The 6 Money Mistakes To Avoid In Your 20s

Illustrated by Abbie Winters.
If only. Are there two other words that have the ability to make you feel so wistful or guilty about something you did in the past? If only I said hi. If only If only I started a Cute Pugs of Instagram account five years ago. If only I had stood up to my tyrannical roommate. You get what I mean.

But there’s one part of your life in which the urge for a do-over applies more than most: Your finances — particularly if you’re me. I’ve been both a personal finance writer (for magazines like Money, SmartMoney, and Forbes) and the financial editor for NBC’s Today show for more than 20 years. (More recently, I’ve launched HerMoney, a weekly podcast for women, by women about money. You can subscribe, here.) That means I've had plenty of chances to learn what's right versus wrong when it comes to my finances. I’ve figured out the cheapest, easiest, and stickiest ways to do them consistently. And I’ve had way too many chances to revisit what my early mistakes cost me.

Trust me. It’s not pretty.

But what I’ve also learned is that once you get on the right track, staying there isn’t all that difficult. Really, if you can get yourself to spend less than you make and then put the money you’re not spending to work for your future, you’ve come about 80% of the way to financial success. Add in some protection provisions — a bit of cash on the side for emergencies, insurance (health insurance for you, life insurance for your family) — and you’re there. There will still be the occasional if-only moments ­— If only I didn’t go to the sample sale — but you’ll be able to swing them.

Here’s a look at the mistakes I made in my 20s. I hope they inspire you not to make the same ones yourself!

Personal finance expert and best-selling author Jean Chatzky is the financial editor for NBC’s
Today show, host of the podcast HerMoney on iTunes and creator of the free weekly newsletter This Week In Your Wallet. She believes knowing how to manage our money is one of the most important life skills for people at every age and has made it her mission to help simplify money matters, increasing financial literacy both now and for the future. Jean is a regular contributor in the media, appearing on Oprah and The View, and writing for Forbes, Fortune, Cosmopolitan, and You can find her at
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Illustrated by Abbie Winters.
I graduated from college and got a job as an editorial assistant at a magazine in New York. It paid $11,500 a year. I can hear you gasping, but it’s not as bad as it sounds.

My rent in Brooklyn in a big, two-bedroom (that I shared with a friend from college) was $400 a month. Subway tokens were $1. My parents helped with a few hundred a month. And I quickly landed a second job teaching SATs. I should have been able to swing it. Instead, I overspent. My office building was right next to the Condé Nast building. Despite the fact that this was years before The Devil Wears Prada, I wanted to look like those perfectly coiffed young women heading to their jobs at Glamour and Vogue. I ate out too often and then, rather than burning them off with a run around the park, I hit Jeff Martin and Molly Fox (the precursor to to SoulCycle and SLT. Think a lot more Lycra, a lot less Drake on the playlist and you get the gist.
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Illustrated by Abbie Winters.
Even when I finally got my act together — and amassed a little money in my savings account — I didn’t pay down debt. Having savings felt safer than throwing that cash to the debt I was still carrying on my card. But the debt was costing 18% a year — the savings were earning a third of that.

Eventually, my roommate (who worked at Citibank) set me straight. I transferred the money I had in savings to the card, which cleared about half of it, then made a plan to pay off the rest. (And yep, for me, it meant dropping the pricy workouts and buying a pair of running shoes. I’ve been a runner ever since!)
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Illustrated by Abbie Winters.
Years back, I wrote a story about how to pick a health plan from the menu of choices your employer was offering. One fact stuck in my mind: A survey showed that people spent more time planning a vacation than they did on this crucial choice. Yep, I thought, That’s about right. When I was in my early 20s, I knew about how much I was earning — but had you asked me what was the balance on my credit card, in my savings account, or my retirement account, I would have shrugged you off. I couldn’t tell you what I was spending day-to-day, week-to-week, or month-to-month, where my (limited) investments were parked, or what my tax bracket was. I was clueless. Why? Because I wasn’t making an effort.

As I started reporting on personal finances, I picked up knowledge and confidence. I began walking the talk. And after I got divorced a little over a decade ago, I became even more vigilant. The thing is, no one cares as much about your money as you do — and no one ever will. If you can’t get yourself to pay attention to everything, try asking and answering these three questions once a year: "What do I earn?" "What do I own?" and, "What do I owe?"

