Spending Too Much, Too Soon In Your 20’s

I experienced this. I had just graduated college, I was in a new place and I felt so sophisticated and mature.

I had a regular paycheck, a salary, a 401k and consistent benefits. I was set I thought. I was 22.

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I see it all the time – just because we have all the above, we forget the thrifty, frugal nature of how we were in college or when we were younger. In your 20’s, I think it’s one of the biggest mistakes we make. We tend to overestimate how far our paychecks can take us and blow too much on apartments, trips, fashion and wining and dining. We then assume we aren’t making enough or that we are somehow poor again.

All of a sudden, we assume we’re making nothing. We can’t understand how it’s close to $0 in our bank account at the end of each month. We’re complaining and lamenting.

Just because you’re making more than you have before or you’re just making money consistently period, doesn’t mean you splurge all the time.

Financial experts suggest it’s okay to keep living like a bit of a college student for a few more years. That sounds bad, I’m talking about living a little below your means. In doing so, you can get a better handle on what you’re able to afford, your level of debt, fit into a budget and even savings.

Wait, what about saving?

“No matter how much or how little you make, always save a little bit.”

Start somewhere. Put aside something and set to that each month. For instance, I have an automated amount go into my Savings account each month (from my Checkings) and after a while, you don’t notice that amount being dispersed and I have a chunk of savings, slowly but surely.

Note: If you put $4,000 a year into retirement accounts starting at 22 you could have $1 million by age 62 (assuming 8% average annual returns).

Your Dolla Is Worth How Much?

I love thinking about how our money is worth more now invested than it will ever be. Let’s say you invest $1 when you’re 20, it will be 1.75 times more than $1 invested, when you’re 30, 3.5 times more than $1 invested and so forth.

Living below your means doesn’t sound sexy. But by doing so, you will be able to live well above your means in the future. But really – “20-somethings are more than twice as likely as older folks to have a negative net worth; one out of four families headed by people aged 20 to 29 owed more than they owned.” Let’s step away from deprivation but understand what we can cut out and the balance we can obtain to reach financial stability and/or freedom.

Negative net worth and debt aren’t sexy either. So why not go the other way? Be a little more frugal? Save where you can and still enjoy – because both are definitely possible.

Did you spend a lot on your first salary job? Did you find yourself losing and going into debt? Tell your story.

Update: The blog comments are amazing. The recommendations, ideas and stories are so valuable. Check them out, they should be their own blog post.

In addition, I also wanted to clarify (because of the comments) that I do not condone enjoying and spending. After all, I indulge more than most people I know. I wine and dine on the regular. I buy my friends gifts. I take myself shopping. I take vacations monthly and get on airplanes to take trips 5-8 times a year (last year, went International too). I believe in doing both – I don’t call myself a responsible hedonist for anything.

BUT – I do both because I can. Because I cut back where it doesn’t matter, and splurge where it does. Just wanted to clarify, stingy ain’t no fun. Spend where your values are and don’t go for exorbitant amounts of payments, new car, new home, etc. if you can’t afford it. Plain and simple.

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