Top 5 Financial Mistakes I Made in My 20’s

8226451812_88007f08df_zSo, I’m rounding out my third decade on this earth as I turn 30 at the end of the year. Looking at my 20’s I feel that I’ve made some great progress toward my financial goals and I’ve learned a ton through the process of becoming an independent adult, getting married, starting a family and beginning the journey of building sustainable and long-term net worth. But it’s hard not to look back and think about the “what if’s”. What if I had invested all of my money in Apple at the end of 2008? What if I had accepted that other job offer? No matter how many successes you experience you will inevitably look back upon your mistakes. Heck, it’s the only way to truly grow. Here are 5 of the biggest financial mistakes or “what if’s” from my 20’s.

#1. Thinking that I’m the Next Legendary Fund Manager

How many of you started off investing with the idea that you would be an epic stock picker? I know that when I opened my first brokerage account I began doing tons of research on different companies, big and small. In my young 20 year-old mind I truly convinced myself that I would be able to beat the market. What I soon found out is that stock picking is not easy and typically not the greatest strategy in building your net worth. What makes you think that you’re able to gain more market information on a company or analyze a stock’s potential any better than the large hedge fund managers or global investment firms? During my stock picking endeavor I uncovered some great winners and some great losers. After about two years, I benchmarked my return vs. the S&P 500 and I realized that I had underperformed the market by a little over 2%! That doesn’t count the exorbitant amount of time that I spent researching companies and evaluating investment alternatives. Nowadays, I’ve used this experience to realize the benefits of index investing. Although it may not be sexy to some (but incredible sexy to me), there are some incredible benefits of investing in index funds. I’ll follow up with a post about index investing soon. In the meantime take a look at how we diversify and balance our portfolio.

#2. Having a Short-term Mindset

I can’t tell you how many different stocks I sold too soon. In my early 20’s I couldn’t help myself but watch the market day to day. I remember back around 2009 when I bought shares of Apple for around $30 and shares of Amazon for around $70. In fact, my wife had restricted stock units granted to her through her job at Amazon so we owned quite a few shares. Over the years, I continued to sell and lock in gains (which isn’t such a bad strategy). But looking at where the stock prices are today (Apple is at $126/share after a 7 to 1 stock split and Amazon is at $437/share) I can’t help but think about the type of returns I could have had. I did much of the same when we entered the great recession in 2008-2009. I sold many of my losing stock picks only to see them post substantial gains if I had held on for the long-term. As an early investor it was clear that I held a short-term perspective and made investment decisions based on emotions and short-term market swings. In the end, I think it had a real negative impact on my investment performance overall.

#3. Not Establishing a Budget or Financial Plan

Gone are the days of being foot loose and fancy free. Nowadays I have a fair amount of “daddy pressure”. I have a wife and two kids, a mortgage, and a quickly receding hairline (yikes!). In my early 20’s I made financial decisions on the fly. I never truly accounted for all of my expenses, never set up a household budget, and saved varying amounts depending upon how much extra cash I had in my account. Since then, I’ve learned to be much more structured. I now track and know where our money is going, I try to stick to a monthly budget, and I automate savings and investment activity and treat it as a bill. Back then I never thought beyond the next few months. Whereas today I have a 1, 5, 10 and 30 year financial plan. I’ve mapped out the goals that I want to achieve financially and realize the benefit of establishing a road map for the future. Take a look at 5 quick steps to establish a financial plan.

#4. Failing to Understand the Power of Negotiation

When you’re young it’s easy to think that you have no negotiating leverage. Whether you’re negotiating salary at your first job, buying a home, or trying to get your wife to let you play golf. In all areas I’ve greatly improved over the last decade. I remember my first job offer out of college. I started working at a consulting firm as an internal auditor and I was ecstatic about getting an offer at a competitive firm. The HR recruiter pulled me into her office, provided me with my offer and I remember asking “is the salary negotiable?” She simply replied “no” and I said “fantastic, I’ll accept!” That’s about how savvy I was at negotiating at the time.

Buying our first home was a lot of the same. We didn’t get the price of our home much lower than the asking price and were only able to negotiate with the seller to pay 50% in closing costs. This was in 2009 when it was more of a buyer’s market. Looking back on that experience, I know that I would have been much more selective in our home purchase and would probably enter the negotiation with a much more effective approach. It was a lesson learned early on in the idea that the price for any large purchase isn’t what’s asked, it’s what you end up paying.

As far as negotiating with my wife to play golf, I’ve become a master negotiator. All it take is about a dozen chores around the house, a strategically placed bouquet of flowers, a couple of landscaping projects, some new décor for the home… I’m starting to think that I still have some work to do in developing my negotiation skills on this front…

#5. Not Pursuing Supplemental Income Streams

I can’t say that I spent all of my 20’s focused on a single income stream. But it has taken me until the latter half of this decade to realize the benefits of pursuing supplemental income. Early on, I dedicated myself to my primary 9-5 and never really considered looking for ways to add income streams outside of that. Over the past few years I’ve discovered how beneficial it is to have supplemental sources of income. Whether it’s to pad your savings, pay down debt or provide a vacation fund for your family; supplemental income gives you an additional source of financial assistance and peace of mind. 3 years ago I started teaching an accounting course at a local community college. It’s only two nights a week with a 2 ½ hour lecture for each class. Not only is it a great source of extra income, I’ve discovered that I have a real passion for teaching. Who knows? Maybe it will turn into a long-term career down the road. In addition, I’ve freelanced for a startup app-based bookkeeping firm, assisted with taxes and worked as a contract accountant for a friend’s construction company. I also have a dividend heavy portfolio outside of my retirement accounts for some passive income as well. It’s something that I wished I had pursued earlier, but it’s never too late to realize the power of supplemental income streams.

