Many young adults face financial challenges that could have been prevented with the right knowledge and attitude. These financial blunders can have long-term consequences for their financial well-being. Here are some of the most common ones:

If you want to have a better financial future and stability, you should avoid these 13 common financial mistakes in your 20s:

• Delaying Life Insurance
• Saving for Retirement Too Late
• Being Passive About Your Personal Finances
• Accumulating Too Much Debt
• Not Clearing Your Credit Card Balances Every Month
• Lacking an Emergency Fund
• Investing in the Stock Market Without Doing Research
• Living Beyond Your Means
• Not Preparing for Unforeseen Life Events
• Buying Unnecessary Things
• Not Monitoring Your Finances Regularly​
• Spending Too Much on a Wedding
• Not Building a Good Credit History

1. Delaying Life Insurance

As a young adult, you may not think life insurance is a priority. However, I recommend that you consider getting a permanent life insurance policy, such as whole life or universal life, while you are still healthy and young. This way, you can benefit from lower premiums and use your policy for infinite banking. Infinite banking is a financial strategy that enables policyholders to utilize their policy’s cash value as their own personal banking system.

You can invest or borrow from your cash value without affecting your death benefit. This means you are not just buying life insurance but also building your wealth for the future.

Each policy has its advantages and disadvantages, so it is advisable to seek advice from an insurance expert before making any decisions.

2. Saving For Retirement Too Late

Many young adults neglect to save for retirement as soon as possible. This is a huge financial mistake, as starting early can make a big difference in your future wealth. If you wait too long, you will have to save much more later to catch up.

You may have heard this before, but it bears repeating: the best time to start saving for retirement is when you earn your first income. The next best time is NOW!

Unfortunately, many people miss the opportunity to use cash-value life insurance and start their retirement plans early because they are not taught these things in school. Most of us only realize that we need to build assets when we are in our 40s or older, which means that we have to save more, but with all the obligations we already have, most Canadians find it hard to save, let alone invest for retirement.

The main reason to start saving now for retirement is the power of compound interest. When you invest, your money can grow, and that growth is compounded over time. It’s important to start investing as early as possible to allow your money more time to grow and compound.

For instance, suppose you invest $200 per month in a tax-free savings account that earns an average annual rate of return of 7%. If you start investing at age 25, by the time you’re 65, you’ll have $711,532.77.

If you begin investing at age 35, you will have $344,218.04 for retirement. However, if you delay by just a decade, you will only have less than half the amount saved.

3. Being Passive About Your Personal Finances

Many young adults don’t take charge of their money matters and end up in financial trouble later on. It’s essential to be aware of your finances and do everything you can to save money. Otherwise, you may face financial difficulties in the future.

One way to be more active about your money is to learn and research personal finance. You can find a lot of information on personal finance online. You can read articles, blogs, and books on the topic.

To prepare for unexpected life events that may affect your income, it may be helpful to work with a financial advisor to create a plan. This could include building an emergency fund and saving for retirement.

4. Accumulating Too Much Debt

Many young adults fall into financial trouble by taking out loans beyond their means to repay. This can have serious consequences for their future financial well-being. If you are in your 20s or 30s, you should be careful not to take on more debt than you can handle.

One of the primary sources of excessive debt is consumer credit cards. Credit cards can be helpful tools to avoid high banking fees and earn rewards, but they can also be very costly if misused. If you fail to pay your credit card balance in full every month, you’ll incur interest charges that can accumulate rapidly. It can also harm your credit rating, making it harder to secure loans or mortgages in the future.

Another source of excessive debt is car loans and leases. While having a vehicle is a necessity for many Canadians, you should only buy or lease a vehicle that fits your budget. If you find it difficult to manage expenses, perhaps you could explore the option of purchasing a more affordable vehicle, using public transportation, or carpooling until you improve your financial situation.

One way to avoid excessive debt is to use infinite banking in Canada. You can use your policy’s cash value to finance your own expenses or investments without relying on banks or other lenders. This way, you can save on interest costs, avoid credit checks, and have more control over your money. You can also enjoy tax advantages and leave a legacy for your loved ones. To learn more about infinite banking in Canada, you can read this article.

5. Not Clearing Your Credit Card Balances Every Month

It can be pretty expensive to maintain a balance on your credit cards. Many young adults today have trouble paying off their credit cards every month and end up paying a lot of interest on their balances. This can hurt their finances and their credit score.

If you want to get out of credit card debt, you need to take action and make a plan. Transferring your credit card balance to a lower-interest-rate account can help you pay off debt faster and save money.

Another option is to pay more than the minimum payment each month. This can help you reduce your balance and interest charges. The more you pay, the quicker you can become debt-free.

If you’re facing credit card debt, consulting a financial advisor can help. They can provide assistance and advice on how to manage your debt effectively.

6. Lacking an Emergency Fund

One of the worst financial blunders young adults commit is having no emergency savings. An emergency fund is a savings account that you can use to pay for unforeseen costs, such as a medical emergency or a car breakdown.

Ideally, your emergency fund should have enough money to cover three to six months of living expenses. If you don’t have an emergency fund, you should start building one as soon as possible.

Start by opening a separate savings account specifically for your emergency fund. Then, start saving money each month to add to your emergency fund.

The infinite banking concept in Canada can also help in emergencies by providing access to the cash value of your whole life insurance policy. You can use the cash value as collateral for loans from the insurance company or other sources without affecting the policy’s death benefit. You can use the loan to pay for emergency expenses, medical bills, car repairs and investments. You can also repay the loan at your own pace and terms as long as you pay at least the minimum interest required by the insurance company. This way, you can avoid using your emergency fund or taking on more debt from other sources.

