12 Money Mistakes To Avoid In Your 20s

Money Mistakes to Avoid in Your 20s

Money mistakes happen often. But boy can they be costly!

Oh, to be young and fun. When I reflect on my life as I graduated from the university and became a full member of the working society, I think about the mistakes I made. And a lot of those were mistakes with my money. Yikes!

The most prominent of all my money mistakes would be spending frivolously and way too much on liabilities that looked good and felt nice to have. Some of which I seldom used, if ever; Clothes, shoes, accessories, home decor etc. Heck, I even bought mugs and bowls though I had enough just because they were beautiful to look at.

All that money could have served my life better locked away in a low-risk investment. I didn’t need to be almost 30 years old to start investing. I am happy to be wiser now and in a good place to share with you some key money mistakes you should avoid in your 20s. They have the potential to wreck you financially well into old age. Some might strike you as unusual or even surprising, but you’d understand the reasoning behind them. 

As I do so, it’s important you don’t judge yourself harshly when you discover you’ve been making such mistakes. No guilt or shame here friend. Awareness is the first essential step to positive change and you are on the right path. So let’s dive right in.

What are Money Mistakes in the first place?

Money mistakes are financial decisions or behaviours that end up costing you more money than they save you or prevent you from building wealth over time. They often seem harmless in the moment but can have significant consequences down the road if they become habits. 

In your 20s, it’s easy to feel invincible and think you have plenty of time to correct any monetary missteps. However, by developing smart money habits early on, you position yourself for greater financial success in the future.

Financial literacy isn’t an innate ability I get it. Nonetheless, the money moves you make in your 20s set the foundation for how you manage, save, and spend as you grow older. So avoiding common money mistakes now prevents you from having to do some difficult backtracking in your 30s, 40s, and beyond.

The Consequences of making Money Mistakes

Bad financial decisions are like bad tattoos — they can stay with you forever, and they can be painful to fix.

Mistakes made with money don’t just have a short-term impact. The real pain associated with bad money decisions in your 20s is the massive long-term losses in the form of opportunity cost. The consequences may not seem like a big deal today, but small everyday money mistakes can add up to thousands of dollars in lost wealth over time. 

For example, consistently spending above your means would mean constantly living paycheck to paycheck, no savings and ballooning debt. Not taking advantage of compound interest in your 20s by saving and investing early causes you to miss out on years of potential gains. Also, not having proper insurance can lead to financial catastrophe if life throws you an unexpected curveball like a medical emergency or car accident. Quite the lost opportunity eh?

Often times the real cost of your money mistakes aren’t related to money at all. It’s rather the emotional toll and money stress it drags into your life; The regret, shame, depression, anxiety and worry about your finances and the future. Things that could evolve to physical ailments and you might even make worse by trying to deal with them yourself or ignoring them altogether!

Many currently live with the negative effects of their decisions and suffer in silence. It’s not a state you want to be in.

Money Mistakes to Avoid in your 20s

So what are these slippery mistakes to avoid at all costs? Let’s look deeper into these twelve.

Money Mistake #1 – Not building high-income skills

Not building high-income skills in your 20s like it or not is a major money mistake. You are basically neglecting to develop talents, abilities, and credentials that could boost your earning potential later on.

This stage of life is the ideal time to aggressively build real income-generating skills such as programming, data analytics, marketing, or project management that lead to a high income for multiple reasons. You likely have fewer responsibilities like family obligations, which allows more time to dedicate to career advancement. Taking this step early on also means you have more of your prime earning years to benefit from the increased income. 

Fact is, developing technical abilities and professional expertise gets harder as you age. Investing in education and training is typically much easier when you are younger before other financial burdens set in.

How to avoid it:

Identify growing fields like software engineering, digital marketing, data science, or finance that you could excel in, and work toward gaining the education and experience to enter or advance in those professions. 

Take advantage of any on-the-job training and absorb as much knowledge as possible. Consider earning more degrees or certifications that will boost your earnings potential. Build a professional network and online presence to surface new high-income job opportunities. The in-demand skills you gain now can pay dividends for decades to come!

Money Mistake #2 – Having no set goals for your money

Without clear money goals, it’s easy to be impulsive and let your finances spiral out of control. Not defining any money goals means you have no roadmap for earning, budgeting, saving, and using your money. For instance, you may splurge on fun impulse purchases like gadgets, clothing, or travel without planning for those expenses. 

No goals also mean you likely aren’t saving adequately for key priorities like an emergency fund, retirement or loans. This leaves you stressed when unexpected costs come up or important milestones approach.

How to avoid it:

It’s important to set financial goals around everything including enjoyment spending but do so intentionally. Identify specific short and long-term financial goals with target savings amounts and deadlines. Make goals around discretionary spending like travel, dining out, or hobbies. Prioritise these goals, create a budget that aligns with them, and choose financial products that help you achieve them.

Regularly review and update your goals as needs change. Setting clear money goals gives direction and purpose to how you manage, save, and use your money.

