10 Financial Mistakes to Avoid Making in Your 20s
By Imani Williams
Your 20s can feel like endless possibilities, but they’re also crucial for setting up a solid financial foundation. Making smart money choices now can save you from regret in your 30s, 40s 50s, and even beyond. Here are 10 financial mistakes to avoid in your 20s and how to avoid them.
1. Ignoring Budgeting
Why it’s a mistake: Without a budget, you risk overspending and neglecting savings goals.
How to avoid it: Use budgeting apps to track income and expenses. Consider starting with the 50/30/20 rule: allocate 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment.
Check out our resources to help you with budgeting
- How to budget like a boss
- 16 Key Factors for Choosing The Best Budgeting App
- You Got Your 1st Job! Now what? Budgeting for Early Career Professionals
2. Delaying Student Loan Repayment
Why it’s a mistake: Interest accrues quickly, making your loans more expensive over time.
How to avoid it: Pay more than the minimum when possible, and consider refinancing for lower interest rates. If eligible, explore income-driven repayment plans to stay on track.
3. Living Beyond Your Means
Why it’s a mistake: Relying on credit cards or loans to maintain a lifestyle you can’t afford leads to debt traps.
How to avoid it: Distinguish between needs and wants, and prioritize living within your income.
4. Not Building an Emergency Fund
Why it’s a mistake: Unexpected expenses or losses in income can derail your finances if you’re unprepared.
How to avoid it: Aim to save 3–6 months’ worth of living expenses in a high-yield savings account. Start small and contribute consistently.
5. Neglecting Retirement Savings
Why it’s a mistake: The earlier you start, the more compound interest can grow your investments.
How to avoid it: Contribute to your employer’s 401(k), especially if they match contributions, or open an IRA. Even $50 a month can add up over time.
6. Not Establishing Credit Wisely
Why it’s a mistake: Poor credit habits can lead to higher interest rates on loans and difficulty renting or buying property.
How to avoid it: Use credit cards responsibly. Pay your balance in full each month, and never miss payments. Check out our article Credit Cards 101 to learn more about how to use credit cards responsibly.
7. Failing to Invest
Why it’s a mistake: Keeping all your money in a savings account means losing purchasing power to inflation.
How to avoid it: Explore low-cost index funds or apps like Acorns or Robinhood to start investing with small amounts.
We have a ton of resources at The Black Currency to help you Invest. Check them out below!
- 10 Must-Read Tips Before Using an Investing App
- Top 5 Investment Apps for Beginners
- Empowering the Black Community Through Investing Apps!
- Financial Empowerment: Investing Resources for the Black Community
- How Millenials & Gen Z Invest in 2024
- Social Media & Investment Trends: How to Use It to Your Advantage
- Pros and Cons of Robo-Advisors: Is it really okay to let AI invest for you?
8. Skipping Financial Education
Why it’s a mistake: Without knowledge, you’re more likely to make costly errors.
How to avoid it: Subscribe to TBC to stay informed and learn personal finance tips
9. Impulse Spending
Why it’s a mistake: Splurges on non-essentials can eat into your savings.
How to avoid it: Use our Free Guide for Conquering Emotional Spending to get to the heart of spending habits. This guide will teach you quick and easy ways to correct those habits and work towards your financial future.
10. Not Protecting Your Health and Finances
Why it’s a mistake: A medical emergency without insurance can devastate finances.
How to avoid it: Ensure you have health insurance and consider renter’s insurance if you rent. These protections can save you from unexpected costs.
Your 20s are a time to lay the groundwork for financial stability. You can set yourself up for a brighter financial future by avoiding these common mistakes and taking proactive steps.