Getting into $160,000 of non-dischargeable student loan debt doesn’t happen on accident. For me, it was a journey that started in my 20s which manifested itself into a stack of credit cards and student loan debt. Can you remember a time in your life when you didn’t have any credit card? I hate to say it, but I’m that guy, and until this year I’ve always ran with credit card debt. I recently paid off my last credit card of $ 10,000, in aggregate representing over $30,000 paid off in 2018 alone!
Here’s 3 financial mistakes to avoid in your 20s…which I learned the hard way.
1. Getting a car loan
Say it with me “I do not need a $15,000 car while in college, I do not need a $15,000 car while in college”. I am guilty as charged, here was my baby — a 2003 Nissan 350z. It cost me $368 / month for about 48 months and after all payments, I ended up paying over $17,000. Since I was in my 20s, insurance was f*cking nuts and it ran around $280 / month.
That’s around $650 / month on car & insurance before gas. Guess what? I had to work my ass off to make sure I could meet the monthly payments. Luckily I had scored an internship in college paying around $20 / hour which let me work up to 32 hours a week.
If I instead took the $600 and invested it for 48 months and then NEVER made another investment, by the time I turn 65, the investment would be worth over $5.2 MILLION DOLLARS. Think about this for a second, I invest $650 a month for 48 months, and I never invest another dime. Crap..did I just pay $4.3 million dollars for a 2003 Nissan 350z?
Lesson: Please please please the 20 somethings of today — take this as a word of caution, I paid 5.2 million dollars for my $15,000 car — don’t make the same mistake!!
2. Getting Student Loans
I went to an in-state school back in 2005, so full time tuition was something like $3,100 a year. I had a roommate, so my rent was around $300 /month and books were around $1,000 a year.
I had a sweet gig making around $20 / hour for 32 hours a week so if I buckled down I could have cash flowed all 4 years. But what did I do….I took out student loans!! Almost $20,000 — some of which still haunt me today. I am only now paying off my last student loan payment from undergrad this month — see group A below.
Lesson: Cash flow college and avoid student loans at all costs!
3. Withdrawing my 401k
Probably one of the highlights of stupidity in my journey to financial freedom, when I was 25 I took an early withdrawal on my 401k, which at at that time had had somewhere around $15,000 . What sucks is I don’t even remember what the money went to — I think it was some credit card. What I learned the hard way is that credit card debt is not the problem, credit card debt is the symptom of an underlying problem. In my case, it was my inability to live on a written budget. If I left that $17,000 in the 401k and never made another contribution it would be worth over $320,000 by the time I’m 50. Ouch.
Lesson: Withdrawing a 401k is stupid and compound interest is your best friend.