Twenty-somethings are confronted with a complex financial situation. Generation Z members are graduating from college and beginning a decade of independence during a challenging time for them. Rising food prices: grocery costs have surged by 25% in the last four years. A volatile housing market: 2023 was the most expensive year for home-buying in a decade. Additionally, low wages, extensive student debt, and accumulating credit card debt add to the financial pressures.
Getting through this decade, with all these challenges, can be rife with financial errors that could impact Gen Z for years to come.
Top 7 financial mistakes to avoid in your 20s
According to certified financial planners, these are the major financial errors to steer clear of in your 20s.
1. Not looking at the big financial picture
Many twenty-somethings may be hesitant to face their financial realities and might delay or completely avoid analyzing their financial situation. Ultimately, this ignorance-is-bliss approach only leads to more issues, whether it’s mounting credit card debt or insufficient retirement savings.
“Reviewing the data can be empowering,” says Michael Raimondi, CFP, who focuses on serving creative professionals and members of the LGBTQIA+ community. He suggests identifying monthly essential expenses and discretionary spending. “If you disregard the data, you can fall into a lifestyle creep trap,” he explains.
Knowing their financial figures is particularly crucial for freelancers, gig workers, or individuals with side hustles—types of work that many Gen Z members are taking on. People in these fields don’t receive regular paychecks but have monthly expenses to manage. “Contract employees often have a scarcity mindset,” he notes. This can make them hesitant to review their income and expenses. However, Raimondi argues that doing so enables them to work towards a fund to sustain themselves. This helps avoid the cycle of feast or famine.
2. Allowing lifestyle creep as your career grows
“On social media, everyone appears to be traveling and enjoying amazing dinners,” says Raimondi. The internet and social media can amplify the “keeping up with the Joneses” effect that was once confined to one’s immediate circle. “In the realm of social media, it seems like everyone is doing everything all the time… which is not true.”
Instead, he recommends prioritizing spending based on values. Whether you’re a food enthusiast who enjoys fine dining or a travel aficionado who wants to invest in trips abroad, you’ll need to make budget adjustments in other areas to support these passions.
3. Not defining your values and goals
When it comes to financial planning, there are few strict rules. Even the common advice of paying off debt before other financial actions may not apply to everyone. It boils down to an individual’s values and objectives.
For instance, Raimondi suggests that twenty-somethings should ensure they manage their debt and consistently pay it off. However, they should only allocate funds to paying off student loan debt if it’s causing emotional or psychological distress.
“If you’re repaying debt but are miserable while doing so, you may not truly be living in alignment with your values,” he remarks. “I don’t believe in a mindset of extreme frugality in your youth to have abundance later on. You need to strike a balance between security and a fulfilling life in your 20s.”
4. Leaving money on the table
Financial advisors recommend maximizing retirement savings to meet employer contributions. If this is initially not feasible within your budget, you can work towards this goal over a few years. However, beyond that, your money might be better utilized elsewhere.
“You shouldn’t overlook any opportunities, but, controversially, saving for retirement beyond the matching amount in your 20s might not be the best move,” states Dillon Kenniston, CFP and founder of ReWealth Planning. Instead, he suggests that there could be more wealth-building opportunities through other investments like real estate or starting a business.
5. Being afraid to ask questions of financial professionals
During every tax season, there’s a meme that circulates saying, “I’m glad I learned about parallelograms in high school math instead of how to do my taxes. It’s really going to come in handy this parallelogram season.” A lack of financial literacy costs Americans significant amounts annually—and this might be especially true among younger individuals making significant financial decisions for the first time.
Even if you’re not managing a large sum of money, you can seek out a financial expert who is willing to assist you. (Ultimately, they hope to gain you as a client with substantial assets to manage.) When looking for an advisor, check their credentials, including certifications such as being a certified financial planner. These professionals have to meet certain standards set by a regulatory board.
“You should collaborate with a financial professional with whom you feel comfortable being yourself,” Raimondi advises. That knowledgeable individual “may not be someone you expect. They may not resemble you. You should be more interested in working with individuals who have experience catering to your demographic, not necessarily those from the same demographic as you.”
6. Not using your social media savvy
A survey conducted by the CFA Institute found that Gen Z increasingly relies on social media for financial guidance. Nevertheless, not all advice on social platforms is sound, nor is it universally applicable. “It’s both a blessing and a curse. It’s like the Wild West out there,” Kenniston remarks.
If you intend to take financial advice from an online source, check their qualifications and seek unbiased advice. Kenniston recommends looking for a fiduciary, someone who has a legal or ethical obligation to provide trustworthy advice.
He also suggests following individuals who are independent rather than affiliated with a specific company or product, who are not seeking investors, and whose services are fee-based rather than commission-based. All these characteristics reduce potential conflicts of interest and ensure transparency in the advisory relationship.
It’s also crucial to remember that financial guidance needs to be tailored to the individual. “Money has numerous pitfalls,” Raimondi notes. “It’s crucial for [young individuals] to define their priorities and understand that a strategy that works for someone else may not work for them… that social media post is about the poster, not anyone else.”
7. Failing to take a big swing
Kenniston believes that many young people fail to recognize the purpose of their entry-level positions as “paying the bills and honing skills.” He suggests that, initially, the goal for twenty-somethings should not be top-tier salaries but preparing themselves to take significant wealth-building steps in later years.
He argues that people often stabilize their financial situation too quickly by focusing entirely on retirement, buying a starter home, or leading a lavish lifestyle. “People get stuck in the rat race,” he observes.
Instead, he asserts that true wealth is accumulated by owning a business—whether independently or gaining equity in another enterprise—or through real estate investments like purchasing a multifamily property.
However, none of these strategies for wealth generation are feasible without first acquiring the necessary skills. “You have to say ‘I’m going to excel in my role to then have the ability to excel for myself,’” he advises.
