5 Surprising Money Lessons To Consider in Your 20s, According to Finance Expert Michela Allocca

When you’re in your 20s and learning to handle your finances, it’s easy to develop bad habits and make expensive money mistakes . This might include neglecting important factors like savings, being careful with your credit card or having a real budget.

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Michela Allocca, money expert and creator of Break Your Budget , struggled with her job and financial management during that decade. Here are the five money lessons she highlighted in a recent Instagram post and how you can apply them to your life, especially if you also struggle with money management and budgeting for the future .

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1. Don’t Spend To Impress Others

According to Allocca, “Buying things to impress other people is the fastest way to go broke (and be unhappy).” She’s learned that spending money to keep up appearances is usually something you’ll regret, and a roadblock to achieving your goals. While you might temporarily look rich or even have fun, you’ll likely end up stressed, less in control of your money and possibly burdened with debt .

Instead, know the lifestyle you can afford, and then make a budget to maintain it. Financial expert Dave Ramsey also advises practicing contentment . That way, you make the most of what you have rather than endlessly chasing the next big thing to spend money on.

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2. Investing Shouldn’t Be Overcomplicated

While investing is an important part of building wealth and preparing for retirement, you can easily get flustered trying to understand where to put your money, and making mistakes isn’t uncommon. This is especially true when you’re overcomplicating things as a beginner.

Allocca wrote, “Investing should be simple and boring. Stop following fads and picking stocks. Choose an index ETF or a target date fund and set it & forget it!”

Index ETFs and target date funds allow you to reduce your risk through diversification without having to pick specific bonds and stocks yourself. The performance of index ETFs will depend on the underlying index (such as the S&P 500), while target date funds have investment allocations that adjust with a particular retirement year in mind.

Either option can bring simplicity and save you time versus keeping up with several stock picks.

3. It’s Not Shameful To Be Frugal

If you’re worried that others will look down at you for being careful with how you spend money, consider what Allocca learned about frugality not being something to feel ashamed about. However, you’ll want to do it the right way.

“There is a big difference between being frugal (looking for the best deal/value) and being cheap (cutting corners),” she wrote.

Frugal habits — such as comparing products and prices, buying generics and using coupons — can reduce your monthly expenses, yet still get you the quality items you need. Just be careful that extreme frugality doesn’t lead you to buy cheap things that won’t last as long or may be unsafe. Doing so might cost you more in the long run.

4. Your Cash Position Is Crucial

While having long-term investments is great, you also need easily accessible funds for issues and opportunities that arise. Allocca wrote, “Your cash position matters; every solid personal finance foundation is sitting on cash!”

An April 2024 Empower survey found that 37% of Americans couldn’t cover an emergency expense that costs more than $400, and 21% didn’t have any emergency cash. If you’re also someone without a good cash position, you can be in danger of taking on debt to handle the unexpected alongside your everyday bills.

However, a strong cash position does more than keep your finances afloat — you’ll also have more options for reaching your goals and taking advantage of investments.

Allocca recommended using certificates of deposit and high-yield savings accounts to store your cash. These tend to have much higher returns than regular savings accounts .

5. Money Can Really Bring You Happiness

You’ve likely heard many times that money can’t bring you happiness, but Allocca has learned differently. She wrote, “Money opens doors, creates opportunity, and reduces pressure. Money is GOOD!”

Besides the fact that money is essential for covering basic living expenses, you can use it to have a better quality of living and enjoy memorable experiences with loved ones. Plus, simply having cash for your future plans can reduce your stress and provide peace of mind.

The key is to use your money wisely in ways that benefit you in the long term. Wasting it on an expensive item you’ll forget about shortly after likely won’t bring you lasting happiness .

This article originally appeared on GOBankingRates.com : 5 Surprising Money Lessons To Consider in Your 20s, According to Finance Expert Michela Allocca