Revealing the most common mistakes made by Australians in their 20s all the way up to 60s is close to my heart – after all at the age of 44 and I can admit I have made a fair percentage of them over the last quarter of a century.
Having built two businesses that share the common purpose of helping people make the pension irrelevant for Australians, I believe overall happiness for people is closely linked to financial freedom. The ability to choose to live however we want.
But most of us never achieve that. Money will always be a consideration in the decisions we make, and the life we lead. Our experiences with our friends, family and the world will be, to an extent, defined by the amount of money we have.
After working for more than 24 years in financial services and spending time with the best financial planners and professional investors Australia has to offer, I have been able to identify five key areas where people lose their way with money.
Ah, the age of fitting in, keeping up and actual fun. This is a period of your life, no matter what generation you are from where the biggest mistake you make is to spend everything you make (I can tell you as a Gen X that I spent EVERYTHING I earned in this period of my life, and it was a lot). The mistake is the failure to take advantage of compound interest.
What do I mean by that? The earlier you start saving and investing, the easier it is. Time is your friend, and most people in their 20s believe that time is on their side. When it comes to money, it isn’t. Starting earlier and understanding your options for growing wealth is the biggest missed opportunity for those in their 20s. I call this the principle of desire.
You are starting to think you've got this. You’ve been paying your bills and taking care of yourself. You might be thinking of a family, or have started one, and are looking at the next level up. While this can be a very ambitious phase of your life, it can also demand your focus on the immediate – what’s next? A house, better car, travel? A big mistake people make in their 30s is not understanding time. They think about what their life will be like in the next ten years, but rarely have the ability to see their life over the longer term. What will life be about in your 60s? When you are in your 30s, who cares!?
Having a short-term view on time is a major mistake that prevents people from achieving financial freedom. I strove for all the typical things people in their 30s do – house, kids, holidays and cars. This made life fun and enjoyable. But if I had thought to just put an additional 5% of my salary into super - and saved 10% of everything I earned by deducting it from my pay before it got to me - I would not have really felt it and would have been grateful for that decision today.
The small sacrifices we don’t make in our 30s often makes the task of financial freedom much harder.
A failure to split your focus. If you have kids, they are getting expensive – you need more of everything, from space to food. Many of us work all the time, as we now have big responsibilities, or hustle to make money in a job we don’t like. Focussing on surviving the now, and not on your next phase of life is a big mistake people make with money.
We are living longer and having less kids as a nation – there will only be 2.7 taxpayers in Australia for every retired person by the time I turn 70. The current pension system simply won’t be possible. Just thinking about the future and starting to talk out loud about how you want it look will help eliminate this mistake.
Taking no action. If you have left your run late, you still have a chance to take control, and at least get a better outcome than if doing nothing. Most people make the mistake of not seeking financial advice (only 2 in 10 Australians do) to see how they can use whatever assets they have in the most efficient way. It’s never too late to ask for advice.
Planning ahead for big costs. How often will you need another car? Does the house need repairs? What demands might your health incur? Most people fail to plan ahead for these big events, and then are blindsided when they happen. Planning ahead will save you money and stress.
We all make mistakes with money. Being honest about them is the first step to change.
Until next time,
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