Twenty-somethings face a complicated financial picture. Many members of Generation Z are graduating college and entering a decade of independence in an era with factors stacked against them. Soaring food prices: grocery prices have increased by 25% over the past four years. A turbulent housing market: 2023 was the most expensive home-buying year in a decade. Not to mention, low wages, staggering student debt and compounding credit card debt.
Navigating this decade—let alone these obstacles—can be fraught with financial mistakes that can affect Gen Z for years to come.
Top 7 financial mistakes to avoid in your 20s
According to certified financial planners, here are the biggest financial mistakes to avoid in your 20s.
1. Not looking at the big financial picture
Twenty-somethings may be afraid of their financial realities and put off, or entirely avoid, looking at their financial picture. In the long run, this ignorance is bliss mentality only leads to more problems, whether it’s mounting credit card debt or puny retirement funds.
“Looking at the data can be empowering,” says Michael Raimondi, CFP, who specializes in serving creative professionals and members of the LGBTQIA+ community. He recommends identifying monthly core expenses and then identifying discretionary spending. “If you ignore the data, you can get caught in lifestyle creep,” he says.
Knowing their numbers is particularly important for freelancers, gig workers and/or people with side hustles—types of work that members of Gen Z are increasingly picking up. People working in these professions don’t receive regular paychecks but have to contend with monthly expenses. “Contract workers have a scarcity mindset,” he says. That can make them afraid to look at their income and expenses. However, doing so, Raimondi says, allows them to work toward a pool of funds to live off of. This helps avoid the feast or famine cycle.
2. Allowing lifestyle creep as your career grows
“On social media, everyone seems to be traveling and going out to amazing dinners,” Raimondi says. The internet and social media can amplify the “keeping up with the Joneses” effect that was once limited to people’s immediate circle. “In the world of social media, it looks like everyone is doing everything all the time… that’s not true.”
Instead, he advises setting spending priorities based on values. Perhaps you’re a foodie and you want to spend on fine-dining meals. Or perhaps travel is your top hobby, and you want to devote your dollars to trips abroad. Whatever your priorities, you’ll need to make budgetary trade-offs in other categories to support these passions.
3. Not defining your values and goals
There are few absolutes when it comes to financial planning. Even the oft-repeated advice of paying off debt before making other financial moves doesn’t necessarily apply to everyone. It comes down to an individual’s values and goals.
For example, Raimondi says 20-somethings should make sure their debt is managed and that they are paying it down consistently. However, they should only pour money into paying off student loan debt if it’s causing emotional or psychological stress.
“If you’re paying down debt, but you’re miserable while you’re doing it, you may not truly be living your values,” he says. “I’m not of the mindset of eating rice and beans while you’re young so you can have a life of abundance later on. You have to balance a sense of security with a robust life in your 20s.”
4. Leaving money on the table
Financial planners advocate for maximizing retirement savings to meet employer matches. If that’s not possible within your budget initially, you can work toward this goal over the course of a few years. However, beyond that, your money might be wisely spent elsewhere.
“You shouldn’t leave any money on the table, but, and this is a little controversial, it might be that in your 20s [saving for retirement] beyond the match might be suboptimal,” says Dillon Kenniston, CFP, and founder of ReWealth Planning. Instead, he says there may be more opportunities to create wealth through other investments, such as real estate and/or building a business.
5. Being afraid to ask questions of financial professionals
Every tax season, a meme circulates that says, “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 thousands every year—and that could be particularly true among younger people making hefty financial decisions for the first time.
Even if you don’t have a lot of money to manage, you can find a financial professional who’s willing to work with you. (After all, they hope to turn you into a client with a lot of money to manage.) To find an expert, look at their qualifications, which include certifications such as being a certified financial planner. These individuals must meet standards set by a board.
“You should be working with a financial professional with whom you feel comfortable being yourself,” Raimondi says. That knowledgeable person “may not be someone you expect. They may not look like you. You should be more interested in working with people who have experience working with your demographic, not necessarily those from your same demographic.”
6. Not using your social media savvy
A survey from the CFA Institute found that Gen Z increasingly relies on social media for financial advice. However, not all advice on social media is good advice—nor is it applicable to everyone. “It’s a blessing and a curse. It’s the Wild West out there,” Kenniston says.
If you’re going to take financial advice from someone online, look at their credentials and look for someone offering unbiased advice. Kenniston recommends searching for someone who is a fiduciary—in other words, someone who has a legal or ethical relationship to provide trustworthy advice.
He also advises following people who are independent rather than tied to a specific firm or product, who are not seeking investors and who are fee-based rather than commission-based. All of these qualities minimize potential conflicts of interest and ensure the advisory relationship is transparent.
It’s also important to keep in mind that financial advice needs to be specific to the individual. “Money has a lot of pitfalls,” Raimondi says. “It’s really important for [young people] to define what’s important to them and recognize that a strategy that works for someone else may not work for them… that social media post is not about anyone but the person who is posting it.”
7. Failing to take a big swing
Kenniston says many young people fail to see the purpose of their entry-level jobs “to pay the bills and stack the skills.” He says, at least initially, 20-somethings’ goals shouldn’t be top-tier salaries. Their goal should be preparing themselves to take a big swing for wealth in later decades.
He believes people stabilize their financial picture too quickly by going all in for retirement, buying a starter home or living a lavish lifestyle. “People get stuck on the hamster wheel,” he says.
Instead, he says true wealth is made by owning a business—either on your own or via equity earned in another company—or via real estate investment, such as the purchase of a multifamily property.
But none of these wealth moves are possible without acquiring the right skills first. “You have to say ‘I’m gonna crush it for my employer, so that I can then go crush it for myself,’” he says.
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