Making the most of your money in your 20s and 30s

Your 20s and 30s are often a time of big life changes that can set you up for substantial financial growth – or they can become an example of failing to launch, if you don’t make the most of this time. Building your career and becoming financially independent and established are typical goals people in this age group can relate and aspire to. It’s also a time when you may be considering making big decisions about life partners and big-ticket purchases, such as buying a car or a home.

Each decision you make during this stage of your life will have a significant impact on your finances, not only now, but also in the long term. Making the right decisions from the outset is therefore vital.

To help you out, we’ve listed three common incorrect decisions that end up being hard financial lessons to learn. Avoiding these mistakes lays the groundwork for reaching important financial goals such as buying a house or having enough money to retire one day.   

Ignoring the power of a clear plan that fits your reality

People who don’t have clear financial goals tend to spend spontaneously and hope for the best. Although it may seem “free-spirited”  in the moment, this approach can become enormously stressful and disempowering, because once the money is spent it can’t be undone. A better approach would be to clarify exactly what your goals are and then to formulate a plan around them.

A financial adviser can help you identify your goals and a plan to achieve them, as well as advise what isn’t in your financial best interests, such as setting unachievable financial milestones. Once you have a plan, it is easier to stay disciplined and motivated.

You may also look at your friends’ big-ticket purchases, and (without knowing their real financial situation) want to have the same nice things. Or… you may think about your parents’ home, and (forgetting that they probably saved for a long time to afford it) wonder why you are not at the same financial level. Don’t be hard on yourself, since every financial plan is individual and takes time to execute.

The lesson: Comparing yourself to others isn’t generally a good idea. However, it can be encouraging to see others stay on course and reach financial goals. That could be you.

Not focusing on investing for your future while overspending in your present

Many 20 and 30-somethings delay investing because they find it complicated and are afraid of doing the wrong thing, or think they don’t have enough money to invest. They also often don’t know how to get help. That’s what professional financial advisers are for – helping you understand the basics and make the right choices for your own unique goals. Also, younger people may feel like time is on their side and they can catch up later -- long-term financial goals can wait. But the exact opposite is true. Even small amounts, when properly invested, can add up to significant capital over time. Putting money aside for retirement and other financial goals requires consistent effort, as well as time to see investment growth. The earlier you start putting money away for your future, the better. Just think, the sooner you start, the earlier you’ll be able to retire.

The lesson: Prioritise having money to invest for the future, every month in your present.

Not having an emergency fund when it counts

If there’s one thing the last few years have taught us, it’s that the unexpected can happen to anyone at any time. You’ll never fully appreciate the value of having an emergency savings fund until you need it, so don’t make the mistake of thinking it’s not necessary. Financial advisers typically recommend having enough saved up to cover three to six months’ worth of expenses. An emergency fund should be easily accessible and should earn a return that keeps up with inflation (at a minimum).

At M&G, our Income Fund and Money Market Fund can be appropriate options for building an emergency fund, as these funds generally earn a higher rate of interest than short-term bank savings products and your money can be accessed (without any penalties) as and when you need the cash. At the same time, these are low-risk investments, and the interest you earn can be reinvested, which is great if you’re looking to compound your returns.

The lesson: It’s crucial to build up a sufficient emergency fund as soon as you have some spare cash, and remember to keep it replenished should you need to dip into it.

There are many tips to follow and mistakes to avoid in your 20s and 30s, but by seeking the advice of a financial adviser, spending within your means, investing in line with your goals as soon as possible and making provision for emergencies, you will be making a great start to managing your money wisely and creating a solid base for a secure financial future.

For more information, please feel free to contact our Client Services Team on 0860 105 775 or email us at info@mandg@co.za.