6 Common Financial Mistakes To Avoid In Your 20s

The 20s. A time full of youth, taking on new adult responsibilities, and for many of us, learning to recover from financial blunders! Your 20s are crucial for your financial future and could make or break a comfortable retirement. By avoiding these 6 common financial mistakes made by many people in their 20s, you’ll be on track towards more financially comfortable decades ahead. 

Ignoring investing 

Compound interest is the reason why it’s better to invest as early as possible because it makes your investment increase exponentially. Many in their 20s might be eager to jump into volatile investments that could promise high short-term gains (but also high short-term losses) such as with cryptocurrency and volatile stocks. These require good investing knowledge to avoid big losses so it’s best to understand your risk profile and ensure your portfolio is balanced with stable investments.

Accumulate too much debt

Many people in their 20s are not equipped with sufficient knowledge to manage credit. One of the most common debt people in their 20s struggle with is credit card debt. It’s easy to be wooed by credit cards with their promises of low fees, sign-up offers, and other perks.  

In the 20s where we generally earn the lowest income, owning a credit card could tempt us to live beyond our means and might even make us go into debt to live a life of luxury. For example, buying luxury bags, jewellery, or clothing. You can easily get trapped into a cycle of compounding interest and debt which can snowball into your 30s. 

Chasing trends and impulse purchases

Trends come and go but you will only get one chance in your 20s to determine your financial future. Your future self will thank you for not getting stuck in costly trends, which will probably be obsolete by then. Avoiding getting caught up with trends is very much related to controlling impulse purchases. Being new to handling your income can lead to a lack of control over your spending. One way you can control impulse purchases is by asking yourself if you need this item before making the purchase.

Not budgeting 

The very thought of budgeting might bore you. It might bring up thoughts of spreadsheets and tedious calculations. As a 20-something year old you’re probably occupied enjoying your new life as a working adult. However, budgeting is a necessity if you want to manage expenses and pay off debt. It doesn’t even have to be difficult or take a big chunk of your time! Fun Fact - budgeting helps make you aware of your spending habits and evaluate how to improve your finances. You can try out the simple and popular 50/30/20 rule where you break down your expenses into three categories: 

1. Necessary expenses (50%) - rent, utility expenses, groceries, etc.
2. Discretionary expenses (30%) - subscriptions, vacation, restaurant meals, etc.
3. Savings and debt payments (20%) - paying down debt, savings account, investments, etc. 

Not prioritising savings when with a lower income and a high cost of living 

According to a 2023 survey, 9 in 10 Malaysians are very concerned about the cost of living. The high cost of living can be felt by everyday Malaysians. An example of high cost of living is the increase in food and grocery prices. With your income generally being the lowest in your 20s, you may not be able to save a lot after every month due to the high cost of living. 

One cost that would normally take a big chunk out of your income is rent. So avoid living on your own when you can’t afford it. Living alone is not the only sign of financial independence. There are Malaysians even in their 30s and 40s in Malaysia who live with their parents because it’s just much more financially efficient. 

Forgoing insurance  

You’re young and probably in good health in your 20s but nobody is free from unexpected events. In fact, another reason to get insurance when you’re young is also because that’s when premiums are more affordable. Not financially protecting yourself could lead to being buried in debt that could persist beyond your 20s.

One important insurance 20 something year olds should get is medical insurance. Medical inflation has been consistently high in Malaysia for the past 10 years. In general, medical inflation has stayed at 4-5x above the average inflation in Malaysia. Malaysia’s medical inflation was projected at 12% in 2022. For a comprehensive medical plan, check out FWD Medi First. It has no lifetime limit on your medical coverage and you get protected up to 100 years old!