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Money Mistakes To Avoid In Your 20’s

financial mistakes 20 year olds can avoid

Lord knows I made some big money mistakes in my 20’s. Thankfully, I’ve had the opportunity to redeem myself, but I still wish I’d had someone give me financial lessons back in the day. Who knows if I would have listened, but here some money mistakes to avoid in your 20’s.

Consumer Debt

I think the biggest mistake I made was to take on consumer debt. Our credit card debt didn’t peak until my mid 30’s, but if I’d slammed the door on debt from day one, we would have never had to devote so much time and energy to debt repayment when we could have been building wealth.

I also wish I could rewind and set my retirement contributions to the max from my very first eligible pay period. I could have learned to live on what was left after investing. After all, I went from earning $25,000 a year as a resident to $70,000 a year as a rookie optometrist. Don’t tell me I couldn’t have lived large on $50,000 and socked away the rest!

Lifestyle Inflation

Instead, I let lifestyle inflation and the need for instant gratification guide me into buying too much stuff that really adds up to nothing at this point.

I traded a perfectly good, paid off Honda Accord to get a brand new car pretty soon after getting my first real job. Yes, I could afford the payment, but it started a cycle of monthly payments that took over a decade and many thousands of dollars to break. If I could go back, I would have driven that Honda into the ground and bought used going forward.

Almost all of these mistakes could have been prevented if I had a better grasp on tracking my income and spending by using a budget. Instead, I focused on whether or not I could afford the payment.

Things I Did Right In My 20’s

I can’t beat myself up completely over not making all the right financial decisions in my 20’s. I did do several things right, and some of them continue to pay off to this day.

Became an Entrepreneur

I didn’t go to school with the hope of running a business, but at the ripe old age of 28, I found myself as the sole owner of a busy optometry practice with two offices and nine employees! It obviously wasn’t an accident and happened after two years of being employed. I had time to get familiar with the day to day operations, but it was still a pretty big leap, especially when every other employee was older and had more optical experience than I did.

While running that business did eventually cause burn out, being an entrepreneur taught me tons of valuable skills.

  • Persistence
  • Desire to provide superior service
  • How to deal with employees and the public in general
  • Knowledge that you get out what you put in
  • How to grow a thick skin

I was also able to grow the business into a valuable asset. It has been nice to enjoy the rewards of being able to sell for a nice profit. Owning that business early on also gave me the confidence to get into real estate investing and to become a contract optometrist so I don’t have to work a traditional schedule, things I would probably never have discovered working a typical 40 hour week in an employed position.

Buying Real Estate

When Jim and I bought our first house, I was 26 years old. We didn’t have a clue about homeownership, but knew we were tired of renting. Since then, we’ve sold and bought another house to live in and purchased a single family rental home, a four plex residential rental, and a commercial rental. Real estate has it’s risks and is not always smart if you don’t intend to stay put for a while, but it’s been really good to us and will fund our early retirement dreams in a few years.

Investing Early

While I do wish I had started saving for retirement the minute I had a job at sixteen years old, hindsight is always 20/20. I did start investing in my work retirement plan as soon as I got my first job as an optometrist and then added a Roth IRA a few years later. Even when the stock market tanked in 2008, I kept putting in money and always kept the majority in stocks. It’s not fun to watch your balance dip 30%-40% over the course of a few months, but it’s important to remember that the end game is many, many years away for twenty somethings.

While I wish I had maxed out everything from day one, the small percentage I did sock away has grown into a decent sized account over time. If you start early enough, the power of compound interest will win out over ups and downs in the stock market.

How You Can Get It Right In Your 20’s

Don’t live under the illusion that you will want to work forever

When I graduated from optometry school, all I wanted to do was find a high paying job and work. Like most of society, I assumed I would work for the next 30 or 40 years and retire in my 60’s. I think that’s why so many young people don’t start saving for retirement right way. They assume there will be plenty of time later.

The hard reality is that about 10-15 years into a career, most people experience some sort of burnout. Life situations change, and there might be more important things at the end of the day besides work. I’m sure there are some people who find that dream job and are able to work for decades doing the same thing, but just in case you aren’t one of the lucky(?) ones, it’s important to make alternative plans.

