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The education system does not incorporate personal finance in the curriculum. Worse still in African homes, it’s unheard of for parents to chat with their children about money. Unfortunately, this has left so many of us financially illiterate, making the wrong money decisions.
Some of the biggest financial mistakes that young adults make include living beyond their means, lifestyle creep, not budgeting, and not building an emergency fund.
To help you not fall into money traps that will cost you dearly in the future, I will cover the following:
- Money mistakes to avoid in your 20s
- Money mistakes to avoid in your 30s
- Financial mistakes to avoid in your 40s
Let’s dive in!
Money Mistakes To Avoid In Your 20s
Most people complete their education and kickstart their careers in their early 20s. At this point, you don’t have many responsibilities and are trying to be financially independent.
Some of the main things people focus on include purchasing household items and settling in their new house. However, after earning a good income for several years, most have no financial accomplishments.
You’ve heard the phrase ‘moving from 20s to 30s happens in a split second?’ Don’t let time pass without any achievement!
Here are money mistakes to avoid in your 20s if you want to enjoy a great financial future
1. Not Budgeting Your Income
You are out of school earning a decent salary, but there’s a problem – you have never understood how money works. So, you splash your few tens of thousands on different unnecessary things like partying and dishing out money without a plan.
Then after some time, it dawns on you that by date 10 of every month you usually have no money for upkeep. This leads you to borrow from banks and loan apps to continue financing your life.
A small problem; not budgeting creates a deficit in your finances which leads to borrowing left, right, and center regardless of your reasons. Right now if you ask how many people in their 20s budget their income, you would be shocked by the small group of individuals who do it.
Tip: The moment you start budgeting, you command money. And once you command your money it works for you – you might never struggle to live above your means again.
So ensure you use the zero-budgeting method to keep your expenses equal to your income!
2. Postponing Investments
How many times have you heard the words; bonds, Money Market Fund, and shares/stocks?
Do you have one of the online investments taught by financial coaches?
If your answer is no then know that you are not alone because most people in their 20s think time is on their side and will postpone investing.
Funny enough they will have ridiculous reasons for this, for instance, YOLO, the need to treat themselves, and they don’t earn enough salaries.
Tip: If you open a Money Market Fund and save 2k, 5k, or 10k monthly, you will be ahead of your peers.
And in 5 or 10 years, you will pay your bills with the interest accrued in your money market fund investment. Start investing today and see the fruits of your money serve you in the future!
3. Borrowing for a Wedding
In the spirit of making remarkable memories, most individuals in their twenties are taking loans to host flashy expensive wedding events. Don’t get me wrong, having a big wedding is a great thing however financing it with borrowed money is a recipe for disaster.
You will start carrying debt burdens at a very young age. Again, this will turn out to be a parasitic debt since you didn’t invest it. Unfortunately, the lender doesn’t care whether you invested the borrowed money or not, they want their money back at the agreed date.
Should you avoid having a wedding? No, but have a savings plan or request for contributions from your relatives to help you start your new journey debt-free!
4. Starting a Family Without a Financial Plan
Family comes with financial responsibilities. You’ll work with a higher budget than before because all your four walls will be more expensive; the rent, food, transportation, and utilities will have a higher price tag.
In the same way you plan for important events in your life, develop a financial plan for your family. It will help you avoid financial strains and provide the best for your children.
Money Mistakes To Avoid In Your 30s
Most individuals record tremendous career and investment growth in their 30s. The experience and networks established during your 20s yield exemplary outcomes at this age bracket.
Unfortunately, if you are not financially savvy to plan for your old age, you’re going to squander all the money you have. Here are some key mistakes to avoid at the prime of your profession and investments:
1. Lifestyle Creep
Also known as lifestyle inflation, lifestyle creep is the phenomenon where your living standards improve with an increase in your income.
You begin to view luxurious items and services as a need while in reality they are non-essentials. A good example is when you move to a larger, more expensive rental apartment once you receive a pay rise.
Is lifestyle creep bad? Yes and No!
A certain level of lifestyle creep allows you to enjoy a more efficient and productive life while also catering to your savings and investments.
However, when your spending on consumption increases without an increase in your pay(savings and investments) it is bad for your financial future.
