Gen Z's Biggest Money Mistakes (Plus, Small Wins That Fix Them)

It's all too easy to fall into bad money habits in your 20s that can set you back for decades. Here are five mistakes to avoid — and the good habits to form instead. When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works. Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.You are now subscribedYour newsletter sign-up was successfulWant to add more newsletters?Delivered dailyKiplinger TodayProfit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. 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Your 20s are full of firsts. First real paycheck. First apartment. First time realizing groceries cost more than you thought.It's exciting, but it's also when small money choices start to snowball. The money habits you build now can set you up for decades. Or they can follow you around like that receipt you keep meaning to deal with.Plenty of smart people stumble on the same things: No budget, ignoring savings, assuming insurance can wait and skipping credit-building. The good news is that each one has a simple fix.Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special IssuesProfit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.Profit and prosper with the best of expert advice - straight to your e-mail.Let's walk through five common money mistakes to avoid in your 20s and what to do instead.A budget is just a plan for your money. Not a punishment and not a financial diet. Just a way to tell your dollars where to go before they wander off.About Adviser IntelThe author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.In your 20s, it's easy to skip budgeting because your income feels unpredictable and your expenses are still settling. And it seems like something you'll figure out later.But getting started is easy:The Consumer Financial Protection Bureau (CFPB) has free budgeting resources that are clear and practical. And remember, your credit score matters. Payment history and amounts owed (including your credit utilization) are big parts of your score, as FICO outlines.An emergency fund is a cash cushion for actual emergencies. Think of unexpected car repairs, house maintenance requests, medical bills or lost income. It protects the rest of your plan, so you don't reach for a high-interest credit card at the worst possible time.The CFPB encourages an emergency fund approach. And the general rule of thumb is to build three to six months of essential expenses. This is how to get started:Jeffrey Zhou, CEO and founder of Fig Loans, recommends the "1-3-6 method" for building an emergency fund. This approach entails starting with one month's worth of expenses, then gradually increasing savings to cover expenditures for three to six months.Though he provides personal loans to those who need short-term support, Zhou emphasizes the importance of financial preparation. "An emergency fund gives you options when life throws something unexpected your way."Even starting with a small cushion can help you avoid high-interest debt and make better financial decisions under pressure. The goal is to gain progress and have peace of mind."Insurance feels optional when you're healthy and everything works. But one cracked bumper can upend your budget.And while serious accidents can carry financial consequences long after the initial hospital visit, thanks to the cost of ongoing medical care, rehabilitation and lost income, even a minor injury can be expensive out of pocket.The following is vital:In general, aim to get coverage high enough to keep a bad day from becoming a bad decade.Retirement feels far away in your 20s, but that's exactly why starting now matters. Time does the heavy lifting through compound growth. Every dollar you invest now works for 40-plus years.If you like visuals, the SEC's compound interest explainer and calculator are great for playing with scenarios.How to start:Make sure to automate contributions. Then increase them by 1% each year, or whenever you get a raise.Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel, our free, twice-weekly newsletter.Your credit score shows up when you rent an apartment, finance a car, qualify for insurance rates, or pay the bills. Building credit in your 20s puts you on an easier footing later.These are the key habits to adopt now:Check your credit reports regularly to spot errors or fraud early. You can request free credit reports at AnnualCreditReport.com. Many banks and card issuers also offer free score monitoring in their apps.Your 20s aren't a test you have to ace. Get a basic budget in place. Build a small emergency cushion and grow it over time. Use insurance to guard the progress you're making. Start retirement contributions, even if they're tiny. And build credit with boring, consistent habits.Pick one action you can take this week: Set up a $25 automatic transfer to savings, increase your 401(k) by 1% or check your credit reports.Then stack another one on top next month. Ultimately, small, steady steps beat big, unsustainable pushes every time.This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.David Abraham is a tech lawyer with extensive experience in artificial intelligence, financial technology, human rights law and digital marketing. His work has appeared on Clutch and Benzinga. David is passionate about making complex issues clear and actionable for readers.