Start Tracking Your Finances From Day 1

My eight year old daughter already knows more about budgeting than I did in my 20’s. If you want to be wealthy, the key is to start keeping track of your finances from day 1. In college, students are often forced to be frugal because there probably isn’t much income to be had. Everyone should plan for the day when you will have money so that increases in income don’t equate to lifestyle inflation or debt. Luckily, it’s very easy to track income, spending, and even create a budget or investing plan at sites like Mint or Personal Capital.

Invest Early and Often

Set up automatic investments from your very first paycheck. I would whole heartedly urge young people to set their retirement contributions as high as possible, ideally maxing out 401 k contributions or at least contributing enough to get any company match. Leaving free money on the table is like flushing money down the toilet. Learn to live on what you make after investments. I can honestly say that in my 40’s, having a large retirement account balance is much more exciting than having new cars or shiny things.

If you don’t have a 401k or the investment choices aren’t good, you can always DIY retirement savings. This is a great idea even if you do max out your work plan. With so many low cost brokerages available today, if you aren’t finding what you want in an investment company, you aren’t really looking. Companies like Betterment and Motif allow beginning investors to get started with under $500, so there is no excuse to put off saving for the future.

Avoid Debt

I don’t mean that twenty somethings should never have any debt. Sometimes it’s worthwhile to leverage debt for an education or to buy a house or reliable car to take you to to work. Unless you’re independently wealthy, most young people will have to use credit for those type purchases. However, you can control consumer debt. Using credit to finance things like furniture, landscaping, vacations, or clothes insures a lifetime of payments. Consumer debt is a vicious cycle that takes away your choices, and it should avoided at all cost.

For 20 something’s, what financial steps are you trying to take to avoid financial regrets? For older readers, what money mistakes would have avoided in your 20’s if you could go back again?


About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.


  1. It’s almost criminal how the credit card companies lure young people to take on debt. I did it and by the time I was 40 I had over 50K in credit card debt. I turned the corner and paid it all off and never looked back. Saving is now as natural as breathing. I did lots right too but I would have had a different experience if I hadn’t had that debt.

    • I don’t blame anyone but myself for credit card debt. I shouldn’t have stuck my head in the sand about how interest and monthly payments take away the ability to save and invest.

  2. You must have felt like quite the baller being 28 years old and owning your own business! That’s pretty incredible!

    The concept of investing early and going big is so important. The more you invest right off the bat while you’re young, the faster those compounding returns get to work snowballing into a fortune that you can live off of some day.

  3. My money mistake when I was in my early 20s. I asked my mom to buy me a brand new car and I would just pay her off when I had my job. It was really mistake because first I owed and felt like I was really in debt because I had to be consistent in paying my mom on a monthly basis. I should have just gotten a used car.

    • I wish I could take back all the new cars we bought instead of just driving them longer once they were paid off.

  4. I had a very similar bout, as you know, with debt when I was younger and it came from lifestyle inflation. If I could go back I’d pay it off sooner and start investing more seriously earlier. I think the tracking of the finances, and really owning them is the key when you’re young – everything else should flow out from that i f you’re doing it well – investing, debt payoff, etc.

  5. Lots of great advice here, Kim! Really relevant for me personally as well as my blog followers. I think I’m doing a lot of things right in my 20s, but there’s always room for improvement. I think the greatest challenges for 20-somethings is finding a well-paying job/career. It’s pretty difficult to break into entry-level jobs and only becomes more difficult the longer you are graduated. I think persistence is extremely important for those in their 20s as well as having a “do whatever it takes” (obviously within moral/ethical bounds) to survive and thrive financially.

