5 Money Mistakes to Avoid in Your 20s

As a young adult just coming into financial responsibility, it can be easy to let your expenses get out of control. Especially if you've never had to pay for things like rent, a car, or groceries, your habit might be to spend all your discretionary on food and entertainment. However, if you want to become financially secure, you need to start now, not in your 30s or 40s. The decisions you make in your 20s can determine whether or not you are financially successful for your entire life. Here are 5 of the most common and detrimental money mistakes that you should avoid making in your 20s.

1. Spending Above Your Means

If you're spending more money per month than you're bringing in (or cutting even), you need to take a hard look at your expenses. Living within your means may require you to cut back on extracurriculars like eating out, going to movies, or buying a new video game console. Or it may require something a little more drastic, like choosing a smaller apartment. Whatever it takes, make a habit of keeping some extra income at the end of the month. Otherwise, you'll find yourself in a financial hamster wheel that can last for decades.

2. Not Having a Budget

Few things will ruin your finances quicker than aimless expenses. If you don't know where your money is going, it'll all be gone too soon. Take some time to download a budget app on your phone or create a spreadsheet on your computer that lists each of your essential expenses and shows how it lines up with your income. Before you add in fun categories, include a category for savings or retirement. Then, if you can afford it, you can budget for non-essentials. Be sure to keep up with your spending and check your budget weekly to ensure that you're not overspending in any category.

3. Skipping the Emergency Fund

Ideally, you'll never have to use your emergency fund. But life is rarely ideal, and few things can be more stressful than finding yourself suddenly unemployed or with a huge stack of medical bills. You should start saving immediately for any emergency expenses. A full emergency fund will have enough money for at least three months of expenses. If you can afford more, do it, but start where you can and add to it over time as you see the need. It might mean you have to tighten your budget now, but you'll appreciate it if you ever have to fall back on the fund.

4. Racking Up Credit Card Debt

Your first credit card always seems like your new best friend until the statement hits. Unfortunately, credit card companies are anything but your friends, and all they want is to get extra money off of your irresponsibility! Be very cautious with your credit cards and only buy what you can afford. Never let your balance carry over because that debt can have a massive snowball effect with interest rates often above 20%. It's best to start with only one or two credit cards. If possible, find cards with low-interest rates (in case of emergencies where you absolutely have to have a balance) and that have good rewards programs to help you save money on what you spend.

5. Putting Off Retirement Planning

Retirement may seem so far away, but the longer you wait to plan, the farther away it gets. Even as a new member of the workforce, planning for your retirement needs to be an immediate priority. Take advantage of your company's 401(k) plan, or look into setting up Roth IRA on your own. It's incredible how even a few thousands of dollars in your first few years can compound into hundreds of thousands by the time you retire. The longer you have money sitting in an account, the longer it has to grow for your retirement needs. Start by investing what you can afford, and aim to increase that amount to 10% or 15% of your annual income. You'll be thanking yourself when you retire with a nice payout every month.

These are just a few of the pitfalls that many young adults fall into early in their careers. If you're struggling with any of these, take some time today to reevaluate your expenses, create a budget, and start a plan to set yourself on a path that leads to financial success.