The Biggest Money Mistakes in Your 20s and How to Avoid Them
Dominic landed his first real job at age 23. The salary was not spectacular, but it was consistent, and after years of part-time work and starting his student loan payments, consistency felt like winning. He celebrated by upgrading his apartment, buying a car he could not quite afford, and signing up for every streaming service he had denied himself through college. None of those decisions felt reckless in the moment. They felt earned.
Three years later, his credit card balance had crept past $6,000. When his car needed unexpected repairs, he put it on his credit because he had nothing saved. And somewhere in a kitchen drawer, unopened, was the 401(k) enrolment form his employer had sent him twice.
“Careless mistakes can cost you time and progress as young adults. The key to mitigating any major setbacks is to ask questions preemptively and build up financial literacy,” says Robert Cavanagh, Senior Vice President at David Lerner Associates.
“You don’t need a lot of money to benefit from a clear financial strategy. You just need to be willing to look honestly at where you are and where you want to go.”
Your 20s are the decade where financial habits form, for better or worse, and the patterns laid down in those years tend to compound over time just as powerfully as the interest on the debt you carry.
Mistake 1: Treating the 401(k) Enrollment Form as Paperwork
The most expensive mistake most young earners make is not the money they spend. It is the money they never put to work.
The reason most young employees skip contributing comes down to competing priorities. Student loans, rent, and the general cost of independent life are real pressures.
More Time in = More time to Grow
However, compound growth works best when you make it a consistent priority. A dollar contributed at 23 has roughly 40 years to grow before a typical retirement age. The same dollar contributed at 33 has 30 years. That decade of difference has real impact when planned with intention.
Mistake 2: Carrying Credit Card Debt Without a Plan
Total U.S. credit card debt crossed $1.28 trillion in the end of 2025. Among younger borrowers, the trend has been particularly sharp. By 2024, Gen Z credit card balances grew by 62% in roughly two years, faster than any other generation.
Part of this reflects genuine economic pressure. Rent, groceries, and essential expenses have risen significantly, and for many young earners, credit cards are bridging a gap between income and cost of living.
But the interest rate environment makes carrying a balance particularly difficult. Across credit cards and issuers, there is a wide range of interest rates (APR) offered, spanning from 11.5% to 32.5%.
Credit card companies determine interest rates based on various factors including federal funds rate, credit score, and debt-to-income ratio. For young adults, who are often applying for their first credit card, lack of history, lower income and high student debt can impact approval and lead to higher APR rates.
Stopping the Credit Card Debt Spiral
At a high APR rate, a $5,000 balance on which only minimum payments are made will take years to eliminate and cost significantly more than the original purchases.
When tackling credit card debt, there are two steps to consider:
Step One: Becoming Credit Savy
Knowledge is power when it comes to finding solutions to debt. Separate necessary spending from habitual spending. A utility bill is essential; a Netflix subscription can be paused and repurchased later. Take a good look at your bank accounts and payment methods. How much do you spend on your credit cards each month? How much are you able to realistically pay back based on your income?
Step Two: Treating High-Interest Debt as a Top Priority
High-interest debt has a snowball effect. The more you ignore it, the bigger the problem it becomes for you. Once you crunch the numbers, create a payment plan that factors in different interest rates and is doable with your current needs.
Mistake 3: Skipping the Emergency Fund
When money is tight, it is tempting to view an emergency fund as a luxury. The truth is that an emergency fund is crucial part of money planning. It is the safeguard that prevents every unexpected expense from becoming a debt-level event.
Your 20s and unpredictability go hand-in-hand. Your car breaks down, your get laid off at your job, your dog ate something off the floor and now you have a vet bill of over $1,000 dollars…These events are not planned, but they should be planned for. That’s where emergency savings can be valuable.
In one study done by Bankrate, only 10% of Gen-Zers had enough emergency savings to cover six or more months of expenses.
For those without a buffer, a single car repair, medical bill, or missed pay period can cause people to rely on credit card use (which exacerbates mistake #2)
Building Up the Emergency ‘Piggy Bank’
The standard guidance is three to six months of essential expenses. For someone early in their career with modest savings, that can feel impossibly large.
The more useful starting point is simply to begin. Even $500 set aside in a dedicated account creates a buffer that can be a financial game changer in small emergencies. The goal is to build the habit and the account simultaneously, adding to it consistently rather than waiting until a specific amount feels achievable.
Mistake 4: Ignoring Your Credit Score Until It Matters
What about that three-digit score associated with your credit accounts? A credit score may get easily overlooked in your twenties, mostly because good credit may not feel like a “right now” problem.
But credit scores can come into play in a lot of different ways and neglecting it can create consequences. Credit scores influence mortgage rates, rental applications, insurance premiums, and in some cases, employment decisions. The habits formed in early adulthood, credit utilization, payment history, and the age of accounts can be utilized throughout your life.
The simplest credit-building practice in your 20s is also the most impactful: pay every bill on time, keep credit card balances below 30% of the available limit, and resist the urge to open multiple new accounts in a short period. None of these actions require a high income. They require intentional choices.
Mistake 5: Making Financial Decisions in Isolation
Mistakes happen. If you ask older relatives if they had any financial regrets in their youth, they probably have a few stories to tell. A common folly is thinking that navigating financial decisions must be sheltered alone and all at once.
Finding trustful resources is a good place to start. The internet offers an enormous volume of financial content but should be looked at with a critical eye. Remember that generalized advice can be helpful, but does not account for individual circumstances, income trajectories, or specific debt structures.
You might choose to get different perspective from people you know. Perhaps an older relative, neighbor, or friend that you consider having made smart money decisions over time. Or you could take a financial literacy class or read a book on credit management.
Speaking to a financial professional is also an important option to consider. They can help walk you through your situation, identify future goals, and build long-term strategies that align.
The Good News: Consistency is Your Greatest Ally
For young adults, time is a great advantage to money management and wealth building. Contributing to retirement accounts, paying back debt, and building an investment portfolio are all actions that can benefit from early consistency. This can save the hassle of catch-up work later.
Your early 20s are like the opening moves of a very long game. Avoid money mistakes where you can, but remember that when missteps occur, you can always move forward towards solutions.
Material contained in this article is provided for information purposes only. It is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. These materials are provided for general information and educational purposes, based on publicly available information from sources believed to be reliable. We cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. The subject of this article is fictitious and created for illustrative purposes only. It is based on events of a similar nature and should not be interpreted as a direct depiction of any specific individual, organization, or incident. Any resemblance to actual persons, living or deceased, or actual events is purely coincidental.