When you’re in your 20s, it’s the perfect time to learn to balance your financial obligations while making short- and long-term goals. Building good habits now can help you avoid making common mistakes in the coming years and help set you up for financial success.
Here’s a list of 20 common money mistakes to avoid in your 20s.
- Spending More than You Make
- Not Tracking Your Money
- Not Setting Financial Goals
- Dependence on Credit Cards
- Lacking an Emergency Fund
- Telling Yourself Financial Lies
- Not Taking Advantage of Free Time to Earn Extra Money
- Putting off Retirement Savings
- Not Taking Calculated Risks
- Allowing College Expenses to Balloon
- Paying off the Wrong Debts
- Not Building Good Credit
- Not Knowing Your Credit Score
- Going into Debt for Luxury Items
- Careless Spending
- Not Having Renter's Insurance
- Not Having Health Insurance
- Not Discussing Finances with Your Significant Other
- Going into Debt for a Wedding
- Starting a Family without a Financial Plan
1. Spending More than You Make
If you're in the habit of spending your paycheck the second it hits your bank account, now’s the time to reevaluate that plan for the long term. Some spending habits and mistakes can lead you to financial insecurity, especially if you’re spending more than you make and going into debt to make ends meet.
Try to look for opportunities to cut back on spending and put that money toward paying bills or building your savings instead. If you bank with Huntington, we offer digital tools, such as Spend Analysis, to help you track your spending in categories like groceries and entertainment. Then, we analyze your expenses so you can easily see exactly where your money is going.
2. Not Tracking Your Money
A common money mistake young adults make is losing track of their finances. Do you check your bank account frequently? How much money do you spend on groceries each week? Have you looked at how much your electricity bill costs month over month? Knowing the answers to financial questions like these is key to managing your money effectively.
Making and keeping a budget can be a helpful way to track your finances each month. Huntington has Spend Setter℠, a tool that lets you set budgets for categories where you can tighten-up your spending. We'll let you know how you're doing along the way.
3. Not Setting Financial Goals
If you don’t set specific or measurable goals for the future, then it might be more difficult for you to budget, save, and manage your money in the present. This mistake could cost you more in the long run, such as ignoring your long-term savings, overspending on items that only offer instant gratification, or not paying down on any existing debt you may have, which can accrue interest over time.
Financial goals can vary from person to person—the future looks different to everyone depending on their needs and desires. Take the time to write down your goals and make an action plan to achieve them in a realistic time period.
4. Dependence on Credit Cards
It’s easier than ever to add charges to your credit card without much thought. You might have put your credit card information on a website that lets you make continuous online purchases with a single click. While you’re on the go, you may swipe your credit card at a café for a cappuccino, at the gas station for a fill-up, or at a restaurant for drinks after work. Such heavy dependence on credit cards for daily expenses can become a habit that leads to interest charges, debt, and even a poor credit score.
Instead of relying on your credit card for every purchase, try to pay for simple items with exact change. For example, a $2 coffee can easily be a cash exchange rather than a credit card charge. You can also try switching to a debit card to make direct purchases instead of putting it on a credit card. However, be careful not to fall into the same bad habits if you decide to use a debit card. Debit card purchases come straight out of your bank account, so multiple charges in a day can add up quickly and may cause an overdraft.
Be conscious of when you’re using your credit card, and (if possible) try to use cash or a debit card instead. As you make purchases, try to only spend money based on what you currently have available and not based off of anticipated income.
5. Lacking an Emergency Fund
Accidents can happen to anyone, and it’s important to be prepared. The refrigerator could break down. You could get in a car accident that totals your vehicle. You or a family member could need hospitalization for an illness. Since you can’t predict the future, plan ahead by saving up an emergency fund.
Need help knowing where to start? If you’re interested in building an emergency fund or saving up for other goals like vacations, we can help. With Savings Goal Getter℠, you can create up to 10 savings goals, plus an emergency fund, and we'll track your progress, which can help you get there faster. You can also use our Emergency Fund Calculator¶ to determine how much of your income should be set aside for emergencies.
6. Telling Yourself Financial Lies
Don’t fall into the trap of classic financial mistakes. You may want to believe that debt is not a problem if you ignore phone calls from collectors or if you’re granted temporary relief from repaying a loan. But the reality is that your debt will only grow and become more detrimental if you don’t take responsibility for paying it off.
7. Not Taking Advantage of Free Time to Earn Extra Money
A side hustle is a term for the hobbies, crafts, and other projects you undertake in your free time to earn extra cash. It’s a fun way to make money using your talents and spare time. If you’re a painter or a jewelry maker, consider selling your creations online or at a craft fair. Turn your passion for fashion into a tailoring business out of your home. Babysitting can easily become a money-making endeavor on weekends.
