5 top money mistakes to avoid in your 20s, 30s and adulting
One of the things I enjoy about running our YouTube channel, as well as our blog, are the many emails I get from people who are from all over the world.
Most write to us to say “thank you” as well as to share with me their life challenges and problems.
In my position, I've been able to have visibility over what the challenges people have in their day to day when it comes to money.
I've also had the opportunity of coaching many people in my own personal capacity.
And what you notice over time, as you read these emails, is that you start to spot specific patterns across the various people of different income levels and different locations, but the common problems are the same.
So today I'm going to share with you five of the most common mistakes that people make with money so that you can reflect on these and consider whether you are also facing these challenges today.
I'm even going to share with you some of the mistakes that I've made, as well as the mistakes I've seen some of my friends make, which should hopefully give you a lot of insights and principles that you can start to apply to your own life today.
If you are facing a money problem today, it's super likely that you are probably facing one of these five money mistakes to avoid
Let's dive straight in and look at these five most common mistakes that people make with their money, on a day to day basis.
Mistakes that are stopping them from working towards achieving their dream goals of becoming financially independent.
Money Mistakes To Avoid In Your 20s, 30s and Adulting
Below are 5 top money mistakes to avoid in your 20s, 30s and on your adulting journey:
1. Lifestyle Inflation
About two and a half years ago, a really good friend of mine came to me in private, he doesn't mind me sharing this story, by the way.
He said to me:
“look, I want you to do a case study on me, assess our lives. I'll give you all my numbers for you to tell us where we are going wrong.”
Here's the really interesting part, this friend of mine, he and his wife make £10,000 net income per month, which I bet you're probably thinking,
“oh man, that's the number I want to achieve in my life”
In fact, pretty much everybody I asked “how much you want to make”, always says I want £10,000 net.
So this guy is living the dream, right, making that money and laughing all the way to the bank.
Now here's where it gets really interesting. On a very good month, he spends £9,000 of the £10,000!
So you're probably thinking –
“wait, so you're making £10,000 a month, but the most that you can manage to save each month is £1000” i.e. which is 10% of that seriously large amount of net income.
The reason why this happens, of course, is because of lifestyle creep where people make money but as they make money, their lifestyle creeps up with the money they're making.
So they don't say, for example, I think I've got a good life at £2000 per month so that if I'm making £10,000, I’ll put away £8000.
What happens is that £2000 suddenly becomes, “we could have something else in our life, we could have a brand new car, we could maybe live somewhere nicer than this three-bedroom house we've got.”
So they move to a bigger house, take on more debt, and they creep up.
In that example, my friend opened up to me, and I was able to offer him some really good recommendations.
If you're interested in that case study, read it here. We go super deep into how he should get out of that problem.
The principle behind the lifestyle creep that you should consider applying to your own life is this:
If you can manage the little that you're making, let's say you are making £2000 or £3000 per month and put away savings of 20%, 30% or 40% of that money.
Then, because you've gotten used to a particular lifestyle, you should then be able to manage much more money.
When much more money flows into your life, if you're able to remember that principle, it will lead you to a place of true riches as time passes.
2. Borrowing and Lending to Friends and Family
I've got confession here. A few years ago, this particular mistake happened to me.
My mum, my dad, sisters and I, at the time we're looking to buy a commercial property.
We were buying a building for one of our businesses at the time, which was a childcare business and we wanted to own our first building.
One challenge we had was trying to raise some money.
To be more specific, we were trying to raise between £250,000 and £300,000 in cash. The way we've always operated as a family is that we just split that money up between ourselves.
Each member would be allocated an amount of money to contribute. I had my amount that I had to find but at the time I had money locked up in other assets.
One of my friends at the time had some cash available to him.
In fact, he was doing very well.
So I said to him “I'm doing this deal with my family. We are buying a commercial building, it’s a really interesting opportunity. Could you lend me £20,000? I'll give you a 12% return after one year.”
I did not know this, but I started to go wrong from the very beginning.
In our normal day to day lives, there are two worlds that we live in. I learned this after I started studying the idea of money and psychology.
In fact, one of the books that really helped me with this is called Predictably Irrational, a fantastic book, if you want to go look into this idea of understanding money and psychology.
The two worlds we live in are called social norms and market norms. I'll explain what I mean.
Let's say that you and I are friends, and I came to you and said…
“Hey, how are you doing? How are your kids? Girlfriend, boyfriend, husband or whoever you've got? How are your parents?
When I'm asking you those questions we are operating in the dimensions of the social norms.
We're just talking about things that are relational.
But the minute I start to say to you, “I will give you a 12% return for £20,000 investment”, we're now operating in the world of market norms.
That's because here we're talking about returns, price, quantity and things like that.
So when I was asking my friend and said, “Hey, give me £20,000 and I give you a 12% return in one year,” I made a critical mistake between friends.
What you should never, EVER do, is get into the scenario where you are always talking economics and transaction deals with somebody who's meant to be your friend.
The minute I started to communicate in that type of language, he also being a finance guy, started to communicate and speak in that language.
So to him, he was saying things like, “I can but I need a contract in place.”
And I'm thinking “hold on wait, we are friends, like why are you asking me for a contract?”
But he was right in asking me for a contract.
We ended up butting heads.
I ended up not having to borrow that money for that deal from him but sourced it and sold down some investments instead.
The moral to this story was that I left a really good relationship we had operated well in the social dimension and moved that relationship to the market norms.
You also see this, for example, when people give gifts.
If you give a friend a present that you handmade at home, that gift would come across as special because you're operating in that social norm and dimension.
