5 ways to avoid debt in your 20s

Hands opening up an empty wallet


Ah, your sweet 20s. It’s absolutely guaranteed that you will have one sack full of adventures and another full of mistakes.

But that doesn’t mean you don’t need to think about what financial shape you’ll be in once you do say hello to that inevitable 30th birthday. Because it’s about then that you may be wondering about buying a house, starting a family, and perhaps even planning for the future with healthy personal finance habits in the bank.

Saving in your 20s is hard, and racking up a mountain of debt is easy. But don’t fret – it’s never too late to start blasting that 20-something debt and setting off on the road to a bright financial future.

Here’s what to do:

1. Avoid trouble

Getting yourself into a bit of financial strife in your 20s is notoriously easy, but it’s usually due to a few basic mistakes.

The first is thinking that a credit card is real money. It’s really not – it’s a big bill with a heck of an inflated catch. And while the day you need to pay it off may seem a long way into the future, believe us – it’s really not.

The real trouble comes when you’re taking out huge loans to pay for extravagant weddings, cool cars, and a thousand pairs of sneakers that you don’t need – and realising too late that spending big was so much easier than knowing how to get out of debt. If you are going to take out a loan, make it some ‘good debt’ like a house to live in.

Read: The difference between good debt and bad debt

2. Earn more than you spend

With a good job, it’s much easier to earn a lot more than you spend and still enjoy a cool 20-something lifestyle. But the job of your dreams is unlikely in your 20s – and yet the lifestyle of your dreams is very tempting.

Even when you do start to earn more, it’s hard to forego some of those expensive adventures to pay off the mortgage, boost the savings, or wipe out credit card debt, but establishing a healthy gap between your earning and your spending is a wise choice that your 30-something you will appreciate.

3. Envision your future self

When you’re in your 20s, the idea of being ‘old’ is elusive – because it seems like you’re going to be young forever. And when you’re forever young, do you really need to budget?

But not even contemplating your future self –  even you at retirement – is one of the most common financial missteps you can make in your 20s. That’s because your biggest ally when you’re young is time. The more time you have to save, make a few financial mistakes, rev up the investment risk, and benefit from compound interest, the happier you’re going to be in the future.

So if you do have some 20s debt, don’t despair – you have plenty of time to fix it, as long as you start now.

4. Reset your thinking

You are still learning a lot about yourself and the world around you in your 20s, including how to run your own finances. You can get yourself in some hot water thinking that if you’re already in debt, what’s another $30 purchase.

But that’s actually like getting dangerously close to the edge of a cliff and taking one more tiny step forwards rather than a tiny step back. A better debt management strategy is to find out what your weakness is, and cutting it in half – and if it’s a credit card, then get out those scissors NOW.

5. Be responsible

It happens at some point in everybody’s life – that day when you realise you are actually responsible for yourself. The bank of mum and dad may no longer be an option so it feels like the weight of your financial future in resting on your shoulders alone.

But being responsible doesn’t mean being boring – you just may need to adopt a more frugal mindset

Being a bit more frugal doesn’t mean not spending anything on yourself – you just have to get the balance right and make sure luxuries are rare rather than regular and that dollars are also being equally saved, wisely invested, or hacking away at bad debts.

Clover is all about helping young Australians save and invest easily and automatically, so that when those 30s do roll around, you’re ready to rock and roll.

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