How to Fix the Money Blunders People Make in their 20s

Let's face it—not all of us were responsible consumers and savers when we were in our 20s. Choosing to buy that new guitar on credit (with an astronomical interest rate!) probably wasn’t the best decision ever made.

Don’t worry—you’re not the only one. Here are six common financial mistakes people make in their 20s. If you couldn’t avoid all of them, all is not lost! We’ve also included tips to help you recover from these missteps.

1. Racking up credit card debt. It’s easy to get swept up in the credit/debt cycle. After all, everything you’ve always wanted is just a swipe away!

   The fix: Stop relying on your credit cards. Put them away for now. Take some time to design a budget that will help you monitor your discretionary spending and use only cash or your debit card.

2. Ignoring your credit score. You may have been able to get through your 20s without needing a good credit score—say, for a loan, job promotion or apartment. But that won’t last long. High credit card debt may have impacted your score, making it difficult to move forward.

   The fix: Follow these steps:

   Step 1—Monitor your accounts closely. This will help you understand where your money is going and easily make adjustments.

    

   Step 2—Request a free credit report at annualcreditreport.com—you’re entitled to one free report each year from each of the three major credit reporting agencies.

    

   Step 3—Scour your report for anything that doesn’t look familiar and address it with the creditor.

    

   Step 4—Create a payoff plan that includes paying more than just the minimum payment. Try one of these strategies.

3. Dodging student loan bills. Sometimes, when you have a huge debt balance and an entry-level salary, all you want to do is pretend this debt doesn’t exist. We get it.

   The fix: Make a plan. Not much gets done in this life without some sort of plan. If you can’t visualize how to get through it, start with visualizing the first step. Work it into your budget. Discuss options with your lender. You may qualify for a better payment plan or a loan forgiveness program. Above all, make your payments, and make them on time, to stay on track with your debt repayment plan.

4. Neglecting saving for retirement. When you’re young, it seems like you have F-O-R-E-V-E-R to worry about retirement savings, right? The truth is, your money will never be worth as much as it is when you’re young—thanks to compound interest.

   The fix: Retirement savings should be a necessary fixed expense that’s worked into your budget. Choose your company’s 401(k) or an individual IRA and start small—$25 or $50 from each paycheck. When that becomes easy, or you’re making more money, increase the contribution. Time is on your side—start saving now and your future self will thank you!

5. Not having an emergency fund. The stress of trying to find a way to pay for an emergency can be devastating. Relying on credit cards in these situations often forces the cycle of debt.

   The fix: Whether it’s medical bills, car repairs, living expenses after an unexpected loss of income—being financially prepared for an emergency can make stressful situations much more manageable. Like your retirement savings, start building your emergency with small money transfers and increase them when you can. Keep this money in a separate savings account, making sure you access it for emergencies only.

6. Not setting financial goals. You’re young. You certainly don’t have to plan out your entire life. But it’s important to always have something financially that you’re working toward.

   The fix: Make an appointment with yourself. Decide what you want your next big step to be. Is it owning a home? Mapping out a plan for early retirement? Or traveling somewhere you’ve never been? Whatever it is, managing your money more responsibly will come easier if you’re working toward a reward.

It’s easy to ignore financial planning when you’re in your 20s—after all, the world has just shown you how big and exciting it really is. The bottom line, even if you weren’t very good with money in your 20s, it’s not too late! Use these tips to get on track and set some goals. Before you know it, you’ll be achieving your dreams!

Speaking of planning your future, now is a great time to start meeting, annually, with a financial professional. It doesn’t matter how much money you make or if you have investments. What matters is that you get the important information you need to have the life you want.