No matter what type of side hustle you choose, taking advantage of your free time to make a little extra cash can go a long way to boosting your savings.
8. Putting off Retirement Savings
With debt looming over your finances, you might convince yourself that building a retirement fund can be postponed from your to-do list. Try not to think of retirement as a distant goal you can work toward later. Incorporate retirement planning into your monthly budget and invest it in a separate account through an employer-funded 401(K), or another investment vehicle. By not investing in your retirement, you could be missing out on the opportunity to compound your earnings over a greater span of time. Even if it’s only a few dollars at a time, saving for retirementis vital for your financial future.
If your employer doesn’t offer a 401(K), consider an Individual Retirement Account (IRA) to help encourage you to set aside at least a small amount of money from every paycheck for your retirement. Every dollar saved can help you afford a more comfortable lifestyle in retirement.
9. Not Taking Calculated Risks
A few calculated risks in your 20s can be a refreshing, healthy experience that helps prepare you for future challenges. Deciding to invest some of your money in the stock market, or taking out a loan to open your own small business, are examples of calculated risks that may feel treacherous at first but can pay off as you age. It is also important to understand that money invested in the stock market or in a new business can be lost, so you should carefully weigh the risks and benefits before you make any investment, and only invest money that you are willing to put at risk.
According to Forbes, “risk-taking is fundamental to sound investing. Without risk, there could be no return. It’s actually as simple as the law of supply and demand†”. Evaluating your appetite for risk can help you make decisions about how to build wealth and equity, grow your savings, and invest your money wisely. A little carefully considered risk can go a long way to teaching you the ins and outs of managing your finances.
10. Allowing College Expenses to Balloon
It’s no secret that college is expensive. However, you may be lulled into a false sense of security that all your college expenses are covered by student loans or scholarships. There are still plenty of out-of-pocket costs that can easily balloon over time if you’re not careful.
Depending on your financial situation, you may be responsible for buying your own clothing, healthcare, transportation, textbooks, and supplies. Ultimately, these expenses can add up quickly, even before your classes begin. To keep your spending under control, make a budget for each semester. Look for ways to cut costs where possible, like taking public transportation to class instead of paying for a parking pass, living at home the first year (if you’re nearby), or living off campus with roommates to lower the cost of room and board.
Keep a close eye on your spending habits to avoid splurging and take advantage of any student discounts at local restaurants, bars, and shops. With careful spending and a budget, you can help fund your college years without adding excessive debt on top of student loans.
11. Paying off the Wrong Debts
When you’re finally in the position to start making payments on various debts, you need to make sure you’re putting money in the right place to benefit you the most. One approach is to start with the avalanche methodto help you pay off debts.
The avalanche method means you start by paying off your debt with highest interest rate first, then work on the next highest interest rate debt, and so on. This method can potentially help save you more money in the long run, because your debt can no longer accrue high interest once you’ve already paid it off. The process may seem longer, with fewer consistent wins to celebrate than other methods of paying off debt, but it’s worth the effort to get your finances on track.
12. Not Building Good Credit
Building good credit in your 20s can determine how many opportunities you’ll have available to you when you’re older. If you have no credit or bad credit, banks and agencies may turn you down for loans you need to achieve goals like buying a house or going back to school.
To help start building good credit, try the following:
- Pay bills on time and in full.
- Keep credit card balances low.
- Apply for a new credit card only when absolutely necessary.
- Monitor your credit score regularly.
13. Not Knowing Your Credit Score
Understanding and knowing your credit scoreis a good habit to start in your 20s. Your credit score is a number that is used to evaluate your creditworthiness to banks and financial institutions.
It’s calculated by combining a number of factors, including:
- Payment History
- Amount of Debt and Credit Utilization
- Length of Credit History
- Type of Credit
- New Credit
If your credit score is on the lower side, you can start making an effort to build credit over time to improve it. You should also look into taking out a full credit reportfor a holistic view of all your finances. You have the right to obtain one free credit report each year from each of the three nationwide consumer reporting agencies.
14. Going into Debt for Luxury Items
Overcharging your credit card to afford a state-of-the-art TV may sound like a great idea in the heat of the moment. Once you’re watching your favorite shows in high-definition on a huge screen, you’ll think that purchase was justified. But when the bill shows up and you can’t cover the cost, you might regret going into debt for a nonessential item.
Avoid impulse purchases on luxury and high-ticket items. A better plan is to save up over time so that you can afford the item without blowing up your budget or going into debt. Luxury items are just that—luxuries, an expensive splurge that you should only consider purchasing if you already have the excess cash to pay for it in full. So, if you’re desperate to own a pair of designer shoes or a sleek new car, make it a savings goal for the future instead of a risk to your financial security today.
