6 Financial Traps Middle Class People Fall Into in Their 20s

Your 20s are a wild ride. You’re figuring out how to adult, maybe landing your first “real” job, juggling student loans and trying to fit the occasional impulse Amazon buy into your budget.

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You might feel like you’re making progress, especially if you’re not living paycheck to paycheck.

But even middle-class folks with steady incomes can fall into some sneaky financial traps when they’re young that don’t show up on their bank statements until years later.

Here’s a look at the ones to watch out for — before they quietly drain your future wealth.

According to Chris Heerlein, CEO of REAP Financial, one prevalent financial trap for 20-somethings is living beyond their means.

It’s easy to get caught up in a lifestyle of consumerism, especially with the influence of social media, which often shows a curated version of success. Many individuals in their 20s may even rely on credit cards or loans to fund unnecessary purchases, like expensive dining out, luxury clothing or gadgets.

Heerlein noted the immediate gratification of buying what you want can quickly spiral into debt that becomes harder to manage as time goes on. “My advice here is to live within your means by creating a budget, tracking your spending and prioritizing saving over consumption.”

Remember: It’s important to build a cushion with an emergency fund and focus on paying down high-interest debts, like credit card balances, before spending on non-essentials.

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“Too many young adults neglect to save for a rainy day, thinking they will not have any unexpected expenses,” said Kevin Shahnazari, founder and CEO of FinlyWealth.

A January U.S. News survey found that 42% of Americans don’t have an emergency fund, with nearly as many (40%), saying they couldn’t cover a $1,000 emergency expense with cash or savings.

Even modest financial shocks can lead to debt accumulation or delayed payments without a cash cushion. Ideally, a three- to six-month cushion of living costs should be saved before investing or purchasing big-ticket items.

Shahnazari said being uninformed about credit, which can lead to maxing out credit cards or paying only minimum payments, can result in negative credit scores and interest payments.

To use credit wisely, he said one must keep credit balances low, pay them in full when feasible and check credit reports to catch errors or fraud before they become big problems.