Your twenties? Wild times. You finally get a taste of financial freedom, but, honestly, it’s also the decade where most of us pick up money habits that stick around way longer than we’d like. I remember feeling like I had it all figured out, but looking back, I wish someone had pulled me aside and shared a few hard truths about money management.
Most of us mess up our finances in our twenties simply because, well, no one really teaches us the basics. The mistakes might seem harmless—maybe you skip budgeting, live a little too large, or ignore that growing student loan balance. But those choices? They can cost you thousands and push back big dreams like buying a place or retiring early.
So, what are the biggest money mistakes in your twenties? Not budgeting, overspending, skipping out on emergency savings, ignoring debt, and putting off investing. If you’re busy soaking up your independence, it’s easy to forget about the future. But here’s the thing: Spotting these traps early can save you a ton of stress (and cash) later.
You don’t need a finance degree or superhuman willpower to dodge these traps. Just a few tweaks—like tracking your spending, building credit the right way, or starting small with investments—can change everything. The trick is to figure out which mistakes sting the most and nip them in the bud before they spiral.
Key Takeaways
- Most people in their twenties make expensive money mistakes because they never got real financial advice.
- The biggest blunders? Not budgeting, overspending, and waiting too long to save or invest.
- Tiny habit changes now can save you thousands down the road.
Failing to Budget and Track Spending
A lot of us in our twenties skip the whole budgeting thing. I used to just check my bank balance and hope for the best. Not great.
When you don’t use tools like budgeting apps, follow a method like the 50/30/20 rule, or set financial goals, it’s no wonder you end up asking, “Where did my money go?”
Not Using a Budgeting App
Most of us try to keep track of spending in our heads. Spoiler: It doesn’t work. You forget stuff. I did, too.
Budgeting apps make it so much easier. They link to your accounts and track everything for you. Mint, YNAB, PocketGuard—take your pick.
These apps break down your spending by category. Suddenly, you realize you’re dropping $200 a month on coffee or random subscriptions.
Look for these in a budgeting app:
- Automatic tracking
- Alerts for overspending
- Bill reminders
- Goal-setting features
The best budgeting app? It’s the one you’ll actually open more than once. Even a basic app beats winging it.
Ignoring the 50/30/20 Rule
The 50/30/20 rule is simple, but a lot of people ignore it. I did until I realized I wasn’t saving anything.
Here’s the breakdown:
| Category | Percentage | Examples |
|---|---|---|
| Needs | 50% | Rent, groceries, utilities, debt minimums |
| Wants | 30% | Eating out, hobbies, shopping |
| Savings | 20% | Emergency fund, retirement, debt payoff |
If you bring home $3,000 a month, you’d use $1,500 for needs, $900 for wants, and $600 for savings. It’s about balance—enjoying life but still building wealth.
Most people end up spending 70-80% on needs and wants, leaving nothing for savings. The 50/30/20 rule forces you to think about your future, but you don’t have to give up all the fun.
Lack of Clear Financial Goals
Without real goals, budgeting feels like punishment. You need a reason to say no to that third takeout order.
Good financial goals are specific and have deadlines. “Save $1,000 for emergencies in 6 months” or “Pay off $5,000 in credit card debt by next December” makes way more sense than “save more money.”
Short-term goals might be saving for a vacation or building an emergency fund. Long-term? Maybe buying a home or hitting $100K in retirement savings.
Writing goals down makes you more likely to hit them. I check my goals every month to see if I’m on track.
When you want to splurge, ask yourself if it helps or hurts your goals. That one question has saved me from plenty of dumb purchases.
Living Beyond Your Means and Overspending
It’s way too easy to spend more than you earn in your twenties. I’ve been there—thinking the next paycheck would bail me out. It doesn’t.
Overspending leads to debt, kills your savings, and creates money stress that can haunt you for years.
Lifestyle Creep
Ever get a raise and immediately upgrade your apartment? Or buy a nicer car? That’s lifestyle creep.
I used to celebrate every raise with a bigger purchase. Funny thing is, my bank account never seemed to grow.
Watch out for these:
- Moving to pricier places after a promotion
- Switching to premium brands
- Stacking up new subscriptions
- Upgrading gadgets just because
Try saving at least half of every raise before treating yourself. It’s not about living like a monk—just making sure you’re not stuck in the same spot financially.
The people who avoid lifestyle creep in their twenties? They’re the ones with actual savings by 30. Emergencies don’t scare them, and they have options.