7. Investing in the Stock Market Without Doing Research

Before investing in the stock market, you should do your homework. Many young adults lose money and get frustrated because they invest without knowing what they are doing. If you want to invest in the stock market, you should learn how it works before you risk your money.

There are two main methods for investing in the stock market or any other financial market. There are primarily two methods of investing in the stock market or any other financial market. One is to use a self-directed investment account, where you can choose specific stocks or ETFs (exchange-traded funds) to buy and sell. The other is to get help from a financial advisor, who can create a diversified portfolio of stocks and bonds for you to invest in for the long term.

The benefit of a self-directed account is that you can pick the companies you want to invest in and pay low fees if you only invest in ETFs. However, you must ensure you have the knowledge and time to research and understand your investments.

The benefit of working with an advisor is that you can get help to build a balanced portfolio and automate your investing monthly or bi-weekly. This way, you don’t have to worry about understanding the markets; you just let your money work for you.

8. Living Beyond Your Means

You may already know that spending more than you earn can lead to financial trouble in the future. It is essential to spend wisely and purchase only within your budget. If you’re in your 20s or 30s, make sure you’re aware of your spending and only purchase what you need. A good way to avoid living beyond your means is to follow a simple and realistic budget. A budget can help you plan your income and expenses and ensure you’re spending appropriately.

One way to create a budget is to use the 50/30/20 rule, which suggests that 50% of your income should go towards essentials like rent, food, and transportation; 30% should go towards wants like travel, entertainment, and clothes; and 20% should be saved.

Of course, this is just a suggestion, and you may need to adjust the percentages based on your own financial situation. The main thing is to be mindful of your spending and make sure you’re not living beyond your means.

You can also use budget tracker apps like Mint, or You Need a Budget (YNAB) to help you monitor your spending and stay within your budget.

9. Not Preparing for Unforeseen Life Events

Life can be unpredictable, and sometimes things can go wrong. You may face a health issue, an accident, or a job loss that can affect your finances. That’s why you need to have a plan to deal with these situations. One of the best ways to prepare for unforeseen circumstances is to have an emergency fund that you can use to cover unexpected expenses. An emergency fund is a savings account with enough money to cover three to six months of living expenses. If you don’t have an emergency fund, you should start building one as soon as possible.

One method to prepare for unexpected events is to obtain a living benefits insurance policy. This policy can provide you with income replacement if you are unable to work due to an illness or injury. Living benefits insurance policies include critical illness insurance and disability insurance. These policies can help you pay for your medical bills, household expenses, and other financial obligations while you recover from your condition.

Infinite banking can also help you prepare for unforeseen circumstances by allowing you to access the cash value of your whole life insurance policy. You can use the cash value as collateral for loans from the insurance company or other sources without affecting the policy’s death benefit. You can then use the loan proceeds to cover your emergency expenses or investments, such as repairing your car or paying for medical bills. You can also repay the loan at your own pace and terms as long as you pay at least the minimum interest required by the insurance company. This way, you can avoid using your emergency fund or taking on more debt from other sources.

10. Buying Unnecessary Things

When you start earning money as a young adult, you may be tempted to buy things that you think you need but actually don’t. This can lead to wasteful spending and financial stress. To avoid this, you should always question yourself before you buy anything. Do you really need it, or do you just want it?

A helpful tip is to follow the 30-day rule, which suggests waiting 30 days before buying anything. This will help you avoid impulse purchases and make sure that you really need the item.

Of course, this rule may have some exceptions, such as if you need to buy something urgently or if it’s a limited-time offer. But in general, the 30-day rule can help you save money and only buy what you need.

11. Not Monitoring Your Finances Regularly

One of the most important financial habits young adults should develop is keeping track of their finances. If you don’t monitor your income and expenses, you may spend more than you earn and get into debt.

To avoid this, you should check your finances regularly, at least once a month, or more often if needed. This will help you stay on top of your budget, ensure you meet your financial goals, and adjust your spending if necessary.

There are different ways you can keep track of your finances. You can use an app like Mint or YNAB to help you track your income and expenses, set up a spreadsheet to record your transactions or review your bank statements and credit card bills. The key is to find a method that works for you and that you’re comfortable with. Once you find a method that works, make sure you keep track of your finances consistently so you can see your progress and make changes as needed.

12. Spending Too Much on a Wedding

Your wedding day is one of the most memorable days of your life, but it doesn’t have to break the bank. It is possible to plan a gorgeous wedding without breaking the bank and accumulating debt.

To avoid wedding debt, you need to plan ahead and set a realistic budget for your wedding. Then, you need to stick to that budget as much as possible. You need to find ways of saving money on your wedding without sacrificing quality or style. For example, you can enlist the help of your friends and family members to do some of the tasks or services for your wedding, such as making the decorations or preparing the food. Or, you can do some things yourself, such as making your own invitations or favors.

13. Not Building a Good Credit History

It’s not wise to spend more than you earn and get into debt, but it’s also not wise to have no credit record at all. Having a credit record can help you get approved for loans or lines of credit when you need them in the future. If you’re in your 20s or 30s and have never used a credit card or borrowed money, you should start building your credit record now.

The easiest way to build your credit record is by using a credit card responsibly. This means paying your bills on time and in full every month. If you’re worried about overspending or forgetting to make payments, a secured credit card could be a viable solution. You’ll need to put down a deposit that matches your credit limit. This way, you won’t risk going into debt if you fail to pay your bill.

Conclusion

Your financial choices in your youth can have a lasting impact on your life. Making smart decisions now will help you achieve your financial dreams. Starting early will help you avoid expensive mistakes later. If you are a young adult, this is the best time to make sound financial choices.

These are some of the biggest financial blunders that young adults make. If you’re in your 20s or 30s, make sure you avoid these blunders so you can have a bright financial future.

Do you know any other financial blunders that young adults make? Please share them with us in the comments below.