The best thing is to avoid lifestyle creep in its entirety or have a margin to show you the limit.
2. Viewing Home Ownership as an Investment
Homeownership has been an integral part of almost all African families. Unfortunately, we have attached great importance to it, viewing it as an investment. Truth be told, home ownership isn’t an investment-if anything, it is a liability.
Shocked?
An investment is an establishment that generates regular income.
Does a home generate income? No, instead, a home requires a budget for maintenance, water, and electricity bills.
So, when you decide to purchase a home remember it’s a valuable property but not an investment.
3. Taking Bad Debt
The access to more income can deceive you to apply for loans to purchase all the great things you ever dreamed about during your 20s. Most of the bad debt traps that people in their 30s fall into, include new car purchases, vacations, and appliances.
Unfortunately, these things after ownership depreciate in value significantly. Moreso, you pay high interest rates for them and they can never yield returns.
Did you know that once you purchase a new car it depreciates by up to 50% in the first 5 to 10 years?
So, if you purchase a 1.5 million Kenya shillings car with a loan that sums up to 2 million(depending on your payment period), a few years down the line you will be looking at a 750k Kenya shillings car.
So, ensure that when you take debt it is for investment to help you generate income.
Note: Good debt generates income while bad debt takes money from your pocket.
4. Not Preparing for Retirement
Young and energetic as you are, it’s difficult to think about old age. Let’s face it, the old people you see in your village struggling financially after drinking away their youth were once where you are-at their prime with lots of money.
Money principles are a respecter of no man! If you want to enjoy your old age, you must adhere to them-draw a financial plan and establish a retirement fund that will take care of you in your senior years.
Money Mistakes To Avoid In Your 40s
I know what you’re thinking – ‘What money mistakes could people in their 40s make?’
The education system never integrated personal finance, hence most of us never got financial education exposure.
Unfortunately, some people learn about financial planning and discipline later in their years. Additionally, some money mistakes happen unconsciously, affecting your future negatively.
So, what mistakes should you avoid in your 40s?
1. Neglecting The Cash Flow Factor
If you are in your 40s, purchasing land and a home is a great initiative. However, if you’re relying on such properties to take care of you in your old age, you’ll be disappointed.
Have you ever heard of property rich but cash broke?
This is what most of our old relatives did; they have large tracts of land and a big home but lack cash flow to sort their monthly bills or emergencies.
When establishing ventures and purchasing assets, ensure they generate regular income for easy liquidity. You’ll enjoy a smooth retirement phase!
2. Putting Your Retirement Eggs In One Basket
A good investor diversifies their portfolio for maximum returns and security. If one investment fails, they will have a second source of income.
In the world of investment it is good to account for the possibility of failure because even the mighty establishments sometimes fall. So, don’t keep all your retirement funds in a Money Market Fund or life insurance policy.
Have different vehicles to help you optimize your returns and safeguard you if the unpredictable happens!
3. Not Adjusting With Changes
Your future self depends on how well you manage and invest your current income.
As a result, you should adjust your budget according to the changes you experience to ensure you enjoy a comfortable future.
If you acquire a home and stop paying rent, use the money for rent to establish a business that will generate regular income.
When your kids grow older and gain independence such that you no longer have to pay for childcare or a house manager, use that money to top up your retirement fund.
4. Compromising Your Future For Family
Your children are not your retirement plan!
You need to set up a financial plan that will take care of you during your old age. So budget how much you give to your relatives such that you never touch your retirement money.
It’s a great thing to enroll your children in good schools, however you should avoid paying sticker prices for what you can get at an affordable price.
NOTE: The worst mistake across all ages is giving up. The moment you throw in the towel due to business failure or career stagnation, you are doomed. Regardless of the encouragement you receive when you give up, no one can convince you there’s a solution.
So, in all that you do – never give up!
Let’s Create a Bright Financial Future For You!
Whether in your 20s, 30s, or 40s our team exists to help you accomplish exceptional financial growth. We have customized financial services to cater to different individuals depending on your needs.
Here is a list of some of the best programs we provide. And in case you need a one-on-one session, don’t hesitate to contact me via 0703472299 or email me at centwarriors@gmail.com to schedule a session today!