Impulse Purchases
Impulse buying wrecks budgets. Credit cards make it feel painless—until the bill hits.
Common impulse buys:
- Clothes and shoes
- Electronics
- Food delivery
- Concerts and events
The 24-hour rule changed the game for me. If I want something I didn’t plan for, I wait a day. Most of the time, I forget about it.
Shopping apps and social media ads make it worse. Delete the apps, unfollow the brands, and suddenly you’re not tempted as much.
Credit cards make it easy to buy now, worry later. But carrying a balance means paying way more in interest—and that stress is not worth it.
Overspending on Non-Essentials
Non-essentials eat up more of your paycheck than you think. I love eating out, but wow, it adds up fast.
Biggest non-essential drains:
| Category | Common Overspending |
|---|---|
| Dining out | $300-500+ monthly |
| Entertainment | $200-400+ monthly |
| Shopping | $150-300+ monthly |
| Subscriptions | $50-150+ monthly |
The 50/30/20 rule helps keep these in check. Thirty percent for wants is plenty if you track it.
Some folks spend 40% or more on non-essentials and wonder why they’re always broke. I tracked my expenses for a month and was shocked at the totals.
Those little daily splurges? They add up to hundreds every month.
Neglecting to Build an Emergency Fund
A lot of us skip the emergency fund in our twenties. I did, and it bit me hard when my car broke down.
If you stash your savings in a regular account, you also miss out on high-yield interest. That’s free money you’re leaving on the table.
Underestimating Unexpected Expenses
It’s easy to think emergencies won’t happen to you. But they do—trust me.
Medical bills can show up out of nowhere. One ER visit can set you back thousands, even with insurance.
Car repairs are inevitable if you drive. I once dropped $1,000 on brakes—yikes.
Job loss? It happens, and without a cushion, you’re scrambling just to pay rent.
Most experts say save three to six months of expenses. So if you spend $3,000 a month, aim for $9,000 to $18,000 in your emergency stash.
Skip the emergency fund, and you’ll likely turn to credit cards when trouble hits. That debt can stick around for years.
Not Using a High-Yield Savings Account
Keeping your emergency fund in a regular account is like hiding cash under your mattress. You’re missing out.
Regular savings accounts pay almost nothing—think $1 a year on $10,000.
High-yield savings accounts can pay 4% or more. That’s $400+ a year for doing nothing.
Online banks like Marcus, Ally, and Capital One 360 usually offer the best deals.
Your money stays accessible for emergencies, and most of these accounts let you withdraw whenever you need.
Ignoring high-yield accounts costs you real money. Over five years, the difference on $10,000 can be more than $2,000. That’s not pocket change.
Ignoring Debt Management and Credit Health
A lot of us mess up with credit cards and don’t think about our credit score. I wish I’d paid more attention earlier.
Bad debt habits and a trashed credit history can haunt you for years.
Carrying Credit Card Debt
When you spend more than you earn, credit card debt piles up fast. Those interest rates? Brutal.
Some people use credit cards for everyday stuff, thinking they’ll pay it off next month. But balances grow, and it gets harder to catch up.
The real cost:
- A $2,000 balance at 22% interest can take 11 years to pay off with just minimum payments
- You’ll end up paying $2,800 in interest alone
- That $50 dinner? It ends up costing double
High balances also hurt your credit score. Try to keep your utilization under 30%, but honestly, under 10% is even better.
If you keep carrying debt, you get stuck making payments that barely make a dent.
Making Only Minimum Payments
Minimum payments seem like a lifesaver, but they’re a trap. Credit card companies set them low so you stay in debt longer.
Why minimum payments hurt:
- Usually just 2-3% of your balance
- Most of it goes to interest, not the actual debt
- You could be paying for decades
If you owe $5,000 and only pay the minimum, it can take 20+ years to pay off. You’ll end up shelling out nearly $12,000.
Pay more than the minimum—even $25 extra a month can make a huge difference.
Focus on paying off high-interest debt first. It’s called the avalanche method, and it saves you the most money.
Damaging Credit Score
A bad credit score affects more than just loans. Landlords, employers, and even insurance companies look at it.
How people hurt their credit:
- Missing payments (the biggest factor)
- Maxing out cards
- Closing old accounts
- Applying for too many cards at once
Even one late payment can drop your score by 60-100 points. I learned that the hard way.
High balances hurt your score, too. Try to keep your cards paid down.
Building good credit takes time. If you ignore it, you’ll have a tough time getting approved for apartments, car loans, or mortgages later.
