7 Bad Money Habits To Break In Your 20s
By: Bill Kirkpatrick
Tags: Saving Money, Financial Freedom, Budgeting, Money Management, Personal Finance Tips

Learn how to break these 7 bad money habits in your 20s, so you can be successful with your finances while you are still young.

Image by 1820796 from Pixabay

I understand. When you’re in your early 20s most of us aren’t worried at all about our finances. We certainly don’t feel we have any bad money habits to break.

We’re excited to either be out of college starting our new careers, or we are still hunting for that new career while hoping to soon move out of mom and dad’s house.

Either way, this is the time to learn all you can about your finances. How to not only be successful with them but to not start any bad habits that could carry with you into your 30s or even 40s and beyond.

Let’s get started.

Bad Money Habit 1 > Not Having a Budget

If you are not tracking all of your income and expenses, you are setting yourself up for failure.

There’s really no excuse for this. When you plan ahead and set aside money for future spending you will inevitably end up having more money and saving more money.

Do this by creating a budget. Use the right tools to help you succeed financially.

You can download my FREE Budget Planner which you can save on your device and edit to your personal needs. Throughout each month, simply add your income and expenses so you can stay on top of your finances.

Adding to the Budget Planner, getting a free app like Personal Capital or Empower will make it easy to keep track of all your assets and liabilities, income and expenses, and even your net worth. These two apps are fantastic. I’d suggest checking each of them out and use whichever one works for your individual tastes.

After a few months of diligently following your budget, you will be able to find ways to lower or even cut unnecessary expenses.

Bad Money Habit 2 > Carrying Credit Card Debt

Carrying credit card debt month over month is one of the most harmful things you can do for your financial success.

If you are doing this, stop now. Do everything you can to get this revolving bad habit out of your life and eliminate all credit card debt.

This should be priority one.

I’m not saying that using credit cards is evil. They definitely have their perks if used correctly (paying them off every month to a zero balance). There are plenty of reward points, travel discounts, and cashback incentives to be had.

But if you are not disciplined enough to pay off your credit card balance each and every month, you are doing more harm than good. If this is you, just do not use a credit card, ever.

The revolving interest charges on your credit card debt will have a snowball effect making your debt bigger and bigger. Eventually, you will get rolled over and be unable to get out from underneath it.

Bad Money Habit 3 > Impulse Spending

One of the worst habits young (or old) adults can have is impulse spending. Seeing something that you weren’t even looking to buy, but purchasing it anyway, simply because it caught your eye and now you just have to have it.

If something is not a definite NEED, meaning if you do not have it right now your life will not continue, then do not purchase it.

To help discipline yourself try this. Give yourself at least 3 days to contemplate whether you should make a purchase of a WANT.

I do this all the time, and I raised my kids to do this. It’s simple, it creates spending discipline, and it works.

During those 3 days, weigh out the positives and negatives of making the purchase. Review the expense with your budget and see if you can ultimately afford it. And if you’ll be able to still not go into debt over buying it, then maybe you can go back and purchase it.

Realize this, impulse spending usually ends up going hand-in-hand with credit card debt.

If you can break the bad habit of impulse spending, you are well on your way to controlling the bad habit of using your credit card too much.

Bad Money Habit 4 > Not Improving Your Credit

I often hear of people being told not to worry about their credit score. Just purchase everything with cash and you’ll never need to worry about how good your credit is.

Well, the fact is, the overwhelming number of people out there are NOT able to simply purchase everything they own with cash.

It sounds great but entirely unrealistic for everyone and for everything you purchase.

Sure, having enough cash from your paycheck to make a somewhat small extra purchase that month should be with money or cash you have. But understand something. Having a good, or great, credit score is helpful in many ways.

If you have a low credit score you will get charged higher interest rates, on everything you need a loan for.

You will be charged a higher insurance premium, whether it’s for your car or for life insurance.

You will have difficulty getting approved for an apartment and you might even have to pay a higher security deposit.

Your mortgage interest rate will definitely be higher.

Having a low credit score could even get you denied for employment.

Your bad credit score will ultimately cause you to pay a premium on everything else.

How are your finances supposed to improve if you are not doing everything you can to improve your credit?

So, do everything you can to improve your credit score. Following these steps will help.

Bad Money Habit 5 > Having Only One Source of Income

It’s understandable when you’re in your 20s that you are trying to solidify your newfound career. Having a primary income is normal and what most of us do.

Having a second income, or multiple streams of income is something you should strive for.

This does not necessarily mean going out and getting a part-time job that eats up all of your extra time while paying you minimum wage, and not really helping your financial stability at all.

I’m talking about creating income streams that are either passive or can become passive with a little bit of effort.

Passive income is the income you are earning even while you sleep. It’s the best type of income for obvious reasons.

And the more passive streams of income you have, the better.

The fact is, in 2020 most of the wealthiest people have at least 7 different streams of income. If it’s working for them, why would you not try to do the same?

