We all have things we don’t know about money, and the earlier you discover yours and address them, the better off you’ll be. That makes your 20s the ideal time to start learning how to make the most of your money.
Consider this scenario: You’re 25 years old, make $50,000 a year and save 10% of your salary in a 401(k). You’ve been working for a couple of years, so you’ve already saved $10,000 in the account. Nice work! You’re building a solid foundation for retirement. But did you know you’re paying account fees? And do you know how much you’ll pay in those fees between now and the day you retire?
The total amount you’ll pay depends on a variety of factors, but let’s assume you pay 0.5% of your account balance in fees every year. Once you hit age 67, you’ll have paid $292,000 in fees. Now, let’s assume you pay just 0.1% of your balance in fees every year. At age 67, you’ll have paid $152,000 in fees, a savings of $140,000.
Imagine what you could do with that much extra money in retirement.
What Is a Financial Blind Spot?
A financial blind spot is simply something you don’t know about money but should know or something you’ve ignored. Nearly everyone has financial blind spots.
Overcoming them starts with awareness. Next comes action. For example, now that you know the true costs of 401(k) fees, you can find ways to reduce what you pay.
Let’s look at another financial blind spot common among twentysomethings: assuming saving and investing will be easier in the future. Yes, you’ll likely make more money as your career progresses, but you’ll also have more expenses, such as property taxes and maintenance costs that come with owning a home. Make saving a habit now. Hint: you can start with automating transfers.
Do you budget for irregular expenses? Most people overlook costs like car repairs, vacations, wedding gifts for friends and other expenses that don’t crop up every month but that you shouldn’t dip into your emergency fund to pay for. Conquer this blind spot by looking at a full year’s worth of your past spending and then looking forward at your calendar and plans. Estimate your irregular expenses and start building them into your budget.
Quiz Yourself
What if you don’t know where to start looking for your blind spots? The nature of blind spots makes them difficult to identify, so quizzes are an excellent starting point. You can quickly test your knowledge and even have some fun.
Start by checking your financial literacy and brushing up on personal finance 101. Then step up your knowledge with a quiz on the truth about online banks so you can maximize the return on your savings. Don’t forget to explore the financial costs of love. The average costs of dating, engagement rings, weddings and honeymoons just might surprise you, and they’re expenses you’ll want to plan for.
Build a Foundation on the Basics
You can also identify blind spots by educating yourself on the essentials of money management: saving, investing, budgeting, understanding how credit works and creating a plan to pay off debt and build wealth. Master those five topics, and you’ll be well on your way to achieving your financial goals.
Start by getting clear on key terms. When you speak finance, you gain more control over your decisions. Learn about everything from compound interest to routing numbers in our guide to banking terms (then quiz yourself!), and discover what you need to know about mutual funds, index funds, risk tolerance and more in our guide to investing terms.
Find Reliable Resources
When you’re searching for financial recommendations, it’s important to pinpoint trustworthy information sources. Clickbait, memes and trending posts on social media can be fun diversions, but for money management advice, stick to sources offering accurate facts from reputable experts.
Check to see how recent an article is—older articles may be outdated. Check whether the content includes links to references that support the article’s claims. And remember, websites focused on finance typically offer specialized knowledge and more actionable insights than general-interest publications. Money Matters and Millie are excellent examples.
Ask Questions
The truth is that you’ll encounter financial blind spots for years to come, and the ideal attitude for managing them is one of curiosity. When you encounter an idea or concept you don’t understand or run into a financial obstacle, ask people you trust—your friends, family, parents, teachers, online friends, colleagues or financial professionals—to help explain things. You can also ask them where they would go for help.
If you want more personalized advice or have a difficult question, see if a certified financial planner (CFP) in your area offers a free or low-cost introductory consultation. All CFPs must meet rigorous requirements and are required to act in your best interest. In your 20s, you may not need a full-fledged plan from a CFP, but you may find spending an hour or two with one could be worth the cost.
Take a Deep Dive Into What Matters to Your Life
You’ll never need to know absolutely everything about money and finances, but you do need to tackle the financial blind spots that relate to your life goals. If, for example, you want to buy a home by age 30, it’s important to take time now to research the process, including special programs you qualify for as a first-time home buyer.
Perhaps you’re eager to take time off and travel. Now’s the time to learn about your risk tolerance and investing style so you can afford to see the world and still save for the long term. If you want to pay off your student loans quickly, identify simple steps you can take. No matter your goal, invest some effort today to learn how to pay for it. As a twentysomething, time is on your side. Make the most of it so your financial future is as bright as possible.
Elizabeth Whalen is a freelance writer based in Seattle. She loves writing about business, financial services and sustainability.