However, what do you think would happen if you decided to give, say, £50 or $100 in an envelope?
When your friend receives that money they will immediately begin to think from a market norm perspective.
Your friend may begin to look down on that sum and even compare it to their hourly wage.
Or they'll start to compare that money to something else, which would mean that the quality of relationship you have with that person will potentially get fractured.
Extending this story further because it’s a really important topic.
Let’s say for example your hourly rate is, for example, £40 per hour.
I came to you and said, “Hey, look, there's a charity that I want to help out. Together, you and I can help this charity by moving a sofa off the floor to another building elsewhere”.
Because it's a charitable endeavour, you say “Okay, I would do it and move that sofa with you to that other building for the charity.”
Bear in mind you're doing the task because you are operating in the social dimension.
Now imagine that I came to you and said, “can I pay you £5 for one hour for helping me move that sofa?”
You will immediately start to operate in the market dimension.
You'd say “well actually no, my hourly rate is £40. You can't be paying me £5 for an hour.”
So you're more likely to say no and find it disrespectful.
I hope you're getting this point.
When you're thinking about money and relationships, do not, where possible borrow or lend to friends and family.
The moral I've taken away from this is that if a friend or family member asked me for money, I would rather gift them the money and then say to them, “here's the money as a loan, pay me back.”
Lending in these circumstance can lead to problems and people might not be able to pay that money back.
And that leads to relationships potentially been fractured and damaged over time.
3. Not Investing Enough Money
There is in existence a silent assassin amongst all our lives, something that affects everybody at the same time, but something that a lot of us do not think about.
That silent assassin is inflation.
Essentially inflation refers to price increases that you might experience over time when you buy goods and services.
In this particular country and in a lot of the Western countries, the powers that be aim for an inflation rate of around 2%.
The unofficial inflation rate is a lot more than 2%.
Now, here's what happens when you make money and you don't invest.
Over time your money erodes in value because the purchasing power that your money has reduces.
For example, you might have a particular amount of money now, as time passes, you find that money enables you to buy fewer and fewer things.
And the reason for that is because as time passes, inflation essentially erodes the value of money.
One of the big goals for investing, beyond just achieving your financial goals over time is for you to achieve a return that far exceeds the inflation rate that your money might be suffering as time passes.
This is one of the biggest mistakes that people do not consider.
They think that their money is safe in a bank account, but what they don't realise is that that money is losing value as time passes.
So the big principle to take away from here is to focus on having an ROI mindset, a Return On Investment mindset.
When you make money, you will be asking yourself, how can I use this money to potentially generate an above inflation return for myself?
4. Only Living For Today
When I was around the age of 16, I remember seeing a lot of my uncles in their mid-30s.
I remember thinking to myself, “Oh my gosh, these guys are so old. I cannot imagine even being in my mid-30s.”
I'm in my mid-30s right now, and although I still feel young, that period of 20 years came so rapidly.
Luckily for me, I spent the last decade thinking of my future and looking after my finances.
But believe it or not, a lot of people live today and believe that there is no future ahead of them.
They live purely for today. And that means that all the money they make is essentially there to help them only live for today.
It's no wonder that when things start to happen in the future, inevitably, a lot of people aren't prepared.
They have no shelter, no security and no way to get out of these problems as they crop up.
I've met such people even in their 40s and their 50s.
So many people who write me emails are going through challenges right now as a result of not thinking ahead or planning into their future.
I want you to think about a version of the future that will inevitably come into your life. My question to you is,
What version do you want to show up when it shows up?
Do you want the current life you've got?
Or do you want a radically different life to the life you've got at the moment?
There's probably no answer to that right now. But I know what I would say if that was me answering that question. You want to try and focus on that question today.
Come up with your answer to that question.
If you want a different life to what you're seeing right now, then you've got to begin to make radically different choices and take radically different actions to begin to create that life that you desire in the future.
5. Relying Too Much On Debt
So one of the things that really gets to me, is this culture we have in this country.
You also have this in America, Canada, etc, where we are made to believe through our culture, that being in debt is a normal thing.
It's normal to have hundreds of thousands of pounds in mortgage debt and tens of thousands of credit card debt.
Look at what's happening right now. The powers that be have been encouraging people to take on more debt.
They talk about debt as though it's free money. It's so casually spoken about, you know, “things are uncertain, here, take on some more debt.”
Most people don't think from this perspective, ordinarily.
Taking on debt means you are a prisoner to a lender. You cannot get away from that.
So what you then see is that around many people's lives and lots of their personal freedoms are taken away day to day, as a result of the choices they make driven by the culture around them.
Here's my questions to you. And I want you to ponder upon this one.
What is your strategy for getting back your personal freedoms?
Do you enjoy waking up and living perpetually in debt?
I hope the answer is an absolute no! Because if the answer's no, what are you doing to get out of that circumstance today and in the very near future?
Think about it. I want you to just ponder upon that.
And remember me asking you that question. What is your freedom strategy?
How are you plotting your escape from the financial ordinary life that a lot of us sadly find ourselves in and see as the norm because everybody else is doing it?
It's the culture of today, please don't see living in debt as the norm.
Please don't see this as the way it has to be. You can break free from that, we've done it, so can you.
What To Read Next>>
- How We Paid Off Our Mortgage In 7 Years
- 10 Reasons Why Most People Remain Poor
- How To Get Out Of Debt Fast (10 Tips)
- Why Your Lack of Consistency Is Keeping You Poor
Which of these 5 money mistakes to avoid are you making right now? Or have you been making recently in your life? Please share by commenting below.
Do please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.