Aaaaahhhh to be 20 again! Not a care in the world, no children to fret over, no worries about how we will fund our retirement; just the here and now. I remember my 20’s as being care-free and happy. Always looking to the next (costly!) adventure. While I don’t regret the things I did I do wish I’d sometimes done things a little differently. If I had, I feel that my family and I would be in a much better position financially. Let’s take a look at some of the most common things that people wish they’d done differently when they were younger
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EATING OUT TOO MUCH
This is such a common one as, let’s face it, what 20 year old wants to cook each night? But eating out or ordering takeaways too often puts a huge dent in your budget. The average single person in their 20’s spends approximately £38 per week on groceries. Just eating out once a week can easily cost £15- £20. That’s over 50% of their total grocery cost! If they eat out twice per week then they are likely to spend as much on just two nights of eating out as they are on a whole weeks’ worth of grocery shopping! If you total that up over the course of a month then that’s a huge amount of money that could have been going towards savings or investments. Over the course of a year eating out twice a week equates to over £2k! All of that money could have gone into a high interest savings account.
I’m not saying that eating out is wrong. I love eating out (sooooo much!). But when it becomes a regular habit and works its way into your weekly routine then it does become a problem.
When you’re young you tend to feel invincible. Old age seems like a lifetime away and you feel that life is for living and that there is plenty of time for saving later. The problem with this is that in order to benefit from the magic of compound interest (essentially interest earned on the interest earned) you need to start investing early. If you leave it until later in life then you lose a lot of the benefits of compound interest. But how are we supposed to know this in our younger years? Unless we have money savvy parents to show us the way, we enter adulthood financially illiterate. All of a sudden credit card companies are throwing ‘free money’ at us. We’d be crazy not to snap it up, right? This, coupled with the instant gratification society we now live in makes it so easy to see how many of us end up deep in debt so early on in life.
If you are in your twenties and reading this then one piece of advice I would give to you right now would be to start investing NOW. Set up a standing order so that the money is transferred from your bank account into your savings account automatically. After a while you won’t even notice it’s missing and you’ll have your savings growing in the background. When you reach your 50’s or 60’s you’ll have a nice pot of cash waiting for you.
Look at the chart below. Jane starts investing £200 per month at the age of 25. By the time she’s 65 she has a pot of money worth £727,129 (based on a return of 8%). Jess, on the other hand, doesn’t start to invest until she was 35. She pays in the same amount each month but her pot is only worth £310,994 by the time she is 65. In fact, Jess would actually have to save £475 each month in order to catch up with Jane. That’s more than double! This is because time is the crucial component needed for compound interest to work its magic.
NOT MAKING MORTGAGE OVERPAYMENTS
Now this is the one I really regret. We have totally messed up with our mortgage. Since our mortgage was secured in 2006 we never once felt the need to make any overpayments. In fact, it never even entered our heads. To make things worse, we actually borrowed more on top of our mortgage (twice!) and then switched to an interest only mortgage as we couldn’t afford the repayment mortgage. Since we’ve both recently become more financially savvy we have switched back to part repayment and part interest only (they wouldn’t let us move back to a full repayment mortgage) and have started to make overpayments but I just can’t stand to think of the thousands of pounds worth of interest we have incurred through our unwise moves.
To highlight just how effective making mortgage overpayments can be take a look at the following examples.
You have a £150,000 mortgage with a 25 year mortgage term. If you made no overpayments it would take you 25 years to clear the mortgage and the total amount you would pay back would be £190,000. You will have paid £40k in interest alone. However, If you made regular overpayments of £100 per month you would save £7302 in interest and would shave 4 years and 2 months off your mortgage. If you decided to overpay by £500 each month you would save £21,194 in interest and would pay it off….wait for it…. a whopping 12 years 6 months earlier!
So it really does pay to make overpayments. Even tiny ones can deduct years off your mortgage term.
NOT CREATING A BUDGET
I’ll be honest with you, when I was in my twenties, and even in my thirties, I didn’t have a budget. I didn’t even know what a budget was until two years ago! No wonder I ended up in such a financial mess. I obviously had an idea of how much I was earning but I had no clue how much was going out each month. All I knew was that my wages would go into my account and when I was brave enough to check, it was all gone and there wasn’t enough left to pay all of the bills. When hubby and I started to look at why we never had any money we discovered that we were paying out almost £1k each month on debt repayments. No wonder we never had any money.
A budget will highlight areas in which you are leaking money. Are you spending too much on insurance policies? Could you get them cheaper if you use price comparison sites? Do you still have old direct debits running? An old mobile phone payment still leaving your account each month? You will be able to see where savings can be made once you have a budget in place.
Putting one into place when you first start out on the road to adulthood will stand you in good stead for the rest of your life. I dread to think of all of the money that has slipped through my fingers over the years simply because I never had a budget that would have highlighted problem areas.
You can see the budget sheet I use here but good old-fashioned pen and paper works just as well. The main thing is to be able to see everything laid out at a glance.
TAKING OUT A LOAN FOR A NEW CAR
Who doesn’t want a lovely, reliable car to drive around in? In this day and age owning a vehicle is a must for most people. We have work to get to and kids to ferry around. But most people aren’t able to save for and buy the car they want outright with cash and statistics show that 1.4 million new vehicles were purchased with finance in the UK in 2017. Worryingly, studies show that 47% of those who take out car finance don’t actually know the amount they borrowed and 9 out of 10 don’t understand the terms of their finance agreement.
The sad thing is that these new cars drop in value (depreciate) by 15-35% in the first year and up to 50% or more over the next 3 years. Hardly a great investment.
To put it into perspective take a look at this typical example. You see a car you love in the showroom for £18000. You can’t afford to buy it and need to take out a loan. The dealership offers you a 5 year finance plan at APR 7%. You will pay £354.60 every month for the next 5 years. You can afford this each month so go for it. But over the course of 5 years you will have paid £21,275.90 for your £18000 car. That’s an extra £3,275.90 in interest. What’s worse is that now your car is 5 years old and only worth around £9k. So you’ve forked out £21k for a car that is worth £9k. If you had bought an older but still decent car for a few thousand pounds and invested £300 each month instead you would have over £22k sitting in your bank account!
We’ve all done things we regret. If only we knew then what we know now. But looking back and longing to change things won’t help. What you CAN do is focus on what steps you can take right now to make your future life happy and secure. Don’t add to your debt. Don’t be sucked in by consumerism. Do build your emergency fund. Do start to invest. Take time to go over your budget each month. You can’t change your past but you can shape your future.