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Your 20s are a time of discovery. That includes discovering how to make, spend, and save money (and be less dependent on Mom and Dad). But the journey toward understanding your finances can be a bumpy one. Here are five financial mistakes people often make in their 20s and how to avoid them:

1. Living Beyond Your Means

Are you spending more than you’re making? It may feel good right now, but living beyond your means can hurt you in the long run by saddling you with debt and stopping you from saving toward your future.

If you aren’t keeping track of what’s coming in and what’s going out, you may be overspending without even realizing it. That’s why a budget is so important. Creating a budget can help you understand how much money you have, what you’re spending it on, and where you can cut back.

Following the 50/30/20 rule is one of the best personal finance tips out there. Put no more than half of your earnings toward necessities like food and housing, and at least 20 percent toward savings. You can put the rest toward things you enjoy.

Budgeting means acknowledging you can’t have everything you want right when you want it. This takes discipline, but the financial security it helps create makes it well worth the effort. And online tools like American Heritage’s My Money Manager make budgeting easier than ever.

2. Failing to Create an Emergency Fund

If you are living paycheck to paycheck and have no savings, an unexpected health issue, layoff, or other emergency can have scary financial consequences. Having at least three to six months’ worth of income saved in an emergency fund can make emergencies much easier to get through.

One way to do this is to open a savings account. You’ll be less tempted to dip into your emergency savings if it’s separate from your checking account, plus you’ll earn more dividends. Make saving easy by setting up automatic monthly deposits from your checking account. Even $5 or $10 a month will help. Bulk up your emergency fund by putting any big windfalls – like your tax refund or birthday money – straight into savings.

3. Going Without Insurance

By law, everyone is required to have health insurance and car owners are required to have auto insurance, so not having these types of insurance can open you up to financial and other penalties. It can also leave you on the hook for many thousands of dollars in an emergency.

Young adults can stay on their parents’ health insurance plan until age 26. If that’s not an option for you or you are over age 26, use your employer’s health insurance plan if they offer one, or visit HealthCare.gov to find a plan that works for your budget. Many people qualify for subsidies to reduce their monthly premiums.

Shop around for auto insurance that will cover you in case of an accident but that won’t cost an arm and a leg.

4. Racking Up Credit Card Debt

In their 20s, many people learn the hard way that credit cards allow you to spend a lot more money than you have. Even if you make your minimum payments each month, interest can pile up fast, especially if you are using high-interest credit cards. Before you know it, you may have racked up thousands of dollars in debt.

If you don’t have credit card debt – great job! Keep doing what you’re doing. If you do have credit card debt, one of the most important personal finance tips you should embrace is to start paying it down as soon as possible. Lower the cost of existing credit card debt and pay it off faster by transferring high-interest balances to a low-interest card. Then, make paying more than the minimum payment a part of your monthly budget and create a schedule to help yourself pay it all off.

5. Putting Off Saving for Retirement

When retirement is decades away, it’s easy to put off saving for it. But that’s one of the biggest financial mistakes you can make. The more time you have to grow your retirement savings and investments, the higher your potential yield will be.  

Many employers provide employees with 401(k) retirement accounts and some will even match the money you contribute up to a certain amount. Don’t leave money on the table – always contribute enough to get the full company match if there is one. And if you can contribute more, then do so, either through the 401(k) or by setting up an individual retirement account (IRA). Thinking of retirement savings as a fixed monthly expense, just like rent or a car payment, and setting up automatic transfers will make saving for retirement easier.  

Every few months, re-evaluate your financial situation and see if you can afford to put more toward retirement. Future you, enjoying a comfortable retirement, will be grateful. 

From our High-Yield Savings Account to our low-interest credit cards, American Heritage has everything you need to boost your finances in your 20s. Visit AmericanHeritageCU.org, come into your nearest branch, or call us toll-free at 800.342.0008 to learn more.