28-year-old with net worth over $500,000: 5 money mistakes to avoid in that ‘weird time after college'

People in their 20s don't always have much experience managing their finances, which means it's easy to make mistakes, such as misusing credit cards or falling into debt because of "lifestyle creep."

These mistakes are often quite common, too, says Michela Allocca, a 28-year-old personal finance coach who specializes in helping young professionals.

The "Break Your Budget" author has successfully navigated what she describes as the "weird time after college where you're still figuring out how to manage a salary." In fact, her net worth is more than $500,000, according to documents reviewed by CNBC Make It.

Here are five common money mistakes that can result in unnecessary debt or a missed opportunity to build wealth, drawn from Allocca's experience.

1. Getting carried away with 'lifestyle creep'

Lifestyle creep is a phenomenon in which your standard of living tends to rise as you make more money. However, it's common — and tempting — to spend more than you can realistically afford, says Allocca.

Lifestyle creep is particularly risky when it comes to large recurring monthly expenses, like financing for a new car or renting an apartment on your own. Those upgrades may add up more quickly than you expect.

"You need to put the payment in the context of your income and other expenses," says Allocca. "If you need to sacrifice living your life and reaching your financial goals to make the monthly rent payment in a luxury apartment, you can't afford it."

Allocca herself chose to live with roommates before she got her own place in 2023. She was able to put those savings into investments, which contributed to her high net worth.

2. Not using a high-yield savings account

High-yield savings accounts are a no-brainer for Allocca, who says that there's "no advantage to a traditional savings account."

High-yield savings accounts are typically offered by online banks or credit unions, and usually come with higher interest rates than traditional savings accounts offered by big banks. Currently, you can find high-yield savings rates over 5%, compared with the 0.58% average for savings accounts as a whole.  

One trade-off is that smaller banks or credit unions might take longer to process a withdrawal from a high-yield savings account. However, Allocca says the delay is a plus, psychologically, since it forces you to "slow down" and "second guess whether a purchase is worth it."

"I like to call high-yield savings accounts 'inconvenient savings,' because they are still accessible, but totally separate and disconnected from your checking account," she says. "It's out of sight out of mind — it feels like you don't have it."

3. Not tracking your expenses

To properly budget, you need to keep track of your expenses, whether that's through an app, a spreadsheet or just writing it on paper, Allocca says. She recommends having a breakdown of necessities like rent or utilities, as well as non-essential spending like entertainment or travel.

"If you're not tracking your expenses, there's a 99.9% chance you are underestimating how much money you're actually spending," she says. "It's way easier to justify a purchase when you don't have to physically recognize" how it affects your budget.

She recommends a "weekly money routine," where you spend 10 minutes reviewing your spending. By doing this, you can decide how you will spend your money for the following week.

"It does a lot for alleviating financial anxiety," says Allocca.

4. Only making the minimum payments on your credit card

People with credit card debt who only make the minimum payment aren't doing themselves any favors, although it's "better than nothing," says Allocca.

"You need to be putting down three to four times the minimum payment on a monthly basis," she says.

That's because the typical minimum payment is "mostly interest." If you only make the minimum payment on a large balance, you'll end up paying more in total interest over time, while extending how long it will take to pay off the balance.

As a rule, you should only use credit cards for what you can afford to pay off quickly. If not, "you can't afford to buy it and you shouldn't," she says.

5. Not investing

Whether it's a retirement account like a 401(k) or buying stocks through a brokerage account, investing in your 20s can ensure that you have financial independence later in life.

While investing comes with risks, money in investment accounts can grow exponentially over time due to compound interest, which is when interest earned on an investment is reinvested to earn additional interest. With compound interest, the earlier you start making contributions, the more time your money has to grow. 

"Even if you're only contributing $5 a month, you're doing something," says Allocca. Doing so "won't make you rich right away," but it will "feel good to do something that will move the needle forward."

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