Not Reviewing Credit Reports
Credit reports aren’t always right. Mistakes happen all the time, and they can tank your score.
Common errors:
- Accounts that aren’t yours
- Wrong payment history
- Closed accounts showing as open
- Incorrect balances
You can get a free report from each bureau every year at AnnualCreditReport.com. Most people never bother, but it’s worth it.
If you spot an error, dispute it. The bureaus have to investigate and fix mistakes.
I check my credit reports every few months by rotating between the three bureaus. It’s a simple way to keep an eye out for fraud, too.
Identity theft shows up on your credit report first. If you don’t look, you might not catch it until it’s too late.
Delaying Investing and Retirement Savings
Let’s be real—starting retirement savings in your 20s packs a punch when it comes to building wealth. I’ve seen so many young folks skip out on free money from employers and miss years of growth just by waiting too long to invest.
Missing Out on Compound Interest
Compound interest? It’s honestly the closest thing to financial magic I’ve found. You invest $100 and snag an 8% return—boom, you’ve got $108 after a year.
The next year, your returns stack up on that $108, not just your original hundred. That snowball grows fast over decades.
If you start at 25 and sock away $300 a month, you could have $1 million by 65 with 8% annual returns. Wait until 35? Now you’re scrambling to save $700 a month for the same goal.
Start early, save less, and still win. Index funds and ETFs are a lifesaver for beginners. They let you spread your money across hundreds of companies without breaking a sweat.
When you’re young, you can handle more risk. You’ve got decades to recover from market dips, and a well-diversified portfolio of index funds usually beats inflation over the long haul.
Not Taking Advantage of 401(k) Matches
So many employers hand out 401(k) matches—it’s basically free cash for your future. Some will match 50 cents for every dollar you put in, up to 6% of your salary.
If you make $50,000 and contribute 6% ($3,000), your employer might toss in $1,500. That’s a 50% return before the market even gets involved.
Skipping employer matches is like saying “no thanks” to a raise. I know people who skip 401(k) contributions because they want easy access to their money, but honestly, many plans let you borrow or withdraw for emergencies.
And those contributions lower your taxable income. If you’re in the 22% tax bracket, you save $220 in taxes for every $1,000 you put in. Plus, your money grows tax-free until you retire.
Neglecting Individual Retirement Accounts
IRAs give you another way to stash cash for retirement. Traditional IRAs let you take tax deductions now, while Roth IRAs offer tax-free withdrawals down the road.
Roth IRAs shine for young people in lower tax brackets. You pay taxes upfront while rates are low, and then your money grows tax-free for decades.
In 2025, you can put $7,000 a year into IRAs. If you max out a Roth IRA from 22 to 32 and then stop, you’ll often end up with more money than if you waited until 32 and contributed until retirement.
IRAs beat most 401(k)s for investment choices. You can pick from thousands of index funds, ETFs, and even individual stocks. I usually stick with low-cost index funds—they work best for long-term growth.
Overlooking Insurance, Financial Education, and Other Risks
I see a lot of twenty-somethings skip out on key insurance and ignore their financial education. These slip-ups can cost you big time and mess with your financial future.
Skipping Health Insurance
A lot of young adults think they’re invincible and don’t need health insurance. I get it, but that’s risky thinking.
One trip to the ER or a broken bone can set you back $5,000 to $15,000 if you’re not covered. That’s not pocket change.
Most lose coverage at 26 when they age out of their parents’ plans. You need to fill that gap fast.
Health insurance shields you from massive medical debt. Honestly, medical bills are the top reason people go bankrupt in the U.S.
Even basic plans offer:
- Free preventive care
- Emergency coverage
- Prescription discounts
- Protection from giant medical bills
You can usually find affordable options through work or the marketplace. Paying a small monthly premium beats getting slammed by a surprise hospital bill.
Being Underinsured
It’s not just about having insurance—it’s about having enough. Too many young folks grab the cheapest plan and call it a day.
Renters insurance protects your stuff in an apartment. It’s about $15-20 a month and covers thousands in belongings.
Car insurance minimums change by state. The basic stuff might not cover you in a big accident.
Life insurance matters if you’ve got dependents or debt. Term life is super affordable when you’re young and healthy.
Disability insurance is a lifesaver if you can’t work due to injury or sickness. Lots of employers offer it for cheap.
Lack of Financial Literacy
Honestly, most of us didn’t learn money basics in school. That gap leads to some costly mistakes.