Some great ways to generate passive income include the following:

Starting a Blog — it won’t bring in money right away, but slowly a blog can grow into a perfect way to earn passive income. This is usually in the form of Affiliate Marketing or selling Digital Products and/or Courses among other things

— it won’t bring in money right away, but slowly a blog can grow into a perfect way to earn passive income. This is usually in the form of Affiliate Marketing or selling Digital Products and/or Courses among other things Investing in Dividend Stocks — dividend stocks are investments that usually pay out quarterly providing a passive income stream you can set and forget

— dividend stocks are investments that usually pay out quarterly providing a passive income stream you can set and forget Real Estate Investing — many types of real estate investments are passive, like owning rental property. Your tenant pays your mortgage and provides you additional income every month on top of that

— many types of real estate investments are passive, like owning rental property. Your tenant pays your mortgage and provides you additional income every month on top of that Peer-to-Peer Lending — you become a lender and earn interest on the money you lend out, passively

Some other sources of additional income can include various online ideas and even some odd ideas.

The point is, don’t get stuck in only one source of income. Financial independence is earned through hard work done in a smart way. Having only one income stream does not define someone like this.

Change this bad habit.

Bad Money Habit 6 > Not Saving Everywhere Possible

When you go shopping at the grocery store or a department store, aren’t you naturally drawn to the ‘Sales’ signs like I am? I’m constantly trying to find what is 30, 40, or 50% OFF today, or even what’s the Buy One Get One FREE deal.

I think naturally we do this. And it’s easy when you are physically at a store. The signs are everywhere.

But what about when you are shopping online, as so many of us do nowadays? Are you still finding these deals and saving everywhere possible?

If you aren’t then this is another bad habit to break, now. A couple of very easy (and free) ways to shop online and save money on almost every transaction is by using one of the very common browser extensions, like Rakuten and Honey.

I use both, and depending on which one gives me the better deal at the time, that’s the one I go with.

Simply put, adding the Rakuten and Honey extensions allows you to automatically see when you get a discount on a particular website. Each one shows you the discount, applies a discount code when needed, and provides you money back at the conclusion of your purchase.

So, in essence, you are saving money on your purchase, in the form of a percentage-off discount, and then you are earning money after your purchase on top of that. It’s a complete win-win and a definite no-brainer.

If you are not saving everywhere possible like this, then get started now. You’ll be happy you did.

Bad Money Habit 7 > Not Starting Investments

Finally, a very common bad habit when you are in your 20s is to put off starting your investments. Whether it’s for retirement, or for a method of passive income, investing as early in life as possible pays off huge later in life.

Once you have established your budget and taken care of some of the first steps towards financial success, like getting out of debt and building an emergency fund, your next step is to start investing.

Retirement Account

The easiest ways are either through your employer-matched 401k or a Roth IRA. If you are in your early 20s and you start investing only $100 per month, you could reach the normal retirement age of 65 with over $500,000, using the historic rate of return of 10%. Of course, adding even more per month compounds that figure much more.

The point is, start early and continue to add to this investment. Make this investment an automatic one. Set it and forget it. Your money will grow compounding interest every year, and you won’t even need to be concerned about it.

Real Estate Investing

Other ways to invest include real estate. I’ve done fix and flip deals, I’ve owned rental properties and I’ve bought and sold real estate. All while still in my 20s.

Not only can it be done, but it is done often by a lot of people in their 20s. You can do it too!

One of the greatest ways to wealth creation is through real estate. And although you need a bit more of an active role during a real estate transaction, it can still be a way to generate passive income, especially when you own rental properties.

Stocks, Bonds, & Options

Another way I suggest getting involved with investing is through stocks, bonds, and options. And opening a brokerage account has never been easier.

My favorite method is through the Robinhood phone app. It’s free to download, free to open an account, free to learn all you need to learn, and free to make all of your trades!

On top of everything being free with Robinhood, they start off by giving you a free stock! And when you recommend them to a friend, your friend will get a free stock and you will get another free stock! There really is no downside to at least trying it.

Obviously learning all you can about trading in stocks or options is extremely important. You can easily lose a lot of money if you don’t invest properly.

Personally, I recommend sticking with the more commonly held stocks that make up some of the various index funds.

But at the end of the day getting involved in trading in stocks, bonds, and options can be a great way to add to your wealth.

And like I said before, start young and stay consistent. Your investment accounts will grow over time and you will stay well ahead of the game financially if you do.

Final Thoughts on 7 Bad Money Habits to Break in Your 20s

Over the years I have met many people who have had all 7 of these bad money habits well into their 40s. Some have faced foreclosures, some bankruptcies. Some have had their cars repossessed and others have simply had no form of retirement income and had to continue working well into their 70s.

This is crazy!

Don’t let this be you.

Change the course of your financial success while you’re young. Get started today.

What bad money habits do you need to break? What are you doing today to improve your financial success?