Pellau Magazine

Now that you’re out on your own, you’ve had to get a job (maybe your first) and you may have a legitimate income (maybe for the first time). But, maybe you’re like me and you consistently spent every penny you earn on… oh, I don’t know… alcohol, online shopping, alcohol, a brand new car — and let’s not forget — alcohol.

But, at least to a certain point, I’ve come to face the harsh reality that my purported standing in life means that I can no longer subscribe to the same behaviors that have been habitual since high school. Gone are the days when loans covered all expenses and parents supplemented when necessary. With the real world comes real responsibility.

In an effort to avoid drowning in debt by age 25 and filing for bankruptcy by 30, I’ve come up a few ways to avoid going broke in your 20s:

Live below your means

This is the best way to avoid being poor, but the hardest rule to follow. No matter how little money you’re making, find a way to spend less. It might mean living with your parents until your debts are settled and it might mean skipping nights out with your friends because they want to go to expensive bars while you’re struggling to afford $1 wells at happy hour.

Living well takes sacrifice and discipline — but the biggest long-term favor you can do for yourself is to establish good habits. Learn to pay off debts and to prioritize building your savings account. You’ll have more money in the future to spend on things that matter more.

Pay off your school loans as soon as possible

Don’t get me wrong, I understand that you’re young and the “I’ll pay for it later” mindset feels easier, but it’s not sustainable and it’s time to stop it. Deferring on your loans should be the last-ditch effort to avoid falling behind on your necessary expenses. Spending 40 percent of your income at the bars is NOT an appropriate justification for putting off your responsibility to loans.

When you defer your loans, you are still accumulating interest. This means that principle amount you borrowed is continually growing as you’re irresponsibly blowing your salary on unnecessary materials and nights out with your friends. Do your future self a favor and start making payments as soon as you possibly can.

Avoid the credit card trap

Your credit score is what lenders use to determine how trustworthy you are. Your credit score determines the interest rate you will get if you apply for a credit card, a loan, a mortgage or a new car — a good credit score is generally considered 720 or higher. But, the misconception that the only way to build good credit is to acquire a credit card, use said card then pay the monthly minimum balance is false. Using (or rather, abusing) a credit card is the easiest way to end up drowning in debt.

Yes, credit cards CAN help you build credit, but the best way to raise your credit score is simply to make timely, consistent payments on all purchases. Federal student loan payments are a great way to go. If you’re past college age and still want to raise your score without giving in to the plastic devil, you can easily take advantage of a credit builder loan. This is essentially a pre-paid card that you treat as a debit card, but it helps you build your credit rather than just draining your bank account.

Do not wait to begin saving for retirement

When you’re just beginning your career, it’s easy to put off saving for retirement. After all, how are you supposed to save for retirement when you can barely afford the expenses you have now? But consider this: those who begin investing in their 20s – even as little as $25 a month – are proven to end up with hundreds of thousands of dollars more by the time they reach retirement age than those who begin saving hundreds (or even thousands) per month in their 40s and 50s.

Start saving now while you still have time on your side. Interest compounded on a smaller investment over a longer period of time ultimately adds up to more money than interest on a larger investment over a shorter period of time. Time is your greatest asset right now – take advantage!

It’s tough to abandon the habits established in high school or even earlier. But, it’s time to grow up and make responsible decisions that will protect you and your future quality of life.

Now that you’re in the real world, embrace that you are your own responsibility. You can do anything you want, but you have be able to plan and cover the expenses. Establish good financial habits while you’re young enough to recover quickly from your mistakes and you just might be able to avoid going broke in your 20s.