You need to know:
- What makes up your credit score
- How investing actually works
- Simple budgeting and saving tricks
- How loans and interest rates hit your wallet
People who get educated about money make better choices. They dodge high-interest debt and start investing sooner.
You don’t have to spend a dime to learn. Libraries have great books, and there are tons of free online courses.
Banks and credit unions often run free workshops on stuff like buying your first home or planning for retirement.
There are apps and websites that break down money topics into bite-sized, easy lessons.
Start building good habits now. With practice, smart money moves become second nature.
Avoiding Side Hustles
Sticking to one paycheck? I used to do that, but it really limits your options.
Side hustles help you save faster. They also give you a backup if you lose your main job.
The gig economy is full of ways to make extra cash:
- Freelance writing, design, or coding
- Food delivery or rideshare apps
- Online tutoring or teaching
- Selling stuff online
That extra money can jumpstart your emergency fund. Or you can use it to pay off debt or invest more.
Side gigs teach you skills you might never learn at your day job. Plus, you’ll meet people in different fields.
Start small—$200 to $500 extra a month adds up over time.
Frequently Asked Questions
I get a lot of questions from people in their twenties about money. Here are some of the big ones, along with my honest take.
What are the top financial blunders to avoid in your twenties for long-term wealth?
Spending more than you make and leaning on credit cards too much? That’s a recipe for years of debt.
Not having a budget is another biggie. If you’re not tracking what comes in and goes out, it’s way too easy to overspend on stuff you don’t need.
Skipping out on retirement savings hurts the most. If you start early, compound interest can do the heavy lifting for you.
Not building an emergency fund leaves you exposed. One job loss or medical bill can wipe out your progress if you don’t have a safety net.
How can failing to budget in your 20’s impact your financial future?
Without a budget, money slips through your fingers. You end up spending on entertainment, eating out, and impulse buys without realizing how fast it adds up.
Living paycheck to paycheck becomes your normal. That makes saving for big goals like a house or retirement nearly impossible.
Credit card debt sneaks in when you don’t track spending. Those high interest rates can cost you thousands and wreck your credit score.
If you don’t budget, you probably won’t invest much either. That delays building wealth and makes reaching your goals so much harder.
What serious monetary missteps should one be aware of in their early financial journey?
Ignoring your credit score shuts doors later. Bad credit means higher loan rates and more rejections on mortgages or car loans.
Big, unnecessary purchases on credit—think fancy vacations or designer stuff—can weigh you down for years.
Relying on just one job is risky. Side hustles or extra income streams give you a cushion if times get tough.
If you don’t set clear financial goals, it’s hard to stay focused. Without targets, why bother making sacrifices?
Can overspending on non-essentials in your 20s lead to major financial hurdles?
Absolutely. Spending too much on fun, food, and luxuries keeps you from building an emergency fund or investing.
Credit card debt from these splurges can take ages to pay off. With high interest, you pay way more than the sticker price.
Bad spending habits in your 20s often stick around. That makes it tough to afford bigger things later—like a house or retirement.
And every dollar you spend on temporary fun is a dollar you’re not investing. That money could’ve grown a lot over the years.
Why is starting to save early critical to avoid monetary woes in your later years?
Compound interest needs time to work its magic. Money you save in your 20s can grow for 40 or more years, thanks to reinvested earnings.
If you start young, you can take more risks with investments. You’ve got time to ride out the market’s ups and downs.
Saving early makes retirement feel less overwhelming. Small monthly contributions now beat scrambling to save big later.
An emergency fund you build early keeps life’s surprises—like medical bills or job loss—from wrecking your finances.
How does neglecting investment opportunities stunt financial growth for those in their 20s
Skipping out on your employer’s 401k match? You’re basically saying no to free money. I still remember my first “real” job—the HR manager practically begged me to sign up for the match. It’s wild how many folks just let that slip by.
If you’re stashing all your cash in low-interest savings accounts, you’re not even keeping up with inflation. That means your money quietly loses value while you sleep. It feels safe, but is it really?
Putting off investing? I get it—life’s busy, and the stock market can seem intimidating. But waiting just a few years can cost you thousands in missed compound returns. Even tossing in a little bit early on can snowball into something much bigger later.
Not exploring different investment options? That’s like trying to cook with just salt and pepper. Stocks, bonds, index funds—they’re all tools you can use to build real wealth, but only if you actually learn what they do. I’ve made my fair share of rookie mistakes, but diving in and asking questions helped me avoid a lot of regret down the road.
