Financial mistakes to avoid: financial advice for young adults

It’s challenging to manage personal finance in your early years. With little experience and plenty of external influences, it’s easy for young adults to make mistakes that could haunt you for years.

This article explores the financial mistakes to avoid and offers financial advice for young adults, whether you’re just starting at 18 or looking to make smarter money decisions in your mid-20s.

Following these tips can help you avoid common pitfalls and build a secure financial future.

1. Not creating a budget

A budget is the foundation of financial success. Many young adults fail to budget, leaving them unprepared for unexpected expenses and prone to overspending. A Statista report shows that only 35% of adults aged 18–24 track their expenses.

Why it’s a mistake:

Without a budget, you risk living paycheck to paycheck and accumulating debt.

Financial advice for young adults:

• Use the 50/30/20 rule: Allocate 50% of your income to necessities, 30% to discretionary spending, and 20% to savings or debt repayment.

• Try budgeting apps like Mint or YNAB (You Need a Budget) to monitor your spending.

2. Ignoring emergency savings

An emergency fund is your safety net for unexpected expenses like medical bills or car repairs. According to Bankrate, 56% of Americans can’t cover a $1,000 emergency with savings.

Why it’s a mistake:

Without an emergency fund, you’ll likely rely on credit cards or loans, leading to high-interest debt.

Financial advice for young adults:

• Start small by saving $500 to $1,000 initially, then aim for 3–6 months’ worth of living expenses.

• Automate your savings to ensure consistency.

3. Accumulating credit card debt

Credit cards can be a useful tool, but they can also lead to significant debt if not managed properly. NerdWallet reports that the average U.S. household carries $7,000 in credit card debt.

Why it’s a mistake:

High-interest rates can trap you in a cycle of debt, damaging your credit score.

Financial advice for young adults:

• Pay your balance in full each month to avoid interest.

• Use your credit card for planned purchases and emergencies only.

4. Not investing early

Investing may seem overwhelming at first, but starting early is one of the smartest financial moves you can make. The power of compound interest means your money grows exponentially over time.

For example, if you invest $5,000 annually starting at age 25 with an average return of 7%, you’ll have nearly $1 million by age 65. Waiting until 35 reduces that amount by half.

5. Not building a good credit history

Your credit score affects more than just your ability to borrow money—it impacts your insurance rates, rental applications, and even job opportunities.

Why it’s a mistake:

Poor credit history or no credit history can limit your financial options.

Financial advice for young adults:

• Get a secured credit card if you’re just starting.

• Pay all bills on time and keep your credit utilization below 30%.

6. Overspending on lifestyle

It’s easy to fall into the trap of spending too much on eating out, luxury items, or frequent travel. Social media can amplify the pressure to keep up with trends and experiences.

Why it’s a mistake:

Overspending can lead to debt and prevent you from achieving long-term goals like homeownership or retirement savings.

Financial advice for young adults:

• Set financial goals and track your progress.

• Practice mindful spending—focus on experiences and things that truly matter to you.

7. Not understanding taxes

Taxes may seem complicated, but ignoring them can lead to costly mistakes. Failing to plan for tax payments can result in penalties or missed opportunities for deductions.

Why it’s a mistake:

You could end up owing more than expected or missing out on refunds.

Financial advice for young adults:

• Learn the basics of tax brackets and deductions.

• Use tax software or consult a professional if your situation is complex.

8. Neglecting retirement savings

It’s tempting to delay retirement savings when you’re young, but waiting too long can cost you. The earlier you start, the less you need to save thanks to compound interest.

Why it’s a mistake:

Delaying retirement savings means you’ll need to save much more later.

Financial advice for young adults:

• Take advantage of employer-sponsored plans like a 401(k)*, especially if they offer a matching contribution.

• Contribute regularly, even if it’s a small amount.

*Take note: A 401(k) is a retirement savings plan offered by employers in the United States. It helps employees save for retirement by contributing a portion of their salary before taxes are taken out.

Here’s some age-specific financial advice to help you make the right moves at different stages of young adulthood:

Financial advice for 18 years old

• Focus on building a budget and starting a savings habit.
• Avoid unnecessary debt, especially credit card debt.
• Learn about basic investing concepts.

Best financial advice for 25 years old

• Start investing if you haven’t already. Even small contributions matter.
• Build your credit score by managing credit responsibly.
• Create a long-term financial plan, including retirement and big purchases like a home.

Summary of common financial mistakes and how to avoid them

Mistake	Why it’s harmful	What to do instead
Not budgeting	Leads to overspending	Use the 50/30/20 rule
Ignoring emergency savings	Creates financial vulnerability	Build an emergency fund
Accumulating credit card debt	Results in high-interest payments	Pay balance in full monthly
Delaying retirement savings	Reduces future wealth	Start contributing to a 401(k) plan early

Managing your finances in your 20s is about avoiding common mistakes and making smart decisions that set you up for long-term success.

Whether you’re 18 years old and just starting to budget or looking for the best financial advice for 25 years old, it’s never too early—or too late—to take control of your financial future.

By budgeting, saving, investing, and avoiding unnecessary debt, you’ll be well on your way to financial freedom.

Remember: Small steps today can lead to big rewards tomorrow!