Common money mistake too many 20-somethings make

Too many Aussie 20-somethings are ignoring this crucial thing – and it’s costing them thousands of dollars in the long run.

Most people in their 20s are more focused on enjoying today than planning for tomorrow, but if you’re not smart with money in your 20s you have to sacrifice more in future years to get to where you want to be.

You can (and should) enjoy your 20s, but directing some of your focus to your money success will have a big impact. There are some key things you should put in place to make the 20s the time you lay the foundations for your money success.

Saving

Saving money is a skill that’s not easy to master. It requires you to build good habits and behaviours that are in direct conflict with our in-built human nature to prefer a pleasure hit now over a pleasure hit later.

This can easily lead you to fall into the trap of spending more than you should today and not having as much leftover as you want or need to get ahead with your money.

In your 20s, you should focus on creating good spending habits and behaviours. Enjoy yourself, sure, but make sure you’re saving at the same time.

If you create these behaviours in your 20s while your income is low relative to what you’re likely to earn in future years, it will make it easier as you go into your 30s and need to get really good at saving.

To nail it, the first step is to lay out your budget, what money you have coming in and what’s going out so you can see what’s leftover. Then, look at where your money is going and de-prioritise anything that doesn’t bring you real value so you can save more.

Get good at saving in your 20s and it will pay off in the long run. Picture: iStock.

Once you’ve got your savings plan you need a savings system to back it up. I’m a big fan of having multiple bank accounts for your different buckets of money; your bills, debt, discretionary spending, short term savings (to spend) and long term savings and investments.

The end result is that you automate your money management and savings success, and will be crystal clear on how much money you have available to save and invest.

Investing

It’s easy to procrastinate around investing in your 20s, but the value of taking action is high. If you leave your 20s with $5000 in investments, it will be worth around $67,358 when you’re 60 based on the long term sharemarket average return of 8.7 per cent.

If you leave your 20s with $50,000, it will be $673,580, and if $100,000 it will be a whopping $1,347,161.

Investing is something you can study for decades and still not know everything but there are some basic principles that go a long way. You’ll learn a lot from ‘doing’ when it comes to investing, so early in your 20s you should get started.

These days there a heap of good tech driven investing platforms that you can use to get started with a small amount at a low cost.

Make the most of investment platforms to start learning how to invest small amounts. Picture: iStock.

Most people think you need a lot of money to get started investing, but this just isn’t true. The power of time and money is a beautiful thing, and investing $43 per week will make you a millionaire over time – so long as you’re consistent.

In your 20s, start investing regularly – it doesn’t matter how small the number is to begin with, the key is building the habit. Then as your income and savings capacity increases over time, you can build up the amount you’re investing.

Creating your investing foundation and building your investing knowledge in your 20s will go a long way to your success in future years.

Property

Early in your 20s it’s likely property will be a stretch, and it’s important you don’t jump into property until you can do it the right way. That being said, you should know that property is the next big step when it comes to your money success, and even if it’s a way away, you should have a plan to get there.

Working towards a really big money target is hard. But when that target isn’t crystal clear, it’s almost impossible.

When saving for a property, the deposit is your goal. Take time to get clear on exactly how much you need, and then map out your timeline so you can see when you’ll get there.

Your 20s isn’t the time to pressure yourself to buy a property but have that house deposit in mind.

This will show you that your goal is achievable, exactly what you need to do to get there, and when it will happen. This will give you the motivation to put in the work to get there.

Super

In your 20s there are a couple of small things you can do that will go a long way when it comes to getting your super on track.

It’s easy (and common) to collect multiple super funds through various jobs in the early part of your working life, but running multiple funds can erode your super balance through fees and insurance premiums. Consolidation is your friend here.

You should also choose a good investment option that’s appropriate for the fact you have a long time until you can access your super. You’ll want to have most (or all) of your super invested into ‘growth’ investments like shares that are designed to perform better than ‘defensive’ investments like cash and bonds.

Low fees aren’t everything, but value for money is important. The super fund market is highly competitive, and super funds are getting cheaper every year. Look at the fees you’re paying and make sure there’s not a cheaper option that will deliver you the same thing.

Making small regular contributions to your super fund through salary sacrifice will cut your tax bill and help your super grow faster.

Salary sacrifice contributions are taken out of your salary before tax, which also means that you ‘feel’ the contributions less. Starting some small regular contributions to super will also build a habit that will serve you well in future years.

The wrap

It’s common for people to coast through their 20s without giving their money too much thought or attention. In your 20s time is on your side, so small changes early on will make a big difference later.

If you nail your saving, start building your investing muscle, create a clear property strategy, and streamline your super, you’ll get on the front financial foot in your 20s. This will make the years to come so much easier, and expand the horizon of your financial potential.

Ben Nash is a finance expert commentator, podcaster, financial advisor and founder of Pivot Wealth, and Author of the Amazon Best Selling Book ‘Get Unstuck: Your guide to creating a life not limited by money’.

Ben has just launched a series of free online money education events to help you get on the front financial foot. You can check out all the details and book your place here.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.