Finances in your 20’s – or The Age Of Debt

Your 20’s are an exciting time.  You are determining your career, possibly even changing career paths a couple of times.  You usually finish your concentrated formal education (university, college) during this time period, and most of you have gone into debt to pay for your education.  You purchase your first vehicle with a bank loan, usually around $4,000 to $5,000, and you wonder how you can make the payments.  For many, they are wondering about starting a family and if it’s time to invest in a house and avoid paying rent.


The 20’s is a time of accumulating debt.  There is nothing wrong with that.  It is normal.  However, you want to make sure that the debt makes sense and its accumulation is controlled.


Education debt – It is normal for students to leave a 4 year degree with over $30,000 in debt.  That is a lot of debt when you don’t have a career job to help pay it off.  At $30,000 over 7 to 9 years, that means you will be paying over $500/month to student debt.  If that debt is built by going through a program that will give you a good living, it may be worth it.  However, if that debt paid for ski trips or a program that only offers $20,000/year in job salaries, you will have a very heavy burden for a long time.  While education debt may be necessary, try to keep it down.  You will appreciate it when your friends are still paying it off at 34 years old and you are free and clear.


Vehicles – vehicles depreciate in value so quickly that they cannot be considered a good investment.  Getting into heavy debt for a vehicle in your 20’s is really a mistake that will make you pay for a long time.  I know it could be a wait, but your 30’s will thank you if you don’t borrow heavily in your 20’s for a vehicle.


Home – So many people have jumped onto the “mortgage over rent” bandwagon in the past 10 years that home ownership has risen to all time highs.  This isn’t a bad thing, but owning a home should take some consideration before jumping in.  The best things rent has going are (1)that it is traditionally lower monthly payment than a mortgage and (2) that you are not tied to the housing market in that area.  In your 20’s life is about cashflow, making enough to cover all the payments.  While a mortgage is considered an investment whereas a rent is just a cost, you have to remember that investments can go decrease in value, or at least not increase in value very much.  A house can decrease (as we’ve seen recently) in value, but your mortgage payments won’t drop with that decrease.  If you have to move, selling the home can be a problem, but with rent you give one month notice and move on with no worries.  The rule of thumb is that if you don’t know you are going to stay living in a house for at least 2 years, you should probably rent instead.


By keeping your debt low, and making sacrifices in your 20’s, you are setting the foundation for your financial success in your 30’s and onward.  In the long-term, staying low-debt in your 20’s will pay off for the rest of your life.
Jerry