Money Mistake #3 – Not being frugal

Frugality gets a bad reputation as being cheap but it’s really about maximising value.  Not embracing frugality is one of the common money mistakes young adults make. Living frugally means focusing your time and money on the things you value most while minimising excess and waste. 

For example, it could mean being strategic about happy hour discounts or buying quality used goods. It’s not about depriving yourself but being intentional with spending. Not utilising frugality principles like comparison shopping, DIY opportunities, or negotiation means you might overspend for what you get. This slows down important financial events for you like debt payoff and accumulation of savings.

How to avoid it:

Constantly ask yourself if purchases are worth the price and aligned with your goals. Seek out discounts, deals, and cheaper alternatives without sacrificing quality. Because just as Benjamin Franklin said, “The bitterness of poor quality remains long after the sweetness of low price is forgotten”.

Learn to enjoy free and low-cost activities. Utilise parks, recreation centres and other free community assets. Follow frugal influencers for inspiration. Embracing frugality gives you the most bang for your buck and sets you up for long-term financial success.

Money Mistake #4 – Not tracking income and expenses 

Not tracking your income and expenses closely is a huge blindspot. It is a woefully underrated financial exercise and one that can save you tons of money and energy!  Without detailed tracking, you lack certainty on where your money actually goes.

Not monitoring cash flow in versus out also means you have no data to build an accurate budget on, identify spending leaks, or make informed financial decisions. You may underestimate recurring costs like eating out, ride shares, or subscriptions that bleed you dry over time and blow your budget. Not tracking income and expenses means you can’t course correct or optimise spending to align with your financial goals.

How to avoid it:

To avoid this mistake, rigorously track your income and every expense using an app, spreadsheet, or notebook. Old-fashioned me uses a notebook and it works just fine. Start with a month of tracking, then a second month, and a third, then keep going. You can learn how to track your expenses in 3 simple steps.

Categorise the spending and look for trends over time. Use this data to build a realistic budget that maximises value. Regularly review the numbers to catch budget busters early, like that extra streaming service. Closely tracking your money gives you the awareness needed to manage it most effectively no matter what your income level is.

Money Mistake #5 – Not using a spending plan (a.k.a Budget)

Not using a spending plan or budget can be a costly mistake. You have little control over where your money goes each month if you work without a budget. Worse still, wants end up being bought before your actual needs!

You may be overestimating what you can realistically afford for housing, entertainment and groceries, and overspend in certain areas while neglecting savings. Such a “wishful thinking” approach to spending leads to debt and other issues that come up when expenses exceed income. Not budgeting also makes it impossible to plan ahead adequately for both monthly expenses and long-term goals.

How to avoid it:

Tell your money where to go instead of wondering where it went. Create a good budget that allocates every amount earned to planned expenses, debt payments, and savings based on actual income. Using a budget is how you make your money work for you. 

A budget helps you spend only what you have, not what you hope to have in the future. It is wisdom to not spend what you don’t have yet. Use a budgeting tool to track all spending against your plan. You can learn the budgeting basics and the common budgeting myths and mistakes so your budget is successful.

Money Mistake #6 – Living beyond your means

Overspending on material things like gadgets, clothes, and housing feels good in the moment but also sets you up for money struggles. Grabbing the latest iPhone every year is an expensive habit when a model just a few years old works great. Getting trapped into sky-high rents to live in trendy neighbourhoods strains your pocket.

Buying status symbols you can’t actually afford like luxury cars and designer goods leads to unnecessary debt, stress, and financial instability. Prioritising appearances over prudence always puts you on shaky financial ground.

How to avoid it:

Establish your needs versus your wants and separate must-haves from nice-to-haves. Be practical when choosing options for housing, transportation, gadgets, and your lifestyle in general. Build your savings and pay off debts before upgrading to pricier indulgences. ‘You only live once’ is a true statement, but you need your future to be a financially secure one too. Moderation and financial mindfulness is key.

Money Mistake #7 – Not building your savings & emergency fund

Not steadily building your savings and establishing an emergency fund in your 20s is an overlooked yet critical money mistake. Without savings, you have no safety net. You risk spiralling into debt or tampering with invested funds when unexpected expenses inevitably come up.

Not having 3-6+ months of living expenses saved for emergencies at least is a trap with long-term negative consequences. Plus, not having savings also means missing out on interest income and the ability to capitalise on good investment opportunities. Remember what we said about lost opportunity cost earlier?

How to avoid it:

Make savings an essential part of your monthly budget. You must pay yourself first! Consistently set aside money from every paycheck into savings. You can make this process seamless by setting up automatic transfers from the earnings account to savings account. Or set aside a percentage of each paycheck. 

Create an emergency fund to a healthy amount before focusing on other goals. Consistent saving gives you stability, optionality, and resources to weather life’s unpredictable events.

Money Mistake #8 – Wracking up unnecessary bad debt

Bad debt is basically debt taken on to purchase depreciating assets, for discretionary consumption, or for other purposes that do not improve your financial standing. Like when you take a personal or payday loan to finance things like weddings, vacations, furniture, fashion items, and nights out that you can’t afford.

