Financial Mistakes to Avoid in Your 20s

Your 20s is an exciting time. Most people enter their “true” adulthood of living away from home. It’s a time of self-discovery, new experiences, and financial decisions to set yourself up for success or struggle. 

This period is also a time of struggle. With the high cost of living and inflation, it’s become more of a struggle to get by on a single income. Here are some financial mistakes to avoid in yours 20: 

1. Neglecting to Save

One of the most significant financial mistakes young adults make is not prioritizing savings. In your 20s, it might seem like retirement is a distant concept, but starting early can make a world of difference. 

Make it a habit to save a portion of your income, even if it’s a small amount. Set up an emergency fund to cover unexpected expenses and begin contributing to a retirement account, such as a 401(k) or an IRA. KNOW WHERE YOUR MONEY IS GOING. You never know when you might have to replace a tire or when you’ll lose a job.

2. Living Beyond Your Means

It’s easy to fall into lifestyle inflation, especially if your income increases as you progress in your career. You might think you deserve to experience life as a newly graduate, but it’s important not to live completely paycheck to paycheck or to even accumulate debt you don’t have to. Spending all your earnings on wants instead of needs can lead to debt and financial stress. Create a budget to track your expenses, live within your means, and allocate a portion of your income towards savings and investments.

3. Ignoring Debt Management

Credit cards can be a double-edged sword. While they offer convenience and rewards, they can also lead to crippling debt if misused. 

Avoid the temptation of maxing out your credit cards or making only minimum payments. Carrying a balance will hurt your credit score. Prioritize paying off high-interest debts, such as credit card balances, as soon as possible to save money on interest.

4. Skipping Financial Education

Many young adults enter their 20s without a solid understanding of personal finance. Don’t make the mistake of neglecting financial education. Invest some time in learning about budgeting, investing, credit management, and saving strategies. There are plenty of online resources, books, and courses available to help you become financially literate. Be careful where you get your information though. The foundations of personal finance can be learned with a few books. This post itself sums up personal finance in a short manner.

5. Not Building Credit Responsibly

Your credit history plays a crucial role in your financial life, affecting your ability to secure loans, rent an apartment, or even get a job. Avoid damaging your credit by paying bills on time, keeping credit card balances low, and monitoring your credit report regularly. Building good credit early will benefit you in the long run and can save you tens of thousands of interest over the life of a mortgage if you decide to buy a home. 

6. Buying A Brand New Car

You might think that because you’re finally an adult, you deserve a big boy/girl car. You want to show others that you are hitting a milestone, but this often hurts new college graduates. Buying a new car adds an additional financial obligation and debt. If you need a car, buy a reasonably priced car. You don’t need to “flex” to your friends and family with an expensive car. 

7. Pursuing An Advanced Degree Without A Plan

Most 20 year olds already have student loan debt. Do not add more student loan debt for a degree you don’t need. Most jobs do not require an advanced degree. Many people progress in their careers without a graduate degree. Not only does the financial cost of tuition hurt you, but you also miss out on the income you would’ve earned during your time in school. That’s a huge opportunity cost. 

6. Forgoing Insurance

Don’t try to save money by forgoing insurance or not getting enough insurance coverage. This goes for health and auto insurance. For health insurance, you might think you’re healthy, but insurance is meant for those worst-case scenarios. Auto insurance is also crucial for subsidizing the cost of repairing or replacing your vehicle if it’s in an accident. Your insurance will only cover you for a certain amount, unless another party is found liable AND has enough insurance coverage. 

Final Words

Your 20s are a pivotal time to lay the groundwork for your financial future. By avoiding these common financial mistakes and making prudent decisions, you can set yourself up for a lifetime of financial security and freedom. 

Remember that financial success is a journey, and every smart financial choice you make now will pay dividends down the road. Embrace financial responsibility, prioritize savings, and continue to educate yourself about personal finance to make the most of this transformative decade. Your future self will thank you for it.