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Career Advice

5 Ways People Spend Their Salaries In Their 20's (That Leave Them Broke)

By Krisha Maclang on July 7, 2015

Let’s be real here. Getting your first (and second and third and so on) paycheck is probably the highlight of getting a job. After years of relying on mom and dad’s good will and generosity, we finally get to fatten our wallets with our own hard-earned money.

But after the initial high of excitement – treating your family to dinner with your first sweldo, buying something you like as a “reward” – you’ll end up with not much money left in your bank account.

Your 20s are the perfect time for you to start saving money for retirement or investments. And even if you feel like you’re ready for either of those things, it’s always a good idea to save up for a rainy day.

We don’t really notice it right away but our little expenses here and there do add up. The last thing you want in your 20s is to be buried in debt.

Here are a few common money mistakes in your 20s.

Swiping your credit card like there’s no tomorrow

After you start working, you will soon be able to apply for a credit card. The application process for getting a credit card is different for each bank, but soon enough you’ll get your hands on your very own shiny new, credit card.

It’s easy to give in to the fantasy that a credit card pretty much means free money. Yes, you don’t have to pay for anything right now, but you will eventually have to pay for all of your expenses. And each time you miss payment, your bill goes up. Once all your credit card debt adds up, it will be a struggle to pay off your mounting debt.

Remember, never spend more than you can afford.

Forgetting about the rainy days

If I asked you now if you were financially prepared for hospitalization, would you be able to say yes? As much as we’d like to think we have life in control, the truth is it can surprise you when you least expect it. Accidents, sickness or job loss can sometimes happen to the best of us.

Life is unpredictable so it’s a wise move to start the habit of saving up for at least 6 months of emergency savings. Save up enough money to cover your bills such as rent, food, utilities and other living expenses. If you can save up more money than that, even better!

Watching out for emergencies isn’t being paranoid; it’s just a wise money move.

Trying to keep up with the Joneses, and the Kardashians, and…

Yes, we all want to be stylish and on trend. You see your friends with the latest gadgets, #OOTD-worthy outfits and the flashiest cars, and you’ll naturally want to own them yourself. It’s human nature to want those things for ourselves as well. However, all those things come with a price.

Ask yourself first if you can afford that kind of lifestyle. If you don’t then it’s perfectly fine. It’s okay not to party on weekends and it’s okay if you can’t travel with your friends. It would be a crucial misstep to spend all your money on frivolous luxuries and to forget to save up.

The truth is, try as we might, sometimes we really just can’t keep up. Some people are just financially fortunate and that’s okay. You’ll get there someday too. Just make sure you don’t break the bank getting there.

Not learning how to budget

When we’re students, we only need to budget our allowances. We didn’t really have a lot of expenses: lunch and snacks from Monday to Friday, going out with friends, and other light spending. Heavier expenses such as bills and loans were faraway thoughts.  And as full-fledged adults, we suddenly have to deal with all these expenses head on now. It’s natural for you to feel a little lost when it comes to budgeting.

Start with the 50-30-20 rule: 50% of your salary should go to fixed expenses, such as your rent, loans, utilities and subscriptions (like cable TV). These are expenses that you are expected to pay on schedule every month so it’s better to pay on time than to accrue late fees. 30% then goes to flexible spending, or day to day expenses that you can tweak. This includes groceries, transportation expenses, entertainment, hobbies, etc. It doesn’t really matter how you spend the 30% just as long as you don’t go over the 30%. The remaining 20% goes to financial priorities. Whether it’s to pay down debts, put aside money for retirement savings or to invest in stocks, make sure 20% of your salary goes to that.

Failing to educate yourself about investments

I know, I know, investments sound like such an adult thing to deal with right now. You’re young, you have money, and you want to have fun. But news flash: you won’t be young forever. The sooner you start thinking about your long-term financial goals, the sooner you can start preparing for your future.

So that you won’t get too overwhelmed with all of the financial terms and different types of investments, ease yourself into it with a timeline.

If you’re still in your 20s, personal finance blogger Fitz Villafuerte suggests using this time to make a habit of saving money and take steps toward financial literacy. Learn about the various types of investments and look into ways you can save for retirement, such as your SSS retirement plan.

When you hit your late 20s, begin exploring different types of investments and try your hand at investing in them.

It’s never too early to start.

Getting the hang of handling your money can be challenging especially at the start of your career. Even people who are already in their 30s or 40s still have trouble making ends meet. But if you acquire the habit of avoiding the usual financial pitfalls that people in their 20s encounter, you’ll soon find personal finance success.

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