5 Money Mistakes People Make in Their 20s and 30s—and How to Avoid Them

Not saving for retirement
Some have called compound interest the eighth wonder of the world, and you don’t have to be a financial expert to understand its power. By putting money into a retirement savings account, such as a 401(k) or IRA, early in life, you will give your savings more time to grow. Growth builds on top of growth over the years. 

Failing to invest in a 401(k) may also mean missing out on free money from your employer — on average, employers match 401(k) contributions up to 4.7% of your salary.

Eating out too much
It’s kind of clichéd financial advice, but that’s because it works: Don’t go out for coffee when you can make it at home. 

For the young and social, life can revolve around eating out with friends, but those restaurant bills add up. Simply by planning to bring lunch to work every day, savers can greatly reduce the amount they spend. On average, Americans spend $22.28 for two lunches out each week. If you invested that extra money instead, you could accrue tens of thousands of dollars in additional savings over 30 years.

Renting instead of buying
Many young people assume that they’re not ready to buy a house. They may think they haven’t saved enough for a down payment, or they might not know how long they want to stay in a certain area. Yet it’s important to remember that buying a house doesn’t have to be a lifelong commitment, and programs for first-time buyers can make mortgages more accessible. 

As of early 2018, homeownership in most metropolitan areas costs roughly the same amount or less than renting, after just two years of homeownership. And even if you end up selling or renting out the home in the future, you’ll most likely get a lot more money back than what you’d get from a rental security deposit.

Neglecting your credit score
You might not be keeping close track of your credit score, but banks and other lenders are. Having access to a loan or a credit card when you really need one can be a lifesaver, and good credit is a must if you want to be able to borrow at reasonable rates. 

You can build credit by getting a credit card, using it within reason and paying your bill on time and in full. As an extra incentive, see if you’re eligible for a card that gives points, air miles or cash back.

Not saving for emergencies
The Federal Reserve Bank estimates that the average cost of unexpected expenses, such as a medical emergency or a sudden car repair, is $2,000. It also found that a third of Americans say they don’t have that amount of money readily available. That situation often leads people to take on debt, withdraw funds from retirement plans and otherwise derail their plans.

Most financial experts suggest that you maintain a so-called rainy day fund of between six months and 12 months of expenses in a readily accessible location, such as a savings account. This emergency savings account can help you avoid costly mistakes when life throws you a curveball.