Don’t Make These Costly Financial Mistakes in Your 20s

Steve Cummings

The 20s is the time when you are just out of college and most likely starting your career. It's also a time when many young people make financial mistakes that can haunt them for years to come.

It could be anything from taking on too much debt to needing an emergency fund or even not investing. Knowing these financial mistakes is better so you can avoid them in the future.

So whether you are in your 20s or about to enter them, here are the top financial mistakes you should avoid.

1. Not Having an Emergency Fund

One of the biggest financial mistakes you can make in your 20s is not having an emergency fund. An emergency fund is essential because it gives you a buffer if you lose your job or have an unexpected expense.

And the last thing you want to do is to spend your future savings on something you could have avoided.

Ideally, you should save up to 3 to 6 months' worth of expenses as an emergency fund. This will help you cover unexpected costs and reduce financial stress in times of need.

How to Save For Emergencies?

1. Start with small amounts

2. Automate your savings by setting up a direct deposit from your paycheck each month

3. Create side hustles to generate additional income for building up the emergency fund faster

4. Set a budget that allows saving a specific portion of your income each month

2. Taking on Too Much Debt

You have just started your career, so it is best to limit how much debt you take on. Too much debt can become overwhelming and lead to financial distress down the road.

It's essential to make sure that any loan or credit card debt you take on is manageable and within your budget. Otherwise, it could start to impact other areas of your life. If you already have debts like a student loan or car loan, prioritize them first.

How To Avoid Too Much Debt?

1. Build an emergency fund first before taking on more debt

2. Live within your means and only take on what you can afford

3. Stop using credit cards for purchases that you cannot pay off in full each month

4. Don't take on too many loans


One of the most common issues in the 20s is FOMO or Fear Of Missing Out. With social media and our culture of “instant gratification,” it can be hard not to get caught up in the trend of buying everything new and spending money on unnecessary things.

Remember that it's nothing but a momentary pleasure and won't bring you any long-term happiness or financial security. It will only leave you with a hole in your pocket or, worse, debt.

How To Avoid FOMO?

1. Be mindful of what and why you are spending money

2. Create a budget and stick to it

3. Don't succumb to pressure from friends or family

4. Find cheaper alternatives for the things you want

5. Focus on saving money instead of buying more stuff

4. Not Investing for the Future

It's never too late to start investing – investing in your 20s can be a great way to build up your financial security and create long-term wealth.

The earlier you start, the more time your investments have to grow and benefit from compounding interest. And if you are unsure about how to invest, you could speak with a financial advisor or look into some low-cost index funds.

It's also important to keep contributing regularly and diversify your investments to reduce the risk of potential losses. Start with retirement funds and slowly add other investments to your portfolio, such as stocks, mutual funds, real estate, etc…

How To Start Investing?

1. Understand your investment options

2. Evaluate the risks and rewards associated with each option

3. Set up a budget for investing

4. Set long-term and short-term goals

5. Start with low-risk investments to build up your portfolio

6. Invest regularly, even if it's a small amount

5. Not Having Adequate Insurance Coverage

You might think you are young and invincible – but life is unpredictable. You never know when you might need insurance, either for yourself or your loved ones.

It's essential to have adequate coverage and the correct type of insurance according to your needs. This could include health insurance, life insurance, and other types of coverage, such as auto or renters insurance.

Having adequate insurance coverage means that any unexpected medical expenses or accidents will be covered without tapping into your savings. 

It is important to research different insurance plans and ensure you get the best coverage for your needs and budget.

How To Get the Right Insurance Coverage?

1. Understand the different types of insurance and the coverage they provide

2. Research policies that fit your lifestyle, needs, and budget

3. Work with an insurance broker or advisor to help you find the best plan

4. Compare quotes from different providers

5. Ask family and friends for referrals if needed

6 Talk to a financial advisor to make sure you are getting the best coverage for your budget

7. Read the policy carefully to make sure you understand what's covered and what isn't.

6. Not Setting Financial Goals

You might not think this is a big deal, but setting financial goals is essential for your 20s. Without clear goals, staying motivated and on track with your finances can be hard.

Think about what you want to achieve over the next five years – do you want to save up for a house or a car, or do you want to pay off your student?

No matter what your goals are, it's important to write them down and break them up into smaller, manageable steps – this will make it easier to stay on track and achieve your goals.

When you are young, you will have a lot of time to build up your savings and investments, so it's important to start early and make the most of this time.

How To Set Financial Goals?

1. Evaluate your current financial situation

2. Identify short-term and long-term goals

3. Create a budget and timeline to achieve each goal

4. Automate payments, if possible, to stay on track

5. Review your progress regularly and adjust the plan if needed.

6. Celebrate successes, no matter how small!


These are just some of the most important financial habits you should adopt in your 20s – but there are plenty of other steps you can take to improve your financial situation. Take the time to research and learn more about investing, budgeting, saving, and managing debt – this will help you build a strong foundation for your financial future. With the proper knowledge and habits in place, you'll be able to make intelligent decisions and stay on track with your financial goals. Good luck!

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