Many people struggle with money. Some make bad financial decisions, while others may rely on only one source of income. Other potential reasons are spending spontaneously based on impulses, taking on greater debt than what can be comfortably repaid, etc. If you don’t want to take risks with your money and enjoy a stable, debt-free, and secure financial future, learn from other peoples’ money mistakes and never repeat them.
Start by noting the following 12 common financial mistakes made by people under 40 and try to avoid them.
Not Having an Emergency Fund
Emergency funds for at least three to six months can help people sustain rough patches characterized by job losses, unexpected expenses, etc. However, only a few people have an emergency fund. Approximately 27% of U.S. adults have no emergency funds, while 29% have some savings that won’t be sufficient to cover three month’s expenses. If you look at the generational breakdown of emergency funds, over 1 in 3 millennials have no emergency savings, the highest of any generation.
Being Underinsured
Many people don’t take insurance seriously and often underinsure themselves. A 2022 survey shows approximately 43% of working-age adults are underinsured. Roughly 49% of the respondents believed they couldn’t cover an unexpected $1000 medical bill if it arose in the next 30 days. Underinsured people are the most vulnerable population because even a single major accident can drain them financially, altering their life trajectory forever.
Minimum Payments on High-Interest Debt
While credit card payments offer unmatched convenience, they also come with hefty interest rates. In some cases, these rates have increased from 16.40% to 20.75% in the last two years alone. If you have taken high-interest debt on your cards, making minimum payments every month can prolong the time required to clear the debt. It will also require you to make additional interest payments that could have been otherwise avoided.
Taking a Bigger Mortgage
The biggest financial mistake some people under 40 make is overburdening themselves financially by taking a bigger mortgage than they can afford to pay comfortably. Many banks may approve larger loans for some home buyers, but people must remember that a mortgage won’t be the only recurring payment. While deciding on a reasonable mortgage amount, always factor in other aspects, such as property taxes, monthly mortgage payment, maintenance cost, insurance, loan terms, etc., to arrive at the complete picture. It can save you from future financial regrets.
Not Saving for Retirement
Nearly three in four U.S. adults have financial regrets, with not saving early for retirement being the most common. 21% of Americans say that their biggest financial regret is not starting to save earlier for retirement. You must start saving for it early to lead a debt-free, secure, and pleasant life in your old age. Even small savings can help you achieve financial security and freedom in retirement.
Not Saving Enough for Kid’s Education
When Bankrate surveyed Americans in 2023 about their financial regrets, 4% of millennials said they regretted not saving enough for their children’s education. 5% of Gen Z and 4% of Gen X respondents had the same financial regret. So, if you’re under 40 and planning to have kids, ensure you start saving early for their education.
Carrying Credit Card Debt
If you mostly rely on credit cards for expensive purchases, you are more vulnerable to financial disasters in future years. People under 40 often don’t consider the fact that high interest can accumulate faster, making it challenging to pay off the balance. Approximately 15% of Americans feel stressed because of taking too much on credit card debt. Make a note of it and ensure you don’t repeat this mistake for a financially secure life.
Excessive Impulse Buying
One of the fastest ways to drain your savings and derail your financial goals is indulging in excessive impulse buying. If you cannot control your spending habits, you will experience its adverse effects. Unfortunately, impulse buying is becoming more common than before, with nearly 88% of Americans admitting to making spontaneous purchases. If you’re under 40, you can secure your path to financial stability by simply controlling your impulse buying urges.
Not Writing a Will
Writing a will must be non-negotiable for people under 40, especially if they have a spouse, children, and other loved ones. It can save them from grave problems. While a will should be a part of healthy financial planning, the number of people creating a will is declining. Experts attribute this decline to people’s procrastination and lack of understanding of the real importance of a will.
Taking Too Much Student Loan Debt
Nearly a quarter of Americans are stressed because of borrowing too much for their education. Some students have taken high student loans to the tune of $163,000, and the payment schedules requiring monthly $900 repayment are affecting their financial well-being. If you’re under 40 and planning to take a student loan to fund higher education, ensure you don’t borrow an amount that cannot be comfortably repaid. This simple tip can save you from severe financial stress and burden.
Making Bad Financial Investments
People of all age groups make investment decisions to secure their financial well-being, but not every investment yields fruitful results. Nearly 5.4% of people agreed that they made bad financial decisions that affected their financial standing. If you are under 40 and want to gain financial advantages from investments, consult a professional advisor to minimize the risks of losing money.
Relying on Only One Income Source
Having a stable 9-5 job is a dream for many, but it can soon become a nightmare if the job is lost for any reason. Approximately 51% of Americans believe they will run out of money within a month if they lose their job. Things could have been better if they had second or more income sources to cover them during rough patches, such as job loss, unexpected expenses, etc. If you’re in your 40s, ensure you work towards creating alternative income sources for enhanced safety.
