15 Financial Mistakes to Avoid in Your 20s and 30s

People feel invincible in their 20s and 30s. We have life in our hands and believe we won’t age or retire. We can look forward to more than playing golf or pruning roses for fun.

The thought of retirement planning, budgeting, understanding taxes, setting financial goals, and developing financial literacy might seem like something only “old” people do. Still, avoiding the financial mistakes of youth can mean early retirement and a comfortable life.

We have focused on 16 of the most typical financial mistakes younger people make. The great news is that you can start today and plan for a financially prosperous future.

1. Not Saving For Retirement

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The last thing you want to think about in your 20s and 30s is retirement. However, that’s the best time to start putting money into a retirement fund.

Planning for the future means retiring in your 50s instead of working into your 70s. You want to retire when you’re still young and agile enough to enjoy retirement.

2. Not Setting A Budget

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The wealthy understand that setting a budget leads to financial freedom. Understanding your spending habits is essential to avoiding costly impulse purchases that cause financial issues later.

If you genuinely want a financially stable future, outline your budget with income and expenses. Use a free budgeting app or a simple spreadsheet.

3. Not Setting Financial Goals

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Set long-term and short-term financial goals so you can track your progress. Perhaps you end each month overdrawn or with little money left in the bank account. Make a short-term goal of saving a percentage of your income.

Few people in their 20s and 30s set financial goals, but it can make a significant difference as you head into your 40s and 50s.

4. Not Being Financially Literate

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These days, there are no excuses for financial illiteracy. School teaches us to add and subtract, but not how to invest, about credit cards, or the power of compound interest.

Invest your time in reading books, studying the wealthy, exploring property management, or taking a course to become financially savvy.

5. Not Building A Good Credit Score

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If your credit score is poor, banks may turn down loan applications, or you may pay a higher interest on mortgages and loans. If you have credit cards, consider paying the monthly balance instead of the minimum.

With a good credit score, you can access low interest rates since you qualify for a mortgage or loan and are less likely to be refused lending.

6. Depending On Credit Cards

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Getting a credit card in your 20s and 30s can seem like free money, and it’s easy to get carried away with spending on whatever you want. The problem with that is the balance quickly adds up.

Without monitoring credit card spending, you’ll find that the monthly costs eat into your salary, particularly if you pay the only minimum monthly payment.

7. Spending More Than You Earn

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In your 20s and 30s, you might be living for today and spending more than you earn without thinking about the consequences. If you live at home, maybe your parents will help you if you get stuck for money, but that’s not a long-term solution.

Stick to your budget, and if you get a pay increase, put it aside into a retirement plan, emergency fund, or savings account.

8. Not Having An Emergency Fund

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Everyone should have an emergency fund at any age. You never know how life’s twists and turns will encroach on your finances. If you lose your job, how long could you comfortably survive financially?

Commit to putting a specific percentage of your income aside each month. Aim to have a safety net of at least six months, ideally longer.

9. Putting Off Insurance

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You may not think you need insurance in your 20s and 30s, but financial protection can help you build a wealth mindset. If you’re starting a family, life insurance is a way of protecting your loved ones.

Income protection can provide a cushion if you lose your job, and health insurance can give you peace of mind if you develop a chronic illness or have an accident that causes you to take off work.

10. Being Ignorant About Taxes

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Knowing your tax entitlement is essential at any age, or you could pay too much tax — or too little. For example, if you work from home, you may be able to claim costs for a home office.

In addition, you may be able to claim tax allowance on specific savings accounts, reducing your tax liability.

11. Not Diversifying Income

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Even if you have a full-time job, there are plenty of opportunities to diversify your income. Your day job may cover your monthly costs, but is there enough left to invest or save for a rainy day?

Instead of relying on your job’s salary, consider researching income opportunities. A side hustle can help you put money aside without affecting your salary.

12. Not Making Smart Investments

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If you’re in your 20s and 30s, you may believe investing is only for wealthy individuals, but that’s not true. If you follow a smart investment strategy, you can start an investment plan with very little money.

Instead of taking financial advice from friends about the next best thing, chat with an investment advisor who can give you ideas to get started.

13. Trying To Keep Up With Your Friends

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You see your friends on social media living it up big time with a new car, branded gear, and nice vacations, and it’s natural to feel you want the same. You’re experiencing FOMO (fear of missing out).

You don’t know if these friends may be living the high life and maxed out on credit card debt. Plan for the future instead of being drawn into the spending trap.

14. Buying An Expensive Car

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Do you really need an expensive car when you’re in your 20s and 30s? It won’t make you happy, especially when you get the bill for insurance costs. A car is not an asset. It depreciates when you drive it off the lot and continues to depreciate with time.

You can buy a less expensive car and put the bulk of your money into creating a future fund or invest in assets that appreciate over time.

15. Leaving Home When You Don’t Need To

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When you leave your teenage years, you may yearn for independence. Even if Mom and Dad are happy for you to live at home, instead, you commit to renting a place of your own and discover the dubious joy of monthly bills.

Think of your long-term financial goals. Consider how much money you can put away if you live with your parents. When you eventually leave, you may be able to buy property and still have enough money to support yourself.

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