You easily trap yourself in a hole of debt that is not easy to escape. Too much debt damages your credit scores, mental health, self-esteem, reputation, and ability to achieve financial goals for decades. It also makes you very vulnerable if your income changes, like with a job loss. It is unfortunate how this happens to be one of the commonest money mistakes out there. Avoiding bad debt is critical to financial security.

How to avoid it:

By all means possible, steer clear of this mistake. Live below your means, save up to buy desired items in cash, create an emergency fund, and spend only on needs until high-interest debts are paid off. If you feel you must get a loan, go through this 5 question filter test first.

A lifestyle of intentionality and frugality prevents you from incurring harmful debt that limits your future opportunities and freedom.

Money Mistake #9 – Investing in scams and things you do not understand

Investing in scams or complex and esoteric financial products you don’t fully understand can have disastrous effects on your finances for years to come. The allure of getting rich quickly, greed and FOMO are just some of the drivers for making such wrong moves.

Things like Ponzi schemes and risky derivatives offer the promise of massive returns but are extremely speculative and often fraudulent. If it sounds too good to be true, it usually is. Investing in anything you don’t thoroughly research and understand is a bad move. You’re basically gambling and likely to lose money which damages your ability to grow wealth properly over time.

How to avoid it:

Avoid this catastrophic mistake at all costs by thoroughly vetting every investment opportunity that comes your way and asking tons of questions. Protect yourself by focusing on reasonable returns over speculation. Walk away from anything you can’t understand or justify with facts. Afford yourself the priceless peace of mind.

Boring, diversified investments like low-cost index funds may not seem sexy now but are the safest way to build wealth slowly over decades. You can read guide to start making smart investments. 

Money Mistake #10 – Going along with every money trend

Blindly following popular money trends in your 20s without evaluating your specific situation is an error that could undermine your finances. Personal finance is personal, so what works for others may not benefit you.

Jumping on money bandwagons like investing heavily in cryptocurrency because “everyone else” is can backfire. A better strategy might just be boosting your retirement contributions. Going along with a trend just because it’s popular on social media or you have FOMO is reckless if it does not align with your goals. Copycat finance removes critical thinking. What is good for the goose is not always good for the gander people.

How to avoid it:

Focus on your unique situation and goals. Do your homework before adopting any money advice to ensure it makes logical sense for improving your finances, not just because it’s a buzzy trend. Listen to your intuition. Trust your judgment over hype – personal finance is a marathon after all, not a sprint. Making smart moves over time leads to lasting wealth.

Money Mistake #11 – Sticking with the wrong circle of people 

Surrounding yourself with people who have destructive financial habits will infect your money mindset. It can also undermine your smart decisions. Don’t be deceived. Money attitudes and behaviours are super contagious.

Friends and family who are careless with spending, debt, and saving will normalise and validate these bad habits that sabotage your finances over time. Getting caught up in an unhealthy work hard, play hard culture leads to poor trade-offs. Having spendthrift romantic partners breeds financial resentment. You become a product of the financial attitudes around you – for better or worse.

How to avoid it:

Avoid this insidious mistake by intentionally expanding your circle to include more financially prudent, goal-oriented people. Their wisdom and example will inspire you to be smarter with money. There is such great power in being aligned with an impactful community.

Seek out coaches, mentors and friends who share your values around personal finance. Cut back time with spendthrifts who drag you down. Surrounding yourself with financial role models is imperative for growth.

Money Mistake #12 – Marrying a financially foolish partner

Marrying a financially reckless romantic partner lays the groundwork for major money conflicts and unnecessary stress. A partner who is impulsive, lies about money, spends excessively, or lacks financial literacy will make the relationship a bad rollercoaster experience.

Ongoing money disputes often lead to financial infidelity and financial abuse when values don’t align. Debt and assets must be managed jointly after marriage which is extremely difficult to do well with a financially foolish spouse. That’s the bitter truth. Even with a prenup, their poor financial behaviour will still impact you daily. Who wants that kind of hassle?

How to avoid it:

Choose a spouse who shares your financial values, transparency, and responsibility. Don’t ignore red flags around their spending, saving, or money mindset. Have tangible money conversations and address concerns before committing. Seek counselling if needed to get on the same page. Financial compatibility is crucial for long-term relationship health. And hey, your lifelong financial well-being largely depends on who you hitch your wagon to.

In Conclusion

We elaborated on twelve money mistakes you should avoid in your 20s. Key things that can easily hold you back from achieving financial security and prosperity. Things like not tracking your income and expenses and not building your savings, and also how to avoid them.

The really cool thing is that anyone can turn things around and build good money habits that give them a strong financial foundation. And no, you’re not late or stupid. It is vital that you forgive yourself for every past mistake and look ahead with hope and vigour. 

Now that you know better, you can do better. Should you want to have a discussion with a financial coach, you can book an appointment.