What I Learned In My 20s About…Finance

A little later on this year, I’ll be turning 30 years old. In American society, this is for some reason a milestone birthday[1]. If nothing else, it’s the birthday that signals that “milestone” birthdays will stop coming at oddball intervals and instead begin showing up at the decade mark.

I don’t see getting older as a good thing or a bad thing. It’s just reality. Everyone ages, regardless of if we want to or not. And while I feel like I’ve known a good bit for whatever age I’ve been at the time, I certainly found that I’ve accrued quite a bit more knowledge over the last decade. As time gets closer to my birthday later this year, I wanted to share some things I’ve learned in my 20s about various topics. I figured I’d start off with a topic that I learned a lot about as a teen then built on in my 20s — personal finance.

Take the things I talk about in my list below as items I gained from my own personal experience rather than hard gospel. While the things below worked (or didn’t, depending on the case) for me, your mileage may vary.

1. Emergency Funds Are Useful…But They Likely Won’t Feel Useful

As I was coming out of college in 2008, I had very little money and a whole hell of a lot of debt to my name. Any money I had made during college from jobs there went to car payments, car insurance, student loans, my cell phone, or gas. With my first job out of college, I got paid twice a month and I found that nearly all of one of those two checks went to student loans. That said, I was driving a car that was ten years old, trying to scrounge money together to apply for grad school, and still had other bills to handle. If it wouldn’t have been for the kindness my grandparents showed me by letting me live with them for a year and a half after graduating, I probably would have ended up in a significantly worse place than I was.

One of the things that I learned from a co-worker at that job was that an emergency fund would save my ass when I least expected it. Over the course of the first year I had that job, I set out to save enough from each paycheck to give me three months worth of paychecks in savings by end of year. I got to December of 2009 and had reached my goal a month early. It felt like a waste. That money was sitting in a savings account and gaining (very little) interest and could be used up at any time. What was the point?

Soon I realized that the fact that the money could be used at any time but wasn’t being used was the ideal situation. It was a safety net — something I wasn’t used to having in my life. The net below an acrobat seems awful useless until you fall. When my car broken down two days before moving from Arizona to Ohio, I was glad I had it.

2. Take Advantage of Income Based Student Loan Repayment

One of my biggest mistakes financially early in my twenties was choosing not to use income based repayment plans offered by the student loan companies I had my loans with. As I mentioned in the previous section, my student loans were taking up nearly 50% of my take home pay when repayment started. I was able to manage it for around six months, but eventually decided that the solution to not having to pay student loans was to go to grad school in order to get my loans back in deferment.

While graduate school ended up being a largely positive decision for me[2], I wish I would have given more of a thought to the repayment options that were available to me. I was far too stubborn in my early (and mid) twenties to be willing to consider lowering my payments. By the time I was willing to consider them, my loans were nearly paid off. Though I’m certainly not saying income-based repayment makes sense for everyone, if you’re having trouble with your student loans, I would encourage you to look into it.

3. Take Advantage of 401k Matching As Soon As You Can

There’s a lot of debate around whether or not Albert Einstein actually said that compound interest is the most powerful force in the universe, however one thing is for certain — interest and market growth are immensely powerful. I came into my twenties knowing next to nothing about retirement plans, the stock market, or investing in general. On top of that, it turns out that the things I was taught about those items were very, very wrong[3].

In the USA, if you’re at least 21 years old and have been with a company for at least one year, if your employer offers a 401k plan, you are eligible by law to be able to contribute to it. Furthermore, if your employers offers something known as employer match, the money you put towards your retirement can be matched in some capacity (usually dollar for dollar up to a certain percentage and/or amount).

While retirement investing is a bit complicated and I am not a financial advisor in any way shape or form, I will say that there is one thing that I’ve found is unequivocally true. Free money to help out your future is almost always a good thing. If you’re not putting away whatever amount of money towards your 401k that your company will match, you’re doing yourself a disservice.

4. Stop Lending Money to Friends and Family

Of the four items on this list, this was probably the hardest for me to get good with. After all, friends and family are people you are close to. You care about them and want them to be successful. And yes, if someone needs a little money here or there in an emergency, there’s nothing wrong with helping them out. But when that request becomes routine — $20 one week, $40 the next, $10 the week after that — it’s a sign there are bigger problems in play.

Instead of lending the money, or perhaps in addition to doing that if you must, offer to help the person needing the money with their budget and finances. It wasn’t until I sat down and figured out a budget in my first few months out of college that I really was able to understand where my money was going. While I’ve slipped in budget management from time to time[4], I’ve always found myself coming back to math and spreadsheets to help set my finances straight. If someone is serious about making their financial situation better, they’ll work to do so. If not, they’ll just keep asking for money. Those are the very people who you shouldn’t lend money to.

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3 thoughts on “What I Learned In My 20s About…Finance

  1. In the UK, income-based repayment is the predominate norm – anyone who does it otherwise is the anomaly (although it is profoundly worse in England and Wales as we have free tuition fees up here). The running joke since forever is “Finally paid off my student loan” next the picture of a skeleton. Kind of disturbing that US students might not know about that option, though.

    As for #1, this has been a rolling argument with my friend (28 in summer) since 2012/13ish after this phenomenally dumb situation: he’d gotten himself a job as a warden at an access college, so his pay was in free accommodation and food, allowing him to save up money from his grant (around £1000/$1200 in the end) as an emergency fund – or as it’s better known in Edinburgh, emergency one-month’s rent and deposit between term-time accom. 2013 rolls around, and that mo’fugga went blew through over half of it on guitar amps. Amps! The man plays bass, but he hadn’t touched that or his guitar in years! So many examples with him, lovely boy that he is, but his biggest downfall with paying people back was his whole ‘pay back in big amounts and you’ll pay it off faster’, conveniently forgetting that it will also mean you have nothing left to, y’know, live on. But it all boiled down not being used to have that much cash in the bank, something that he (and his family) have never been used to. He’s getting better…slowly. I’m worried what he’d do with a fixed salary, though…

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    1. I don’t think income based repayment is a completely unknown option so much as it is one that people are reluctant to ask for. Because it’s not the default payback option, it feels like you’re getting some sort of charity using it. Most people (myself included) are turned off by that idea, even if it is the best for us personally. I’m pretty sure it’s intentionally set up that way for that specific reason.

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