the rest of your life if you're uninsured, says Webster.

The uninsured also must pay a penalty if they didn't get health insurance by the March 31 deadline. Obamacare mandates that the uninsured pay a fine of $95 per adult and $47.50 per child under age 18, or 1% of their yearly household income, whichever is higher.

If you already have minimum essential coverage, you don't have to worry about the penalty.

The next open enrollment period through starts Nov. 15, 2014, and ends Feb. 15, 2015. Between now and then, you won't be able to apply unless you have a qualifying life event, such as moving to a new state, losing a job, having a baby, getting married or getting divorced.

You can still get health insurance on the private market, but you won't be eligible for government subsidies to lessen the costs of your premiums.

Damion, web/graphic designer, age 34

After completing junior college, Damion decided to transfer to an out-of-state institution to finish his bachelor's degree. He thought that listing this university on his resume would mean more to future employers than an institution from his home state. He was also intrigued by the idea of going off on his own to new surroundings.

Two years later, Damion transferred to an institution in his home state because a family member became ill. At that point, he realized his education hadn't truly prepared him for his career. His skills were substandard at best when compared with the other students in his field. Damion's instructor advised him to stay in college for two more years, thereby negating the two years he spent out of state.

"Talk about money wasted," Damion says. He had to take on student loans to pay for the out-of-state institution, but he got a free ride at the in-state school.

Hindsight is 20/20

If he could go back in time, Damion would tell himself to take a more practical look at his field and choose a college that would better prepare him for success. That's great advice if you're in your 20s and considering transferring, or if you haven't even started college yet.

Be careful not to get so enamored with a college's ranking or its prestige that you think you must go there. Recruiters and employers don't pay attention to college rankings, says Zac Bissonnette, author of "Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents."

However, employers might care where you attend graduate school. For example, an MBA from a prestigious business school might matter a lot more than an MBA from any old state school, says Bissonnette. That's why you don't want to take on so much student loan debt for your undergraduate degree that you can't afford to attend an elite graduate school.

The other problem with too much student debt is that it can cause you to delay marriage, kids, saving for a house and saving for retirement, says Bissonnette. Also, it might cause you to make career decisions based on salary instead of job satisfaction.

Copyright 2014, Bankrate Inc.