  6. As a 20 something year old, I have been out of college for a year and a half.
    Things I feel I have done right:
    I have a retirement account, it’s through work and it’s mandi tory but there’s a match.
    We bought a condo at the bottom of the interest rate market. It’s in a college town, so turning it into an investment property when we outgrow it is very realistic.
    I have never carried a balance on my credit cards.
    I always have a minimum emergency fund, which has saved us several times.
    We live below our income.
    My school was paid for, but even then I worked through college and graduated early saving quite a bit of money.
    My husband’s college has been saved for and paid for by us. We have used the state stipends and Pell grant, but we have paid the majority.
    And we were careful when we bought a new car. It’s financed, but that was because we didn’t have enough saved to buy a car that would serve our purpose. However we have an interest rate that is under 1% and we bought a car with the intention of driving it into the ground. my job requires a reliable car. We bought a car with good gas mileage. And with baby number 1 on the way we needed a family vehicle. So my only regret was to have more down payment, however we were paying my husband’s school at the same time, so it was a balancing act.

    Another thing I feel we have done right is we have almost no new furniture, we have furniture off craigslist and family members who are older than us and in a different spot financially have replaced their furniture and then give it us. We hop all over it when it gets offered. And because of that all we have bought new was our mattress.
    Other things we are doing, with starting a family, almost everything will be bought used, we aren’t all of a sudden trying to find a bigger place.

  7. I did everything wrong in my 20s. Didn’t save enough, was spending too much, and collected debt. I finally woke up when I was 32. Better late than never, but I really wish I did something about my finances in my 20s. I would have been in a much better position right now.

  8. Great tips, Kim. It is one of life’s great ironies when I talk to people in their 20’s, they think 401ks, IRAs, investing is something their parents do and when I talk to their parents, they all regret not investing in their 20s. 🙂 I think if young people left home financially literate, it would minimize the mistakes we make. We’d still make a few because we are human after all, but most of us stumble around, learning by trial and error, which could have been avoided.

    • You certainly never hear people saying they regret putting money in their retirement account at an early age.

  9. I sucked in my early 20s but did pretty good for the second half. It was then that I started saving for retirement and investing in real estate. My early 20-self was clueless!

    • I think most of us are clueless in our early 20’s. I probably would not have made the best choices even if I’d had a good financial foundation, but at least I might have turned it around sooner.

  10. Oh so many things Kim! 🙂 Although I don’t regret the good times I had in my 20’s, I could have just altered things slightly and I’d be better off than I am today. But not going back…just looking forward.

    • No we can’t go back, and I’m not sure I’d want to! I feel very old passing along advice to 20 somethings.

    • No we can’t go back, and I’m not sure I’d want to! I feel very old passing along advice to 20 somethings.

  11. You have hit the nail on the head multiple times here. Lifestyle inflation is the biggest mistake. I have a grown daughter who is on her own now, and I have advised her to “live like a student” for as long as possible. So far, she is – AND she’s putting aside savings. I really like what you have to say about not assuming you will want to work forever. I have the best job in the world . . . and I am REALLY looking forward to retirement : ) Great post!

    • I don’t know any women around my age with kids who wouldn’t love to work less or not at all or at least have a flexible schedule. It sounds like your daughter has a good foundation and is making wise choices. I hope my daughter does the same someday.

  12. THis is a great post,i made alot of mistakes in my 20’s and it took me years to get over them.keep up with these great posts.

  13. Great advice. I think becoming an entrepreneur is a great step for twenty-somethings. It doesn’t have to be your main career, but even developing some sort of side job where you run things yourself teaches you valuable lessons and gives you an income stream to fall back on. I wish I had started working for myself much earlier than I did.

  14. I paid for whole life insurance in my early 20s for 3 years. IF I invested that into stocks on top of the IRA I started at 19, the compounding would have benefited me today.

  15. Great tips. There are many things I would have done differently in college and with my first job. If I had started putting away money earlier I think later on I would be more secure. Although, I think it’s never too late to start!

  16. I think the biggest mistake is not saving money for the future. Most millenials spend their money so easily and quickly instead of saving it. As for me, I began setting up websites in my 20s and this amount of money allowed me to rent my appartment…

  17. I think a lot of these mistakes have really been amplified in younger generations. Just my opinion of course, but I feel as though the true value of a dollar means less and less to younger people as they are given more and more.

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