5 Money Habits of Young Adults That Can Hurt Their Retirement Savings

Saving for retirement might not be the first thing on your mind when you’re juggling work, social life, and everyday expenses. But the habits you form in your 20s and 30s can either set you up for financial freedom or leave you scrambling later. Here are five unnecessary yet common money habits among young adults that can derail your retirement savings over time — and how to fix them.

1. Overdoing the "Treat Yourself" Mentality

Yes, you deserve to enjoy life, but frequent indulgences can quietly drain your bank account. Whether it’s a daily latte, spontaneous shopping sprees, or splurging to avoid the commercials with premium streaming subscriptions, these seemingly small expenses add up and chip away at the money you could be saving for your future.

How to Fix It:

• Set a monthly budget for discretionary spending and practice mindful spending for those items outside of your budget (ask yourself if this purchase aligns with your goals).
• Cut out unnecessary spending with the DIY approach. Enjoy a morning coffee? Do It Yourself, by making your coffee at home. Add your favorite creamer or extract to provide the specialty flavors you enjoy from the coffee shop.
• Reward yourself in moderation with planned splurges. Go ahead and “treat yourself” for your birthday, holidays, or even just on Fridays. If you’re used to spending $8 a day on a specialty coffee (Monday through Friday) but reduce that daily coffee to only allow for only a Friday treat, you can save $1664 over the course of the year and will free up some funds to add to your retirement savings.

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2. Procrastinating on Retirement Savings

When you’re young, retirement feels far away, making it easy to put off saving. But delaying even a few years can cost you thousands in missed compound interest — which is like the secret sauce of long-term wealth building.

How to Fix It:

• Start small by contributing a percentage of your income to a retirement account, like a 401(k) or IRA.
• If your employer offers a match, contribute at least enough to get the full match — look at it as free money!
• Gradually increase your contributions as your income grows. In many cases, you can change your contribution amounts every pay cycle, so if you have one week that you need the extra funds, you can reduce your contribution that pay cycle – but always contribute something, even if it’s a small percentage.

3. Relying on Credit for Lifestyle Upgrades

Upgrading your phone, wardrobe, or car may feel rewarding, but financing these purchases with credit can lead to debt spirals. High-interest debt not only eats into your disposable income but also limits your ability to save for long-term goals like retirement.

How to Fix It:

• Focus on living within your means and saving for upgrades rather than financing them. If you do plan on financing a lifestyle upgrade, make sure you’ve saved enough for a larger down-payment to reduce the amount of interest you’d pay overtime with a smaller down-payment.
• Pay down existing high-interest debt as quickly as possible.
• Build an emergency fund to avoid reliance on credit cards.

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4. Ignoring Investment Opportunities

Stashing cash in a savings account feels safe, but it’s not enough to keep up with inflation. Many young adults shy away from investing because it seems complicated or risky but staying on the sidelines can cost you significant growth over time.

How to Fix It:

• Educate yourself about investing basics through books, podcasts, or online courses.
• Reach out to a financial advisor, especially if you’re unsure of where and how to start. No matter your investment size, they are willing to help.
• Regularly contribute to your investment accounts, even if the amounts are small.

5. Underestimating the Importance of Financial Education

Personal finance often isn’t taught in school, leaving many young adults to figure it out on their own. This lack of knowledge can lead to mistakes like overpaying fees, falling for scams, or mismanaging debt.

How to Fix It:

• Make financial education a priority. Follow reputable personal finance blogs, read books, or participate in a local financial literacy workshop.
• Stay up-to-date and utilize tools and resources, such as retirement calculators and budgeting apps.
• Don’t hesitate to seek advice from a financial advisor, especially when making major financial decisions.

Your 20s and 30s are the perfect time to lay the groundwork for a financially secure future. By breaking these common habits and adopting smarter money strategies, you can make retirement planning less stressful and more rewarding. Start small, stay consistent, and remember: The best time to start saving was yesterday. The second-best time is today!