Carla Fried: Financial success in your 20s: car, vacation, emergency fund

For people in their early 20s, top financial priorities are getting a vacation, building an emergency fund and owning a car, according to a recent survey by consumer research firm Hearts & Wallets.

All three can be a financial landmine or, done right, help build a solid financial future.


Studies show people who take time off are more likely to land a raise and to avoid career burnout. But a restorative break from work – and a chance to enjoy friends and family – doesn’t have to put you in debt.

A survey by Expedia, in pre-COVID days, found more than 80% of Gen Z considered “bucket list” destinations an imperative for their vacation. That helps explain why half of Gen Z-ers, in a separate survey by Credit Karma, went into debt for a vacation.

Your vacation mates are probably in the same financial situation as you. So, to the likely relief of everyone, propose a cheaper destination and start a conversation about how much fun you’ll have because you’re all together. Play up the anxiety you’ll bypass because you aren’t accumulating expensive credit card debt, nor are you putting that emergency fund years out of reach.

If you’re dead-set on the glamour destination, then save up for it in advance. Take on an extra gig. Don’t book the trip until you’ve saved at least 90% of what you expect to spend.


That this landed as the #2 priority is great. You don’t need to be 40 or 50 to understand that life isn’t fair, predictable or cheap. Yet most of us fail to save money for contingencies.

The trick is to make this savings mandatory and automatic. Open a separate savings account wherever your paycheck is currently deposited, and schedule recurring automatic transfers from your checking into savings.

If you’re worried you won’t have enough money at the end of the month, that’s a signal you need to curb your spending. Rent a little farther away from your target neighborhood. Prune some streaming subscriptions. You know your spending weak spot (gaming, wardrobe). Challenge yourself right now to stop before making that next purchase, and to save those dollars for your emergency fund.


A car is likely your biggest purchase so far, and it’s easy to be lured into making costly mistakes. While you may need a car, it is the worst investment: Every day, it loses value.

Two main goals: Buy, don’t lease. Buy used, not new.

The problem with leasing is that, even though the monthly payments today look so enticing (a loan payment will likely be higher), you never stop making monthly payments if you become a serial leaser. It’s a choice that can cost you $100,000 in foregone savings over the coming decades.

And don’t be the new car chump. The average new car loan payment eats up more than $560 a month, compared to $397 for the average used car loan, according to Experian Automotive. That’s $160 a month toward a vacation or an emergency savings fund. And you’ll likely be able to finance the used car with a shorter-term loan, too. That means you’ll have no car payment at all much sooner.

If you absolutely have your heart set on new, you still might start with a used car right now. There is a major shakeup going on in the auto industry that is expected to bring the sticker price of electric cars in line with the sticker price for conventional cars, as early as 2023. When that happens, buying electric will definitely be the way to go, as operating costs are far lower, and you won’t have the higher sticker price. And buying a conventional car now is tricky. If, as expected, electric cars become a better deal than conventional gas-powered cars, the future trade-in value of conventional cars will be even lower.

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