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Financial Mistakes to Avoid in Your 20s for a Brighter Future

Have you ever made a financial mistake you regret? So have I. In your 20s, it’s easy to make financial mistakes that can have long-lasting effects. Understanding the financial mistakes to avoid in your 20s is crucial for building a secure future.

It is easy to place the blame for my financial difficulties on the government, the economy, the worldwide recession, and inflation, but, in all honesty, I am the only one responsible. 

It is very easy to get carried away in your 20s. Retirement seems like a distant dream and you’re not worried about saving.

It was all hunky-dory until COVID-19 struck, and I was one of the unlucky ones who was laid off. This was when I realised I had worked for 4 years, but I barely had £400 in my bank account. That’s when I had to get serious about my finances. 

I spent the next two years upskilling myself and freelancing to keep my career afloat. However, I also focused on learning about finance management so that I never have to face this situation again.

Today, we will explore the financial mistakes that I made in my 20s, what I have learnt from them, and how you can avoid them.

6 Financial Mistakes I’ve Made in My 20s (That You Shouldn’t)

1. Overspending

When you are overspending, you hardly ever notice it until it’s too late. For instance, buying a cup of double mocha espresso can cost you anywhere about £6. Now, if you buy coffee twice a week from a cafe, then by the end of the year, you would have spent £624. 

Impulse buying was another vice that I was guilty of. For example, if I liked a dress on a shop window or while browsing through Instagram, I would immediately purchase it. At the moment, that purchase feels like a must-have. However, once I would have what I want, it would sit in the back of my drawers with the tags intact.

Here is what I do now – I budget.

I have a fixed budget for everything from shopping, eating out, salon visits, and gifting. Once I have budgeted the money I would need, I invest or save the rest. 

2. No Emergency Fund

This was something I realised during the pandemic, when I had lost my job and I had to ask my father to pay for my groceries and bills. An emergency fund is an amount that you set aside for an unforeseen event. It usually amounts to three to six months of your living expenses.

Today, I regularly contribute towards my emergency fund. Even if, by the end of the month, I need some money to tide me over till my next paycheck, I never touch the emergency fund. Instead, I take out smaller payday loans, which I then pay back once I receive my salary.

Read Also: Simple Financial Planning Tips for Working Moms

3. Not Buying Insurance

In my 20s, I thought paying insurance premiums wasn’t a good investment. This assumption cost me big time. Choosing not to get car insurance, I thought I had cleverly saved myself £1000. However, when my car broke down, I ended up paying £5000 out of my pockets, which further led to credit card bills that took me years to pay off. 

Buying insurance is the best thing that you can do as an adult. When buying insurance it is best to shop around and check for a policy that covers all your essentials at an affordable premium. 

4. Ignoring Non-Essential Costs

Sometimes it is easy to ignore non-essential costs like OTT subscriptions or spending on Christmas or birthday cards, which might just cost a few pounds. However, all those pounds and pennies add up, and by the end of the year, you have ended up spending a few hundred pounds. 

How do you deal with that? The simple answer is to cut non-essential costs. For example, instead of subscribing to all the streaming services, I choose to share a few with my friends. I even canceled the ones that I don’t watch regularly. This move helped me save a lot of money by the year’s end.

5. Buying Expensive Gifts

Who doesn’t love spoiling their loved ones with gifts? However, as we age, the number of birthdays, weddings, Christmas gifts, baby showers, and milestone events just grows in number. 

Buying expensive gifts might seem like a good option, however, it can get difficult to keep up. I have realised that it is best to buy gifts that are meaningful and thoughtful rather than gifts that come with a big price tag. Scouring through thrift stores and local markets will often help you find unique gifts, which are also easy on the pocket.

Read Also: Why Financial Security is Important

6. Not Understanding Tax and Tax Relief Options

As an outstanding British citizen, it is important to pay your income tax on time. However, what I didn’t understand previously was that there were many ways to save money with tax relief options. For instance, my contribution towards my pension fund was eligible for tax relief. As a traveling sales executive, I was able to claim tax relief on my travel and overnight expenses.

Early on in my career, I was not aware of these provisions and with last-minute filling, I couldn’t claim any of these tax relief options. These days, I consult with a tax consultant who guides me on the right avenues to save money while paying my taxes on time. 

Summary

These were the financial errors that I have made throughout my life and that nearly put me in danger. However, over time, I’ve learned that with proper planning, awareness, and budgeting, it is easy to save money even in the current economic market. I hope that you’ve learnt something from my experience and avoid making the same mistakes I made,

Be mindful of your expenses today to live comfortably in the future.

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Shariq

Shariq is a content curator and loves covering an extensive range of topics. When he's not weaving words to create a magical post, he's busy playing snooker with friends.

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