Don't make these money mistakes in your 20s

There is a lot of advice out there to tell you what you “should” do with your money, but we’re going to show you what you “shouldn’t” do with you money. Especially when you’re just starting out in the workforce and you’re in your 20s. This is a time you need to be focusing on finding a career, finding a place to live, and many other aspects which revolve around good money management.

Your 20s will be your first full decade away from home. That means it might be the first time your money management skills will be tested as you juggle entering the workforce, discovering what “paying the bills” really means, and trying to find time for a social life or a family. To help you navigate this exciting decade of life known as your 20s, here are a few financial pitfalls you should avoid.

Lets make sure you don’t make these five money mistakes in your 20s!

Not Living Like a College Student

Pitfall: You get your first real paycheck and immediately think of spending it all on expensive toys and experiences to “live for the moment.”

When you first graduate from college and receive your first paycheck that is as much as you earned an entire summer flipping burgers as a student, your first thought is to party and celebrate your new “windfall.” A handsome, steady paycheck is a blessing and something to be proud about.

Nobody expects you to live on Ramen noodles and leftover pizza for the rest of your life as you did during college, but, you can’t go to Outback Steakhouse every night and buy a $50,000 BMW sedan either. This level of long-term lifestyle inflation can quickly turn into a huge money mistake as the bills add up quicker than you can pay them. Before you know it, you are poorer than a college student.

Solution: Instead, live within your means. Make a budget to spend less than you earn every month. It’s that simple.

Not Saving for Emergencies

Pitfall: Approximately 24% of adults have no emergency savings.

With lifestyle inflation being a primary contributor, many Americans live paycheck-to-paycheck. This means if the car breaks down or they need to make a surprise trip to the doctor, they need to borrow money or carry a credit card balance until the bill can be paid. When these financial surprises happen, it only gets harder to break the paycheck to paycheck lifestyle.

Solution: Start by saving at least $500 into a bank account (check out BBVA) that you do not use to pay your regular bills. Ideally, you will try to eventually save between three to six months of living expenses to protect against expensive home repairs or an unexpected career change where you might not work for several weeks.

Make a plan to build your emergency. You might start with saving $50 a month until you can contribute more by cutting unnecessary expenses wherever possible. Trim Financial Manager is a free app that can help you cancel unused subscriptions and negotiate lower cable bills.

Not Investing

Pitfall: Many young adults think investing is for “old people” or they can catch up later when they have more disposable income.

Investing might be one of the last things on your mind. You might only view investing as a way to save for retirement. To a 21-year old, retiring is a long ways away. We might land on Mars before you retire. In reality, investing in your 20s is the best decade to invest.

Why? Your money grows with time and the stock market provides a better rate of return long-term than keeping all your money in the bank or underneath your mattress. Make the initial deposit and let the market do the rest of the work, that is Passive Income 101 in a nutshell.

Solution: To retire with a million dollars, start by investing at least $100 a month beginning today in a low-cost brokerage like Betterment. Every year you delay investing means you need to contribute more each month to catch up.

Use a free financial calculator like Personal Capital to track your investing goals. If you want to retire with more than a million dollars, Personal Capital can tell you how much you will need to increase monthly investments to reach your goals.

Another easy way to invest for the future is matching your employer 401k contribution. By simply meeting the match (i.e. 6% of your salary), you just technically doubled your total contribution as your boss gave you “free” money.

Investing is for more than just retirement. It’s also a good idea to open a taxable brokerage account also to build your net worth. Non-retirement investment accounts are a good way to save for other future goals like a home mortgage down payment or to simply get a higher yield on your savings than the near-zero interest rates most banks pay. As investing is somewhat volatile, only invest money you do not plan on needing within the next three years at the very least.

Only Making Minimum Loan Payments

Pitfall: Many people think they can only make the minimum monthly payment and must take all 5, 10, 15 years, etc. to repay their loans.

Student loans generally have a 10-year repayment term. Car loans can range anywhere from three years to five years. Both types of loans charge interest that can add thousands of dollars to the total cost of the loan. That’s money you could use to invest, save for a house, or take a vacation with instead of giving free money to the bank.

Solution: Make extra loan payments whenever possible, even if it is only $20 a month. You will save money in interest. Before making extra payments, make sure the extra money is applied to the principal. Some lenders consider additional payments as credit for next month’s payment and might not apply the extra money until next month’s due date meaning you could skip a payment without penalty.

By applying the extra payment amount to the principal every month, not as much interest will accrue on a month-to-month basis. Using a prepayment calculator can show how much money in interest you will save by paying your loan(s) off early.

If you’re interest rate is too high, then you might want to think about refinancing your student loans. A good resource for that is SoFi.


Your 20s are an exciting decade where you are just beginning a career, learning how money works, and maybe even transitioning from being single to starting a family. By avoiding the pitfalls mentioned in this article and proactively taking steps to live within your means and saving for the future will make it easier to manage your money as your salary and financial responsibilities increase in upcoming decades.

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One Comment

  1. Great advice. Wish I had read this 20 years ago! I think your comment about the student loans is spot on.

    I would add that you should be careful about asking for deferments, even if you would qualify. The interest will continue to accrue and then will get added to the principal when your payments start again. Student loan companies want you to pay them for the rest of your life – and this is one way they can insure that you will.

    In addition, most grads don’t even have a firm grasp on what they owe – so make sure you are keeping track of your loans and how much you are taking out. When I went to school, my mom managed all my loans – something I would never recommend if I had to do it again.

    Great article.