Your 20’s can be a difficult time. It’s a period spent learning about yourself, especially in regard to personal finance. In the end, you will undoubtedly make mistakes. The key is to look back and learn from those mistakes to better your financial prowess going forward. I can’t wait to post the “Top 5 Financial Mistakes I Made in My 30’s”. I wonder what lessons will be learned in the coming decade…

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Photo by Chris Potter

12 comments
Andrew LivingRichCheaply
Andrew LivingRichCheaply

Haha, I definitely learned my lesson regarding stock picking.  Back in the day during the tech boom, everyone and their mother was a legendary stock picker.  You couldn't lose money even if you wanted.  But then the internet stock market bubble burst and people realized they invested in worthless dot com companies.  I took a major haircut but fortunately I didn't have much invested.  That still didn't prevent me from trying to pick stocks as I was young and naïve but I stick to low cost index funds nowadays.  You live and you learn.

Financial Tour Guide
Financial Tour Guide moderator

@Andrew LivingRichCheaply It's all about learning from your experiences.  I started investing just before the great recession.  Learned some key lessons very early about how volatile the market can be.  Definitely prepared me to be a more diversified and prudent investor ever since.

A More Successful You
A More Successful You

Excellent Post! Luckily, I am a little earlier to this personal finance thing than most, but I still want to set myself up for success and ensure that I don't make these mistakes. Thanks for sharing!


The one that I think is interesting for me is the "stock picking" mistake. Recently, I put $750 into an account that I was hoping to grow. I went all in on a $2 stock and when it went to $3, I was so happy. I was up $400! Then as soon as it was up, it was back down to $1.75. I was kicking myself. Luckily, I knew that that $750 was just money I could play with, so I wasn't too upset, however, even losing $100 is tough. 


The future looks bright! Have a great day!

Financial Tour Guide
Financial Tour Guide moderator

@A More Successful You Stock picking is definitely tough. There are companies that have made me a lot of money and others that have tanked.  At the end of the day it's all a great learning experience, especially in your 20's.

RetirementSavvy
RetirementSavvy

Unfortunately, I didn't have the chance to make any mistakes in my 20s as I didn't open my first investment account until I was in my early 30s.

Financial Tour Guide
Financial Tour Guide moderator

The good thing is that starting in your early 30's still provides plenty of time to realize the power of compound returns.

CashFlowDiaries
CashFlowDiaries

Ha!  I feel the same way.  My 20's were full of hopes, dreams and let downs.  Im in my mid thirties now but I can tell you for sure life gets better from here on out.  You are a much wiser person now and the decisions you make financially or whatever are going to show that wisdom.  My finances greatly improved after I turned 30 and youre on that same path.

Financial Tour Guide
Financial Tour Guide moderator

@CashFlowDiaries I sure hope so! Although my 20's were filled with financial mistakes, they were definitely great learning opportunities.  It's amazing to look back and see how much I've grown when it comes to knowledge of personal finance. Can't wait to see what my 30's will bring!

DC @ Young Adult Money
DC @ Young Adult Money

I don't think that pursuing side/supplemental income is for everyone, but at the same time everyone I know who pursued it has been pretty happy they did.  I honestly will probably always look back to my college years and wish I had really went "all in" on blogging in my spare time.  It may have changed the course of my life as I think it would have been realistic to make a full-time income from it before graduating college.

Financial Tour Guide
Financial Tour Guide moderator

@DC @ Young Adult Money Side incomes can definitely present challenges in their own right. I’ve come to find that if you pursue them with the right work-life balance in mind it’s a great way to add to your financial wellness with more flexibility than your 9-5 will offer.

AbigailP
AbigailP

I think you're right that too many 20-somethings don't feel like they have much leverage. And when it comes to jobs, that may be increasingly true. Otherwise, though, a consumer always has leverage... as long as he/she is willing to walk away. My 20s were spent unemployed/on disability, so I didn't get a chance to consider real job prospects or investing. But we're getting on track now. When it is time to invest, though, I have no illusions about picking my own stocks. I'm just going to leave it to the professionals because I can't parse it and it's a huge headache.

Financial Tour Guide
Financial Tour Guide moderator

@AbigailP It's definitely easier to negotiate a salary once you have some experience or credentials to back you up.  As a consumer, it's always best to enter the negotiation knowing that you can walk away.  There are several big purchases I made in my 20's that I wish I would have negotiated a bit tougher on or walked away from.  Once you start the investing process, I'd stick to index or target date funds.  Keep your costs low and think long-term. Cheers!