Early adulthood is a fun time. You’re likely earning your first real paycheck and you are entering a new phase of life.
However, it’s easy to derail that when you commit serious missteps. Here are 12 financial mistakes to avoid making in your 20s if you’re serious about your money goals.
Table of Contents
Relying Too Much on Your Parents
Your parents love you and want to help when you’re in a serious bind. Don’t take advantage of that generosity.
It’s best to ask for help sparingly as you want to establish yourself. And don’t assume they’re always going to be there with a helping hand. Financial independence and maturity are too important to overlook by regularly going to your parents for aid.
Not Saving For Retirement
Retirement is decades away. We all get it. That doesn’t mean you shouldn’t start saving for it now. Time is the best gift you can give your money.
The earlier you begin, the less you have to save overall. If you have access to a 401(k) plan with a match, save at least enough to get the full match.
Ignoring Your Student Loans
Reports show the average 2023 graduate has nearly $35,000 in student loan debt. That’s a significant sum of cash for most new graduates.
If that’s you, don’t ignore them. Set up a plan to start repaying them as soon as possible. Missing payments can hurt your credit, which you don’t want.
Taking on Credit Card Debt
Surveys show the average graduate has nearly $4,000 in credit card debt. That pales in comparison to student loans, but don’t let it grow.
Credit cards aren’t play money. What you purchase with them must be repaid. Credit cards are a fantastic tool, but they can easily harm you if you misuse them.
Living Beyond Your Means
It’s tempting to buy nice things, but if spending goes beyond what you earn, it will turn into debt.
Identify what you earn and spend less than that. Your future self will thank you.
Not Beginning to Save
Like putting money away for retirement, saving is an essential life skill to develop. Don’t wait until you have a lot of cash to start. You can begin with as little as you want.
Select a high-yield online savings account, such as CIT Bank, and automate your savings. It’s easy to do and you’ll never have to remember to save again.
Avoiding Building Good Credit
Our credit scoring system isn’t perfect, but that’s not an excuse to ignore it. Make timely payments and don’t apply for too much new credit.
These habits will grow your score, making it easier to qualify for better interest rates when you need something like a mortgage or car loan.
Not Tracking Your Spending
Knowledge is power. Tracking your spending is the best way to gain knowledge of where your money goes each month.
Use a free budget app to help you do this and identify where you’re overspending and cut back.
Taking it Too Seriously
Many financial experts warn of all the ills of mismanaging your money. They also believe that if you occasionally splurge, you’ll give yourself over to financial hedonism.
When you’re measured, that’s not the case. Treat yourself from time to time. Life is meant to be enjoyed, after all.
Not Developing Multiple Streams of Income
Your job is one stream of income. Think beyond that. Most millionaires, for example, have at least nine streams of income.
This provides stability and the ability to increase your net worth. Side hustles, passive income, and more are all good options to select.
Not Having a Financial Plan
When you go on a trip, you may use Google Maps to guide you to the destination. Think of a financial plan as a similar kind of tool.
Not having a plan may leave you aimless and not help you focus. The plan doesn’t have to be in-depth to begin, but customize it to your goals and revisit it at least annually.
Ignoring Insurance Needs
You’re young, so why do you need insurance? Sadly, you’re not invincible, and you never know when it might be needed. It’s also cheaper to purchase when you’re younger.
Even if you want to put off life insurance, don’t overlook renters insurance if you don’t own a house. It’s incredibly affordable and protects you in the event of loss.
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I’m John Schmoll, a former stockbroker, MBA-grad, published finance writer, and founder of Frugal Rules.
As a veteran of the financial services industry, I’ve worked as a mutual fund administrator, banker, and stockbroker and was Series 7 and 63-licensed, but I left all that behind in 2012 to help people learn how to manage their money.
My goal is to help you gain the knowledge you need to become financially independent with personally-tested financial tools and money-saving solutions.