Your 20s are often considered the defining decade of your financial future a time when you’re figuring out your career path, gaining independence, and learning how to manage money. Unfortunately, it’s also a period where financial mistakes are all too common, as you’re likely balancing entry-level salaries, and the desire to enjoy newfound freedom. It’s easy to fall into the trap of thinking you have plenty of time to save or that overspending today can be corrected tomorrow.
However, these years offer a golden opportunity to build a solid foundation for long-term financial security. Avoiding costly mistakes now could mean the difference between financial stability in your 30s and 40s or years spent digging out of debt and playing catch-up.
To help you navigate these critical years, here are seven financial mistakes to steer clear of and strategies to make smarter money choices instead.
1. Live below your mean
People make the mistake of elevating their lifestyle as their income increases. Some even go into debt to keep up with their lifestyle. However, this is the wrong way to go. The right approach is to live below your means. This way, you can save and invest a portion of your income.
2. Neglecting a Budget
When you don’t track where your money is going, it’s incredibly easy to overspend on non-essentials. From impromptu shopping sprees, daily coffee runs, or subscriptions you don’t even use, these small expenses add up. Without a budget, you might realize too late that your bank balance is running dangerously low. Start by listing your monthly income and expenses, then allocate a portion for savings and leisure. Budgeting like apps can make this process seamless and ensure you’re in control of your finances.
3. Borrowing for Non-Essential Purchases
It might seem like a good idea to finance a brand-new phone or gadget on your credit card, but when it comes time to make payments and you can’t keep up, you’ll wish you hadn’t. Avoid borrowing money or using credit for things that aren’t essential.
The smarter option is to save up for non-essential items instead of going into debt. If something is a luxury or a “want” rather than a “need,” try making it a future goal to save for instead of risking your financial stability now.
4. Skipping an Emergency Fund
LLife in Nigeria can be unpredictable which is why unexpected expenses like a sudden hike in fuel prices, a health crisis, or even job loss can arise. Many young Nigerians rely on friends or family in emergencies, but this isn’t sustainable. Start building an emergency fund by saving a portion of your income monthly, no matter how small. Apps like PiggyVest and Cowrywise make saving easy and accessible.
5. Neglecting Retirement Savings
A lot of people in their 20s think retirement is a problem for “future me” to handle, but this mindset can cost you dearly. While pensions are mandatory for employees in formal sectors, entrepreneurs and freelancers often ignore retirement planning entirely. Take advantage of Personal Retirement Savings Accounts (RSA) offered by pension administrators in Nigeria and explore other long-term investment options like mutual funds or treasury bills to secure your future.
6. Trying to Impress Others with Your Lifestyle
In the age of Instagram, the pressure to appear successful and fashionable can lead to reckless spending. From dining out at expensive restaurants to buying the latest gadgets, many young adults stretch their finances to keep up appearances. The truth is, living beyond your means is unsustainable and stressful. Focus instead on building a lifestyle that aligns with your income and financial goals. Remember, true wealth is about stability, not appearances.
7. Ignoring Financial Education
Navigating the world of personal finance without knowledge is like trying to drive a car blindfolded which is a recipe for disaster. The education system rarely covers personal finance, leaving many young people clueless about managing money. Without proper knowledge, it’s easy to fall victim to Ponzi schemes or make poor financial decisions. Take charge of your financial education by reading books, attending seminars, or following financial advisors on social media. Platforms like NairaMetrics or Money Africa are great resources tailored to Nigerians.
Wrapping Up
Your 20s are a time to make memories, but they’re also a time to make smart choices. By avoiding these six common mistakes, you’ll set yourself up for a future filled with financial stability and opportunities. Remember, the habits you build today will follow you into your 30s, 40s, and beyond so make them count. Have you fallen into any of these traps or found ways to overcome them?