The answers to the first two should be moving in an upward direction. The latter — unless you’ve, say, bought a house and taken out a mortgage or borrowed for an important line item like a car or education — should be moving down. Stay in those parameters and you’ll be on track for a solid financial life.
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Illustrated by Abbie Winters.
Like many of you, I’m sure, my 20s (particularly my early 20s) were an exercise in job experimentation. I went from the women’s magazine to a travel magazine to a brief stint in cooking school to six months of freelancing to an equity research job on Wall Street to, finally, my first job at a financial magazine. My salary fluctuated wildly: $24,000 at the travel magazine, $1,000 to $3,000 an article while freelancing, $45,000 (with a bonus!) on Wall Street, and back to $25,000 at the financial magazine. Here’s what didn’t fluctuate: At no time did I ask the all important question: “Can you do better?”

What’s more troublesome: Women still don’t. The New York Times recently reported that freshly minted women physicians are earning an average of $20,000 less than their male colleagues for doing the same work. So do your homework by using the pay-oriented websites to figure out what someone in your position should earn, then get up enough nerve to talk to at least one or two other women about what they are earning, and finally ask the person in charge of hiring you. The biggest problem with not getting what you’re worth in your 20s is that every salary that comes down the road will, in some way, hinge off the one that preceded it. In other words, selling yourself short now can have ramifications for years.
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Illustrated by Abbie Winters.
I don’t know that I’d put this into the same category of mistakes as the others I’ve listed, but when I’m looking at which fixes have actually made the biggest difference in my financial life, it tops the list. What I’ve come to understand — thanks, in no small part, to a lot of great research in the field of behavioral finance (which looks at why smart people make pretty dumb moves with money) — is that human beings are biologically inclined to make money mistakes. We’re wired to think that today is more important than not only tomorrow, but all the tomorrows that follow (which makes it tough to save). We’re impulsive by nature and we’re even more impulsive when we’re emotional (which is why you find yourself spending when you’re sad, angry, hungry, or tired). The list goes on.

Today, though, there are all sorts of workarounds — some people call them hacks — that enable you to use technology and automation to do the right thing. The 401(k) or similar retirement plan you have at work employs these brilliantly. At many companies, you're automatically puts in a plan unless you opt out (you shouldn’t). Then, your employer automatically pulls money out of each and every paycheck. It automatically puts that cash to work in a target-date retirement fund, designed to take an appropriate amount of risk for you, based on your age, unless you opt out (and again, unless you’ve made a conscious choice to do something better with the money, you shouldn’t). And finally, it may also automatically increase the percentage of your salary you kick in each year unless, again, you opt out (again, don’t).

If you don’t have a 401(k), you can rig up a similar system for yourself by having money pulled out of checking and deposited into a target-date fund in an IRA or Roth — and by setting a calendar alert to remind you to increase your own contributions once a year. There are other things you can automate, too: bill payments, credit checks, and by using an app like Digit or Acorns, saving every time you spend.
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Illustrated by Abbie Winters.
There is perhaps no advice I’ve given more often on TV over the years than this: "Don’t withdraw money from your 401(k) or other retirement plan when you change jobs." The reason I’m so emphatic when I give this advice is because I, stupidly, did it. By the time I left that $11,500 job, I had been promoted and was earning $19,750 a year. I had about $2,000 in my 401(k). But I didn’t really understand what a 401(k) was or how it worked and I definitely didn’t get the ramifications (Taxes! Penalties!) of cashing the check they sent me and making a beeline for Bloomingdale's. The real cost wasn’t the roughly $600 it cost me short-term. It was the fact that had I invested that $2,000 in the S&P 500. It would be worth about $32,500 today and likely $145,000 when I turned 65. Ouch.

Here’s what you need to understand. When you change jobs, which you'll likely do about a dozen times over the course of your career, you have four choices when it comes to what to do with the money in your retirement plan. You can leave the money in your current plan (typically, you need a balance of $5,000 or more), which is a fine thing to do as long as you’re happy with the investment options and the fees are reasonable. You can roll the money into your new employer’s plan, which is fine as well as long as the fees and investment options are copacetic. You can roll the money into an IRA, where you’ll be able to invest it pretty much any way you'd like. Or you can withdraw the money, pay taxes and — if you’re not 59 1/2 in most cases — a 10% penalty. Bottom line: Don’t choose the last one.