9 Money Mistakes To Avoid Making In Your 20s

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money mistakes to avoid in 20s

Everybody makes mistakes. But what if your mistakes could lead to a seriously bad financial situation? If you are one of the 65 million or so U.S. residents older than 19 but younger than 30, it’s smart to build sound money habits as soon as possible. Most adults get their first permanent job while in their twenties, which makes it the perfect age range in which to focus on long-term financial health.

Here are nine money traps that young adults often fall into when it comes to building long-term financial health, along with suggestions for avoiding each one:

1. Not Setting a Budget

One of the most common money mistakes to avoid relates to budgeting your income. Not setting a detailed budget quickly leads to a lack of savings, even among people with the best of intentions. Take the time to create a list of all your sources of income and expense. Be careful to include due dates for each monthly bill, a full list of bills you pay once per year, and any one-time expenses you have for the year.

2. Not Spending Wisely

Young people typically don’t have set spending patterns, which is to be expected. But if you tend to over-indulge at times and far exceed normal spending limits, perhaps you’re a candidate for a bit of fiscal restraint. Here’s what to do: Allot a finite amount of “spending money” for each week. Make sure the amount fits into your monthly budget (see point 1. above). If the money runs out too soon, simply forego those little luxuries you enjoy so much. When next week begins, you’ll be ready to monitor your spending a little more closely.

READ: 11 Ways To Cut Your Grocery Budget In Half

3. Accumulating Credit Card Debt

For certain personality types, this is the most difficult of all money mistakes to avoid. It’s tempting to use plastic when you don’t have the funds for a particular expenditure. While that might be okay on rare occasions, the “spend it when you can’t really afford it” habit can deal a crushing blow to your financial health. Try to pare down your credit card use. Consider giving up a few cards and keeping just one or two for emergencies and to build credit.

4. Not Saving For Emergencies

money mistakes

Financial planners have been telling people for decades to set aside at least three-months’ salary for emergencies. This is usually enough to cover a short spate of unemployment, a major car repair or an unexpected medical bill. The key is to start now. Use your budget to set up a plan that will allow you to save a specific amount each month for an emergency fund. If it takes three months or two years, you have to do it because you never know what life has in store.

READ: 7 Savings Goals To Reach In Your 20’s

It’s so much easier to start a building an emergency fund thanks to apps like Qapital and Digit. These free apps can help you put money away automatically so you can save for things that are most important. With goals and rules, you can supercharge your savings with minimal effort.

5. Living At (Or Above) Your Means

It’s easy to get wrapped up in social trends, to want the latest fashions, to take vacations a couple times each year and to just spend like you don’t have to worry about money. The fact is, most people have to keep an eye on their spending in order to avoid going broke. To avoid living too far above your means, look at your monthly budget and set a reasonable amount of “discretionary” spending for each month. Ration this money any way you want. Some people find that keeping it in an envelope, in cash, is an effective way to keep track of every dollar you spend. In the old days, financial advisors called this the “envelope system,” and it works very well for most who use it.

6. Thinking Money Is Everything

It might seem odd as part of a discussion about fiscal responsibility, but it’s important to remember that money is not the center of life. It’s an important part, to be sure, but be careful not to become one of those twenty-somethings who live for the sole purpose of accumulating money. Money is a means to something else, not the goal. Whether your goals are starting a family, traveling around the world, retiring early, helping to support charitable causes or simply to live a quiet, comfortable life, money can get you there. Value your goals more than the money and your life will be more fulfilling in the long-run.

7. Not Tracking Your Money

bad money habits in your 20s

If you have good intentions about saving and financial planning but just can’t seem to put away anything for a rainy day, your problem might be an inability to track where the cash is going. Of course, a budget is the central tool for this task, but it’s helpful to sit down and map out a typical month of income and expenses to get a feel for where your money goes. Use your phone or a piece of paper to write down every dollar you spend for a week. This is an effective, and very old method, for teaching you to keep track of your money.

8. No Long-Term Financial Strategy

A monthly budget only lasts for a month. What about retirement? What about that big vacation you want to take five years from now? Too many young people lack a long-term financial plan. Spend time to make a list of your long-term goals along with the estimated costs of what it will take to achieve them. In addition to a monthly budget, create 1-, 3-, 5-, 10-, 20- and 30-year budgets as well. Hire a financial planner to help you, if necessary. It won’t cost much, and you’ll be getting some valuable input from a professional.

9. Not Building Good Credit

When you are in your twenties and just starting to build a credit history, it’s way too easy to let things go awry. Overspending, not having a budget, not keeping track of spending and other pitfalls can quickly lead to a so-so credit score that can turn into bad credit within a decade. Then, you face the prospect of having to go through the slow process of rebuilding your credit. Better to begin now by using credit cards wisely, saving money and paying every bill on time.

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