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You need to be careful with your money — because the decisions you make today could haunt you for years. Avoid making these major money mistakes in your 20s, and you’ll set yourself up for life.

Tips for managing money in your 20s

1. Starting bad habits with credit cards

Using a credit card for every purchase is can blow through your budget
TZIDO SUN / Shutterstock
Using a credit card for every purchase can blow through your budget

Americans ages 18 to 34 carry a staggering $36,000 of debt, on average, a 2018 Northwestern Mutual survey found. While student loans are responsible for 21% of that debt, another 20% is from credit cards.

Using your credit card for every purchase is the fastest way to get sucked into this nightmare. With credit card interest rates approaching 20%, an unpaid “$10,000 of debt can turn into $24,883 in just five years,” warns business consultant Larry Alton.

So, don't buy anything on credit unless you can pay it off quickly. And, get into the habit of paying your entire credit card bill in full each month.

2. Not setting financial goals

Set a financial goal then make it happen!
tanialerro.art / Shutterstock
Set a financial goal then make it happen!

Saving for your financial goals as an adult isn’t so different from saving up your allowance to buy a game or gadget when you were a kid.

Financial goals can be short term — like saving for a much-needed vacation — or longer term, like building up down payment money for a home, or investing your money in stocks.

The first step is to pick a goal. Then, look at your monthly income and your spending on basics and recurring bills. Any funds left over can be put toward making your dream a reality.

3. Not saving for emergencies

You never know when an emergency bill will show up
Ceri Breeze / Shutterstock
You never know when an emergency bill will show up

In your 20s, you might be living paycheck to paycheck, making just enough money to pay the bills — like 78% of Americans, according to a study from the jobs website CareerBuilder.

But if you don't have money saved in an emergency fund, you’ll find yourself in serious financial trouble if your car dies or you get a broken bone.

You need to put aside enough money to cover three to six months' worth of living expenses, just in case. If you've got debt to pay off, start with a small amount of emergency savings — and gradually strengthen that safety net.

4. Spending more than you're earning

If you spend everything you make, you'll have nothing left to build a future
pathdoc / Shutterstock
If you spend everything you make, you'll have nothing left to build a future

It can be tempting to spend way too much on vacations, clothes, cars, furniture for your first real home, or even items for the nursery when it's time welcome an addition to your family.

But when your paycheck doesn't go far enough to cover those things, you find yourself forced to rely on credit. Hello debt cycle!

Spare yourself this nightmare and live within your means. Shop for deals, ask around for hand-me-downs, and search for bargains on Craigslist. And above all, avoid buying expensive items to impress people.

5. Putting off saving for retirement

Your 20s are the perfect time to start saving for retirement
polymanu / Shutterstock
Your 20s are the perfect time to start saving for retirement

If retirement is the last thing on your mind, you’re not alone: 66% of Americans ages 21 to 32 have nothing saved for retirement, reports the National Institute on Retirement Security.

Yet your 20s are the perfect time to start saving. Thanks to the magic of compound interest, your savings can really mushroom, especially if you begin early.

Try to work your way up to putting 15% of your income into a 401(k) plan or other retirement fund. If you work for an employer that matches your contributions, take advantage — it’s free money!

6. Always buying the cheap stuff

Shopping cheap isn't always the most cost-effective option
Sorbis / Shutterstock
Shopping cheap isn't always the most cost-effective option

Even when you're working with a smaller budget, buying the cheapest versions of everything isn't the smartest strategy. Often, you'll save money in the long run if you wait until you can afford better goods that will last longer.

The next time you’re shopping, ask yourself “Is this the best quality I can afford?” says Madeleine Somerville, a blogger and the author of All You Need Is Less.

“Buying something once, and buying it well [means] making an investment instead of just a purchase,” she says.

7. Not building good credit

Poor credit can get in the way of finding a home, job or car
Casper1774 Studio / Shutterstock
Poor credit can get in the way of finding a home or even job

Letting debt grow instead of paying it off can destroy your credit score — and that’s bad news if you want to get a mortgage, buy a car, sign a rental agreement or even land a job.

Nearly all lenders and some employers check credit scores before taking you on board, so there’s no better time to build good credit than now.

To start, get a single credit card with a low limit and make sure to pay your entire bill every month. Using and paying off your credit regularly will have your credit score looking great in no time.

8. Not springing for insurance

Insurance is there for when the unexpected happens
Elnur / Shutterstock
Insurance is there to protect you and your things

As a healthy 20-something, it’s tempting to think you can avoid getting health insurance. And what’s the point of renter’s insurance if you’re a responsible tenant?

But the thing is, you never really know what's coming. Making small monthly insurance payments may save you a world of grief if you’re hit with a $10,000 medical bill, or if someone breaks into your apartment and steals your high-end laptop.

Without insurance to help with those sorts of expenses, you may have to dip into your savings or resort to expensive high-interest credit.

9. Setting the wrong debt priorities

To get ahead, pay off bad debt first
shurkin_son / Shutterstock
To get ahead, pay off bad debt first

Not all debts are created equal.

Good debts, like your student loan or a home mortgage, help you improve your financial position, and they usually come with lower interest rates.

Bad debts include maxed-out credit cards or that luxury car you really can't afford. Prioritize paying off bad debt first to avoid extra interest, lower your credit usage — and save your credit score.

10. Procrastinating with investing

Investing with apps is so easy, anyone can do it
Rawpixel.com / Shutterstock
Investing apps are easy to use for beginners

Financial advisers agree that investing is the fastest and way to build your wealth. Starting in your 20s will give your money time to grow into a big future payout.

Online investment platforms make investing easier than ever. Apps and automated investing services like Wealthsimple use computer algorithms to create and monitor your ideal portfolio of stocks and bonds, and get you the best returns.

You can even set up automatic deposits into your investment account — so you can grow your wealth while you sleep.


This 2 Minute Move Could Knock $500/Year off Your Car Insurance in 2024

Saving money on car insurance with BestMoney is a simple way to reduce your expenses. You’ll often get the same, or even better, insurance for less than what you’re paying right now.

There’s no reason not to at least try this free service. Check out BestMoney today, and take a turn in the right direction.

Esther Trattner Freelance Contributor

Esther was formerly a freelance contributor to Moneywise.


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