Top 15 money-related mistakes to avoid in your 20s| Tips to avoid these financial mistake

Your 20s are a critical time for setting the stage for your financial future. It’s when you’re likely starting your career, possibly moving out on your own, and beginning to navigate the complex world of personal finance. It’s also a time when you’re most vulnerable to making money mistakes that can haunt you for years. The good news? These mistakes are totally avoidable! This isn’t about being perfect; it’s about being aware. We’re going to break down the most common money pitfalls and arm you with the knowledge to make smart choices. From overspending to ignoring your credit score, we’ll cover it all.

Not Building an Emergency Fund:

If you don’t have an emergency fund, you’re essentially without a safety net for unforeseen expenses or financial disruption. If you simply do not have money saved, you may have to rely on high interest debt or borrowing from a friend, friend or family member. This would put you in a cycle of anxiety and disruption. An emergency fund provides a buffer for life’s surprises. It benefits your financial health by providing support.

• Mistake: Being unprepared for unexpected expenses like medical bills or job loss.
• Tip: Save 3-6 months’ worth of living expenses in a high-yield savings account. Start with $1,000 and build from there.

Not Having Health Insurance:

If you cannot access health insurance, you risk exposing yourself to potentially overwhelming financial liability in the event that you experience an unexpected medical emergency. Without insurance, even one hospital visit or serious illness can lead to staggering medical bills that can wipe out your savings, force you to liquidate your assets, or result in you accruing long-term debt. It is a risky venture that can have overwhelming financial hardship and consequences.

• Mistake: Skipping coverage to save money, risking massive medical bills.
• Tip: Enroll in a plan through your employer or the marketplace. If under 26, stay on a parent’s plan. Consider high-deductible plans with HSAs for savings.

Falling for Get-Rich-Quick Schemes:

Get-rich-quick Schemes are scams that promise unrealistic returns with relatively little work. They exploit people’s hopes and bypass common sense. You will not get rich, and you likely will end up losing money, while the scammer earns an off-the-charts return. Get-rich-quick schemes are shortcuts that cost you both financially and emotionally.

• Mistake: Investing in risky ventures like crypto scams or pyramid schemes.
• Tip: Research investments thoroughly. Stick to proven strategies like diversified portfolios. If it sounds too good to be true, it probably is.

Not Budgeting:

Not having a budget is like driving with a blindfold on. Without an established plan, you will not know how much you are spending, which leads to overspending, missed payments, and anxiety around your finances. You will probably find yourself wondering where your money went and dealing with debt instead of accomplishing your financial objectives.

• Mistake: Spending without tracking where your money goes.
• Tip: Use a budgeting app like YNAB or Mint to categorize expenses. Follow the 50/30/20 rule: 50% needs, 30% wants, 20% savings/debt repayment.

Accumulating Credit Card Debt:

Using a credit card is like borrowing money at a high interest rate to purchase everyday items. Once you don’t pay off the full balance, you’ll be charged interest and your account balance will grow. The interest fees can exceed the amount you initially purchased or borrowed, thus becoming worrisome when you look to pay the balance off down the line; now costs generally exceed just simply the scheduled payments.

• Mistake: Using credit cards for non-essential purchases and only paying the minimum.
• Tip: Pay your balance in full each month. If you have debt, use the avalanche method (pay off high-interest debt first) or snowball method (smallest balances first).

Not Investing Early:

If you don’t invest early, you will lose the opportunity to allow compounding to work its magic, where you will earn returns on your returns. If you delay, it will only force you to save more money later, which only makes reaching your financial goals even less likely. Starting early, no matter the amount, gives you a huge head start on building wealth.

• Mistake: Avoiding the stock market due to fear or lack of knowledge.
• Tip: Start with low-cost index funds or ETFs through platforms like Vanguard or Fidelity. Even $50 a month compounds significantly over time.

Living Beyond Your Means:

Living beyond your means is just spending more money than you are making. Imagine trying to fill a small cup full of water with a large amount, the extra water is just going to spill everywhere and become a hassle. Living beyond your means can happen when people are using a credit card or loan to continue a lifestyle that is out of their financial reach completely. This may feel good to that individual during the time, but it ends up creating more debt, worries about finances, and inability to save for their future (i.e: home or retirement), leaving their financial situation feeling more unstable and out of their control.

• Mistake: Spending more than you earn, often to keep up with peers.
• Tip: Prioritize needs over wants. Create a realistic spending plan and stick to it. Avoid lifestyle inflation when your income increases.

Ignoring Student Loan Repayment Options:

Neglecting your options for repaying student loans is similar to sitting back and watching a small leak in your pipe turn into a major flood. When you are not aware of the various plans that are available to you, and you stick with a plan that is too far above your budget, you run the risk of missing payments, which has major implications to your credit and can lead to your wages being garnished. For the record, there are usually options based on your income that could make your payments a lot more manageable, or there may even be programs that will forgive your loans after a certain period of time. By ignoring these options, you are missing out on relief, and are only allowing the problem to become an even larger, more expensive problem to fix.

• Mistake: Missing payments or not exploring income-driven repayment plans.
• Tip: Research federal loan forgiveness or refinancing options. Make payments on time to avoid penalties and credit score damage.

