Welcome to our “Money Mistakes by Decade” series! In each post, we’ll cover the most common financial missteps people tend to make in their 20s, 30s, and 40s—and how to avoid them.
This series is designed to be an easy-to-read, quick guide with actionable steps that you can apply to your life right away. Each post highlights the habits to build and pitfalls to avoid, empowering you to make smart financial choices for a more secure future. Let’s start with the 20s—a crucial time to lay the groundwork for lifelong financial health.
Imagine your future self thanking you for the choices you’re making now!
Your 20s are a pivotal time to set the foundation for financial wellness. Here are common money mistakes to watch out for and how to avoid them, so you can start building a secure financial future.
1. Not Prioritizing Savings Early
- Why it’s a mistake: Many people in their 20s think they’ll have more time later to save, but the earlier you start, the more you can take advantage of compound interest.
- How to avoid it: Begin saving a small portion of your income as soon as you start earning. Aim for an emergency fund first, and gradually start putting away money for retirement and other long-term goals.
2. Living Beyond Your Means
- Why it’s a mistake: Social pressures and the excitement of newfound freedom often lead to overspending and lifestyle inflation.
- How to avoid it: Create a budget that balances needs, wants, and savings. Set limits on discretionary spending, and make conscious choices about big purchases to ensure they align with your income and goals.
3. Relying on Credit Cards Without a Plan
- Why it’s a mistake: It’s easy to accumulate high-interest debt, especially when credit cards are used for non-essential purchases.
- How to avoid it: Only use credit cards for planned expenses that you can pay off in full each month. Consider setting a lower credit limit or using debit cards for daily purchases.
4. Ignoring Retirement Savings
- Why it’s a mistake: Retirement may seem far off, but the power of compounding means that the money you save in your 20s can grow significantly by retirement age.
- How to avoid it: Contribute to your employer’s retirement plan if available, or open an IRA and make consistent contributions, even if they’re small. This habit pays off in the long run.
Pro Tip
Automate your savings so you don’t have to think about it!
5. Overlooking Student Loan Repayments
- Why it’s a mistake: Avoiding student loan payments can result in increased debt due to interest accumulation.
- How to avoid it: Understand your repayment options. Set up automatic payments, even if it’s just the minimum, and explore ways to make extra payments to reduce your balance faster.
6. Not Investing Early
- Why it’s a mistake: Avoiding investments can mean missing out on wealth-building opportunities.
- How to avoid it: Start with low-risk investments, such as index funds or ETFs. Begin with a small amount to build confidence and consistency.
7. Not Setting Financial Goals
- Why it’s a mistake: Without specific goals, it’s easy to let your money slip away on short-term expenses without building toward bigger objectives.
- How to avoid it: Identify your short- and long-term financial goals. Whether it’s traveling, buying a car, or saving for a home, having clear goals helps you stay motivated to manage your money wisely.