Five financial mistakes young investors make — and how to avoid them
By In my career as a wealth advisor, I meet with lots of professionals just starting out in their wealth-building journeys. I love seeing folks get a head start on investing to let time and compound interest work for them.
But for many others, the freedom they get from those first few paychecks can be a source of temptation, whether it’s spending the whole thing or even spending beyond their means. A lot of folks simply tread water in their 20s and 30s when they could have built a solid foundation early to build upon in their higher-earning years. Here are a few of the most common mistakes I see and some thoughts on how to avoid them.
Mistake #1. Winging it Without a Plan
I’ve lost count of how many times I’ve heard things like, “I’m too young to think about financial planning,” or “Why worry about retirement in my 20s or 30s?” The truth is, there needs to be a balance between living in the moment and preparing for the future. A well-thought-out financial plan helps you do both, and enlisting advisors like those on our team at FFP is a great way to guide you every step of the way.
Mistake #2. Delaying Savings
You’ve probably heard it before, but it’s worth repeating: The earlier you start investing, the more time your money has to grow. Even small contributions can snowball into significant savings over time, potentially giving you a major edge when it comes to retirement. Build savings into your monthly budget now, and it will become much easier over time. Consider automatic deposits into an account to help ensure you won’t even miss the money when it’s “gone.”
Mistake #3. Not Having an Emergency Fund
Even when you’re young, unexpected expenses and even layoffs can strike at any time. An emergency fund is a must. As a general rule of thumb, aim for at least three months of living expenses, but depending on your profession, it might need to be more. It’s all about creating a financial cushion so unexpected events don’t derail your long-term goals.
Mistake #4. Carrying Credit Card Debt
Credit cards can be powerful financial tools — if used wisely. They offer rewards, fraud protection, and can even boost your credit score. The key is to use them for regular expenses and pay off the balance in full each month. Otherwise, missed payments and high interest rates can quickly undo any benefits.
Mistake #5. Ignoring Your Credit Score
Some people avoid debt entirely, and while that can work for some, I believe debt isn’t inherently bad when managed well. Your credit score is a crucial factor that lenders use to assess your creditworthiness. A strong score can unlock better rates, lower payments, and even exclusive offers. Carrying debt responsibly and making all payments on time will prove to lenders that you’re a low risk so that, when you need that mortgage or home equity loan, you get the best rates possible.
The information discussed is educational in nature and is not and should not be construed to be investment advice.
Article by Jacob Buckley, CFDA, MBA, Wealth Advisor at Family Financial Partners — a financial services firm in Lexington, Kentucky.