10 Common Money Mistakes to Avoid in Your 20s and 30s

Your 20s and 30s are a dynamic period of life, often marked by career beginnings, major life milestones, and increasing independence. These decades present a unique opportunity to lay a solid financial groundwork for your future. However, there are also times when easily avoidable financial missteps can create lasting challenges.

By understanding common pitfalls and adopting smart habits early on, you can set yourself up for a lifetime of financial security and success. Let’s explore 10 common financial mistakes to avoid during these crucial years.

The 10 Financial Traps to Watch Out For

1. The Lifestyle Creep: Living Beyond Your Means – As your income grows, it’s tempting to upgrade your lifestyle proportionally, or even beyond. This “lifestyle creep” can quickly eat into any raises or bonuses, leaving little room for savings or debt repayment.

• • To avoid it: Practice conscious spending. Before increasing your expenses, allocate a portion of any new income to savings, investments, or debt reduction. Prioritize needs over wants and remember that true wealth isn’t about how much you spend, but how much you keep and grow.

 

2. Operating Without a Map: Not Budgeting – Many young adults operate without a clear understanding of where their money goes each month. Without a budget, it’s easy to overspend, under-save, and feel perpetually behind.

• • To avoid it: Create a realistic budget that tracks your income and expenses. This doesn’t have to be complicated – a simple spreadsheet or even a notebook can work. The goal is to gain visibility into your cash flow and allocate funds intentionally towards your financial goals.

 

3. The Future Obstacle: Ignoring Your Credit Score – Your credit score is a crucial measure of your financial reliability. It impacts everything from getting a loan for a home or car to renting an apartment or even securing certain jobs.

• • To avoid it: Understand how credit works. Pay all your bills on time, every time. Keep your credit card balances low relative to your credit limits. Regularly review your credit report for errors and signs of identity theft. Building a strong credit history takes time and discipline.

 

4. The Compounding Cost: Delaying Retirement Savings – Retirement might seem light years away, but the power of compound interest means that every year you delay saving, you lose out on significant potential growth. Starting early, even with small amounts, can make a massive difference over decades.

• • To avoid it: Start contributing to a retirement account as soon as possible. If your employer offers a 401(k) or similar plan with a matching contribution, contribute at least enough to get the full match – it’s free money! Additionally, consider opening an Individual Retirement Account (IRA) and making regular contributions.

 

5. The Wealth Erosion: Accumulating High-Interest Debt – Credit cards, in particular, can be a convenient tool, but carrying a balance, especially with high interest rates, can quickly lead to a debt spiral that hinders your financial progress for years.

• • To avoid it: Use credit cards responsibly. Pay off your full balance every month to avoid interest charges. If you already have high-interest debt, prioritize paying it down aggressively, focusing on the highest interest rates first. Explore options like balance transfers or debt consolidation if it helps reduce interest and streamline repayment.

 

6. The Unprotected Fall: Skipping an Emergency Fund – Life is unpredictable. A sudden job loss, unexpected medical bill, or major car repair can quickly derail your finances if you don’t have a safety net.

• • To avoid it: Build an emergency fund of at least three to six months’ worth of essential living expenses. Keep this money in a separate, easily accessible savings account, distinct from your everyday spending money. Start small and gradually increase your contributions until you reach your goal.

 

7. The Inflation Drain: Not Investing – Simply saving money isn’t enough; inflation erodes the purchasing power of cash over time. To truly grow your wealth, your money needs to work for you.

• • To avoid it: Begin investing beyond your retirement accounts. Understand basic investment concepts, such as diversification and long-term growth. Consider low-cost index funds or exchange-traded funds (ETFs) as a starting point. Don’t let a fear of the stock market prevent you from participating in its potential growth.

 

8. The Uninformed Decisions: Lack of Financial Literacy – Many young adults graduate without a solid understanding of personal finance, leading to decisions based on guesswork rather than knowledge.

• • To avoid it: Invest in your financial education. Read books, listen to podcasts, attend workshops, or seek advice from reputable financial advisors. The more you learn about budgeting, saving, investing, and debt management, the more empowered you’ll be to make sound choices.

 

9. The Costly Surprises: Not Planning for Major Life Events – Whether it’s a down payment on a home, funding higher education, or starting a family, major life events come with significant price tags. Failing to plan for them can lead to taking on more debt or delaying your goals.

• • To avoid it: Set clear, specific financial goals for these milestones. Break them down into smaller, achievable savings targets. Automate your savings by setting up regular transfers to dedicated accounts for these goals.

 

10. The Unforeseen Disaster: Neglecting Insurance – Insurance isn’t just an expense; it’s a vital layer of financial protection. Skipping essential coverage like health, disability, or adequate auto/renter’s/homeowner’s insurance can expose you to catastrophic financial losses.

• • To avoid it: Assess your insurance needs based on your stage of life and assets. Don’t undervalue the protection insurance provides. Shop around for competitive rates and ensure you have sufficient coverage to protect yourself and your loved ones from unexpected events.

 

Your 20s and 30s are a critical time for shaping your financial future. By consciously avoiding these common mistakes and adopting disciplined financial habits, you can build a strong foundation that supports your goals and aspirations for decades to come. Take control of your money now and thank yourself later!

 

Zoe Moorman
Associate Financial Advisor

 

Alaska Wealth Advisors, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Alaska Wealth Advisors’ investment advisory services can be found in its Form ADV Part 2 and/or Form CRS, both of which are available upon request.