The top 7 money mistakes people make

One of life’s most essential skills is the capacity to manage one’s finances. Many unfortunately fall prey to common financial mistakes that end up having a negative impact on their financial and personal well-being. In this article, I hope to offer you some insight on how to avoid jeopardizing your finances early on, and how to secure a more stable future for yourself and your family.

First of all, why is it important to develop these skills in your 20s?

Building confidence

Having control over your finances and managing them effectively will help you increase your confidence and make you feel independent. Your overall self-esteem and well-being will be positively impacted by feeling like “you’ve got it”.

An exercise in discipline

Handling your own finances will teach you discipline and responsibility. Setting your own priorities and making your own choices takes energy and a firm hand. These qualities and routines you’ll set for yourself are transferable to many other aspects of your life and can lead to personal and professional growth.

Explore the idea of entrepreneurship

In your 20s rather than in earlier or later years, you might have the energy, creativity, and higher risk tolerance it takes to explore the world of entrepreneurship and entrepreneurial ventures. Dealing successfully with your finances will provide you with the financial stability to invest and turn your ideas into reality.

Tackle life transitions

Moving out, starting or finishing university and college courses, getting married or starting a family, as well as having to start dealing with aging parents and relatives: “real life” responsibilities and expenses. These are some of the main significant life transitions you might be facing, and managing money successfully can help you adapt better and face them with confidence, reducing stress and possible financial disasters.

Cultivating lifelong learning

Effective money management enables you to invest in your future and develop opportunities such as education, travel, and hobbies. More time and more money means more experiences that can enhance your life, expand your horizons, and contribute to your personal growth.

Let’s get down to business now.

1. Living beyond your means

The most prevalent money mistake people might make is spending too much money on useless things. Spending more than you earn, relying on credit card debt, or online loan services such as Klarna, can create a lifestyle that is hard to sustain.

Create a realistic budget that reflects your income, expenses, and what your saving goals are. Try to stick to it and avoid temptations: needs over wants.

2. Not prioritising savings

Common mistakes are common for a reason, and it happens often that people end up neglecting the creation of an emergency fund. Life can be unpredictable and random sudden expenses like medical emergencies or your car breaking down could end up bankrupting you. To avoid these situations, aiming at saving for at least three months of living expenses can really pay off in the future.

3. Not investing

Just relying on savings can be not enough if you’re aiming at long-term wealth. Inflation will slowly eat the value of your money over time, so it’s very important to invest in assets that keep up with times. Stocks, bonds, and real estate are quite stable and usually reliable sources of income that have the potential to grow your wealth over time. Start early, remember to diversify your investments, and don’t be shy to hire and consult a financial advisor if you feel you can’t do it all by yourself.

4. Neglect retirement planning

People in their early years usually neglect any form of retirement planning, and it makes total sense, you’re young and you think there is plenty of time to save for retirement. It is, unfortunately, a money mistake. The earlier you start the better it is, as you give more time for your investments to grow and make you money. Look into employer-sponsored retirement plans or start creating your own, even a small monthly or weekly contribution will be worth it in the long term.

5. No set financial goals

Without clear and set financial goals, you might find yourself drifting through life without a clear vision of what to do with your money and how to optimize it. Lack of motivation and random spending are your enemies, even if it feels so good to randomly shop online. Try to establish specific, measurable and easy-to-achieve financial goals. Give yourself a sense of direction and your actions will follow.

6. Impulse spending

It is so easy to spend money impulsively, we all do it. I’ve bought stuff online multiple times and acted surprised when a package came to my door. It’s easy to give in to the temptation of making unplanned purchases, we live in a consumer-driven society and we’re constantly bombarded by advertising on social media and in real life. Clothes, gadgets, fancy food, and nights out. Impulse spending can derail your budget and hinder your financial progress. Try to be more mindful about your spending by differentiating needs and wants. Stick to the “list” you’ve made yourself and think twice before clicking “Pay now”.

7. Not seeking professional advice

Don’t be too arrogant, no one knows everything about everything. Seeking financial advice can be complex and expensive, but it will provide you with valuable insight and guidance that will surely be worth it in the long term. Whether you’re looking for advice from a tax professional, estate planner, or retirement fund guru, any form of education and every source of reliable information can help you make informed choices and avoid costly errors down the line.