15. Careless Spending
Another financial mistake that can be remedied with a strict budget is careless spending. It may seem like nothing to drop an extra $10 on food delivery, $100 for a salon-quality haircut, or $5 for a magazine at the grocery store. But consistent spending without thought can add up to a large bill at the end of the month. Keep an organized budgetand stick to it to help avoid the temptation of overspending on things you either don’t need or could save money on if you shopped around.
16. Not Having Renter’s Insurance
Once you’ve picked an apartment and made it your own, the next step you should consider is to protect your finances and your personal belongings with renter’s insurance. Without insurance, you could risk losing your clothing, small appliances, electronics, and more to things like fire, flood, or theft. You also leave yourself vulnerable to covering the cost to replace all your lost, stolen, or destroyed belongings. Renter’s insurance can help cover the losses and get you back on your feet.
17. Not Having Health Insurance
Everyone needs to visit the doctor sometimes. Adequate health insurance can help you afford yearly checkups, emergency care, hospitalizations, and prescriptions. If your or your spouse’s employer offers healthcare coverage, consider opting in to take advantage of the numerous benefits that health insurance can offer.
While it may seem like you’ll be healthy for the foreseeable future when you’re young, you still need health insurance to cover you in case of the unexpected. A simple accident that requires surgery could end up costing thousands of dollars out of pocket if you aren’t covered by health insurance. Medical bills and the associated debt can drastically cut into your budget and your ability to afford your future goals. Spending a little extra cash each month on health insurance could end up saving you a lot more money if you get sick or injured.
18. Not Discussing Finances with Your Significant Other
While it may not be a romantic topic, discussing finances with your partner can be important to gauge your compatibility when it comes to long-term financial goals and planning. If you’re more conservative in your approach to finances, but your partner is an impulsive spender, that can put significant stress on your relationship, especially if you want to move in together or combine your finances.
Before making any long-term decisions about your relationship, you should make sure you and your partner are on the same page about handling your finances. Take the time to have an honest conversation with your significant other about your financial situations, including spending habits, savings plans, debt, and goals for the future. Talk through any discrepancies and compromise when necessary, so everyone leaves the conversation feeling good about it. Then, make a budget and a savings plan together to see what living together and combining your finances would look like. This can help you both practice managing finances and maintaining a household as equal partners.
19. Going into Debt for a Wedding
Planning a wedding is an exciting time, so it’s easy to fall into the trap of overspending or taking on too much debt. Costs for the big day can add up, from buying a dress and hiring a caterer, to renting a venue, and choosing decorations.
It can be tempting to put off costs by maxing out credit cards, taking out loans, or borrowing money from friends or family to fund your wedding purchases. However, when the honeymoon’s over, you and your new spouse could be on the hook for thousands of dollars in debt. That’s a sticky situation to be in when you’re just starting your lives together and sharing your finances as a married couple.
Instead of borrowing money to fund a wedding, set a realistic budget early on. Decide as a couple the few must-haves for your wedding that will cost you the most money, like where you want to be married, how many people you want in attendance, and what kind of food or entertainment you want to have at the event. Remember, planning your wedding should be about you and your spouse, so make choices that reflect the both of you, and not the opinions of others. Also, try to seek lower cost options for invitations and floral arrangements.
To cut some of the costs, consider getting married outside of the traditional wedding season when costs are more likely to be competitive and not at a premium. Instead of renting an expensive venue, explore your options with public parks or a family member’s home. Rather than buying tuxedos or bridesmaid dresses, look into rental options. There are plenty of options out there to help you save money on a wedding rather than going into debt.
20. Starting a Family without a Financial Plan
Having a baby or adopting a child comes with innumerable costs, from healthcare and insurance, to diapers, toys, books, food, and clothing. According to an estimate from the Brookings Institution, a married, middle-income couple with two children would spend $310,605 to raise their younger child born in 2015 through age 17‡. Based off the Brookings Institution estimate, The Wall Street Journalcalculated the annual cost per child to be $18,271 in 2022 dollars for a middle-class, two-parent household§.
Of course, not every family fits a statistical mold. Costs can vary depending on region, state, and income. However, it’s important to have a financial plan when you and your partner decide to become parents. Adjust your budget for new costs like extra groceries, childcare, diapers, and other initial expenses that are easy to predict. Then, build up your savings to help you stay flexible enough to afford new and unforeseen costs that come with having a child.
For example, you can count on needing to purchase baby furniture once, but you may not realize just how many times you may need to buy extra towels and bedding as a new parent. Finances certainly aren’t the only consideration when it comes to starting a family, but having a healthy savings plan and a realistic attitude can help alleviate some of the stress that comes with parenthood.
Your 20s can come with plenty of triumphs and challenges. Do your best to keep a budget, save as much as possible, and avoid adding debt to help build a solid foundation for your financial future. We’re here to help you every step of the way.
