Twenty-somethings are presented with a complex financial situation. Generation Z individuals are graduating from college and embarking on a period of independence in a challenging economic environment. Grocery prices have surged by 25% over the past four years, contributing to the financial strain. The housing market is turbulent, with 2023 marking the most expensive year for home-buying in a decade. Additionally, low wages, significant student debt, and increasing credit card debt add to the financial hurdles faced by this generation.
Managing this stage of life, along with these obstacles, can be riddled with financial pitfalls that can have long-lasting effects on Gen Z individuals.
Top 7 financial mistakes to avoid in your 20s
Certified financial planners highlight the major financial mistakes to steer clear of in your 20s.
1. Not looking at the big financial picture
Many individuals in their twenties may shy away from confronting their financial realities, choosing to postpone or completely ignore assessing their financial situation. Succumbing to this “ignorance is bliss” mentality can lead to more serious issues in the future, whether it be mounting credit card debt or inadequate retirement savings.
Michael Raimondi, a CFP specializing in serving creative professionals and LGBTQIA+ individuals, emphasizes the importance of understanding one’s monthly core expenses and discretionary spending. Ignoring these financial details can result in falling victim to lifestyle inflation. Raimondi suggests that freelancers, gig workers, and those with side hustles, common among Gen Z members, need to be particularly aware of their financial numbers. These individuals often grapple with fluctuating incomes and monthly expenses. Raimondi asserts that confronting income and expenses enables them to work towards establishing a financial safety net, aiding in avoiding financial instability.
2. Allowing lifestyle creep as your career grows
Raimondi observes that social media often portrays a facade of extravagant travels and fine dining experiences, fostering a sense of keeping up with peers. This virtual comparison culture can lead individuals to make spending decisions not aligned with their values. Raimondi recommends setting spending priorities based on personal values, whether it’s indulging in gourmet meals or investing in travel experiences. Making these deliberate budgetary choices allows individuals to support their passions while making trade-offs in other expense categories.
3. Not defining your values and goals
Financial planning is not a one-size-fits-all solution. Raimondi stresses that individuals should align their financial decisions with their core values and goals. While paying off debt is generally advised, Raimondi cautions that it’s essential to evaluate whether the debt repayment journey is causing emotional distress. Prioritizing mental well-being and financial stability is crucial in financial decision-making during one’s twenties.
Raimondi suggests that individuals in their 20s focus on managing their debt effectively while ensuring they are content with their financial choices. Rather than sacrificing current happiness for future financial security, Raimondi advocates for striking a balance between security and living a fulfilling life in one’s twenties.
4. Leaving money on the table
Financial planners emphasize the importance of maximizing retirement savings to benefit from employer matches. If immediate budget constraints hinder this goal, individuals can work towards achieving this target over a few years. However, beyond this point, it may be more beneficial to allocate funds elsewhere.
Dillon Kenniston, a CFP and founder of ReWealth Planning, suggests that overemphasizing retirement savings in one’s twenties may not be optimal. Instead, he encourages exploring other investment avenues such as real estate or establishing a business to generate wealth.
5. Being afraid to ask questions of financial professionals
A lack of financial literacy among young individuals making significant financial decisions for the first time can result in substantial financial losses. Seeking guidance from a financial professional, even if one’s financial portfolio is modest, is crucial. Experts advise individuals to verify the qualifications of financial professionals, ensuring they possess certifications such as being a certified financial planner.
Raimondi stresses the importance of collaborating with a financial professional who understands one’s demographic and values, even if they may not necessarily share the same background. Establishing a comfortable and knowledgeable relationship with a financial advisor is key in navigating financial complexities.
6. Not using your social media savvy
Gen Z individuals often turn to social media for financial advice, as highlighted by a survey from the CFA Institute. However, discerning credible advice from the plethora of information available online is essential. Kenniston suggests seeking advice from fiduciaries who provide unbiased and trustworthy guidance.
He recommends following independent financial advisors who prioritize transparency and offer valuable insights tailored to individual needs. Understanding that financial advice should be personalized, Raimondi emphasizes the importance of aligning financial strategies with personal values, rather than emulating generic advice found on social media.
7. Failing to take a big swing
Kenniston points out that many young individuals overlook the significance of entry-level positions in acquiring skills and financial stability. Instead of fixating on immediate financial gains, he suggests focusing on building skills and experience to facilitate wealth creation in later years.
According to Kenniston, true wealth is often built through entrepreneurship or real estate investments, requiring individuals to hone their skills before venturing into these endeavors. By prioritizing skill development and focusing on long-term goals, individuals can set the stage for financial success.