Failing to Build Credit:

Not having credit means lenders have no way to assess your financial history, similar to trying to find a job without a resume. When you are needing to borrow money for key items like a car loan, an apartment, or even a cell phone plan, companies cannot reliably gauge whether you will pay them back. With no credit history, you are merely a high-risk stranger to them – even more so if you’re under 30. So, unless you are seeking a loan at an outrageous interest or they are willing to take a calculated gamble that you will pay, they’ll simply decline your request. Effectively, you have to pay more for the items you need and spend extra time completing obstacles to prove you can manage debt responsibly.

• Mistake: Avoiding credit cards or loans entirely, resulting in no credit history.
• Tip: Use a secured credit card responsibly. Pay on time and keep utilization below 30%. Monitor your credit score with free tools like Credit Karma.

Ignoring Side Hustles or Income Growth:

If you neglect side hustles or increasing your income, it is like running a race but remaining at the starting point. You are putting everything behind one single source of money, your job, to provide for all your costs, hopes, dreams, and savings. You might be even more squeezed when emergencies happen in your budget when you eventually need to pay for the unexpected or inflation raises the cost of living, Yet your income does not increase to keep up with these rising costs. Hence, you’re financially vulnerable and are making it so much harder to advance, pay down debt, or build actual wealth. By not considering even a small extra to earn a side hustle, you are missing out on an incredible safety net and an opportunity to create a more secure and comfortable future.

Mistake: Relying solely on one income source without exploring raises or gigs.
Tip: Negotiate your salary, freelance, or monetize a skill (e.g., tutoring, graphic design). Use extra income to save or pay off debt.

Co-Signing Loans Without Caution:

When you cosign for a loan without diligence, you are in effect giving away your financial future and trusting someone with it. You are promising the bank, if the other person cannot or won’t pay for the loan, to pay back the whole loan yourself. Not just a friendly favor; it is a significant legal obligation. If the primary borrower misses one payment, it is damaging to your credit history, and you might find it difficult to get your own car loan, mortgage, or apartment. You are now the principal borrower for the debt. This can jeopardize or ruin relationships and may jeopardize your own financial security.

• Mistake: Co-signing for friends or family, risking your credit if they default.
• Tip: Avoid co-signing unless you can afford to pay the loan yourself. If you must, set clear repayment expectations.

Not Learning About Personal Finance:

Not being educated on personal finance is like trying to find your way around a new city with no map and no GPS. You may have money coming in, but without some simple understanding of how to budget, save, invest, or stay out of debt, you’re going to be guessing the entire time, which leads to costly errors like overpaying on credit card interest, or the anxiety of not being able to make your savings work for you. You will simply be in a constant reactionary mode to financial emergencies rather than being proactive, and the stress of that reaction only makes it tougher to achieve your goals of buying a house or retiring comfortably. You are essentially totally at the whim of chance regarding your financial future.

• Mistake: Staying clueless about taxes, investing, or debt management.
• Tip: Read books like I Will Teach You to Be Rich by Ramit Sethi or listen to podcasts like The Money Guy Show. Follow finance creators on X for tips.

Overpaying for Housing:

Overpaying for housing is spending so much of your income on your rent or mortgage that you hardly have enough to spend on everything else. Your home has consumed your entire paycheck. With the limited amount of funds you have left, you have to spend it all the same way week to week, making it difficult to save for the future, repay debt, or even pay for everyday necessities such as groceries, utilities, and car maintenance. This leads to a never-ending cycle of financial draining that leaves you in a position where one expenditure can be a major crisis simply based on your housing costs being too high for your budget.

• Mistake: Renting or buying a home that eats up too much of your income.
• Tip: Keep housing costs below 30% of your gross income. Consider roommates or less expensive areas to save.

Spending on Unnecessary Luxuries:

Using money on luxury wants means you are going to be spending on something you don’t need, and often before your actual financial baselines are met. Think of it like decorating the roof of your house before the foundation is laid. Once in a while treating yourself is fine and everyone should, but if you’re constantly spending on expensive brands, dinners, or the newest technology while being in debt or without savings, it can be incredibly harmful. You are utilizing cash that you should be saving for true emergencies, your future goals, or bills that truly need to be paid. When you do this and, if you add all the debt and features up, you create a fragile financial condition where real, long-term financial security, is impossible to build.

• Mistake: Splurging on designer clothes, frequent dining out, or expensive gadgets.
• Tip: Practice mindful spending. Ask, “Do I need this, or do I just want it?” Wait 48 hours before big purchases.

Not Starting to Save for Retirement:

When you put off retirement savings, it’s like showing up late to a party after all the free food is gone. The most significant factor in accumulating retirement savings is time, as it inherently allows your money to grow through compounding. Every year you delay costs you an opportunity you can never get back. Consequently, after delaying savings, you will ultimately need to save substantially more later in life to even approach getting back on track. The impact on your future-self is often stressful and imposing. Without starting early, your, having enough to stop working comfortably is put into question, and this may mean you would have to work longer or have little to live on when you are a senior adult.

• Mistake: Thinking retirement is too far off to prioritize.
• Tip: Contribute to a 401(k), especially if your employer matches. Start with 5-10% of your income and increase contributions over time.

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