Financial decisions you'll regret later

For most people in their 20s and 30s, life is about enjoyment, flexibility and abundant experiences – and that’s a good thing.

Financial decisions aren’t often given much consideration, however, and that’s where things can come unstuck later. That’s because the decisions we make early on can have a lasting impact on the rest of our lives.

Here are the biggest financial decisions – or indecisions – you will regret later.

Spending more than you earn

In this age of readily available credit, it’s easy to spend more than you earn. Using your credit card for major purchases can allow you to own things now, even when you don’t have the cash to pay for them. Sure, that’s convenient, but it’s also a surefire way to land into uncontrollable debt.

“You should always spend less than you earn,” advises financial adviser Steve Crawford, director of Experience Wealth.

“To make it easier, break it down into timeframes that make sense to you. For example, save for 10 months of the year by spending less than you earn and you can spend more in the other two months – one month might be a holiday, the other might be Christmas. If 10 months out of 12 you’re winning, it will compensate for the other two.”

Not saving early enough

It’s easy to put off saving in favour of another expensive dinner out or that must-have pair of shoes, perhaps reasoning that you can always start saving next month – or the month after. But the younger you start saving, the more money you’ll have to invest or to achieve your financial goals thanks to the power of compound interest.

Compound interest is earning interest on your interest income, and the longer you allow your savings to compound, the better off you will be. Starting a savings plan at age 25 rather than 35 can add hundreds of thousands of dollars to your savings by retirement age. The longer you wait to start saving, the more you miss out on the benefits of compound interest.

Not being prepared

It’s not something most of us like to think about, but its pays to be financially prepared for unexpected events, such as losing your job or becoming ill and unable to work.

That’s where income protection insurance can be a life saver. It is a monthly payment, up to 75 percent of your previous income, paid in the event that you cannot return to work after an accident, illness or major trauma.

“Your lifestyle is based on your salary, and that’s worth protecting,” says Marc Bineham, director at Noall & Co and vice president of the Association of Financial Advisers. “You need income protection at any age, as accidents can happen at any time.”

Not keeping track of your spending

Knowing where and how you spend your money is a powerful thing – it gives you a heightened awareness of your money and as a result you are less likely to spend frivolously.

“The main thing is to have an idea of your cash flow,” says Bineham. “It’s amazing how much that does for your long-term savings. It makes you think twice about your spending, so it’s a very powerful thing to have that understanding, particularly at a young age.”

Not buying your own home

While renting can give you great flexibility to move around and live in areas you may not be able to afford to buy in, owning your home is a wiser financial decision in the long run.

“From a financial planning perspective, it makes good financial sense to own your own home,” said Deborah Kent, owner of Integra Financial Services.

“While you may be young now and not worried about it, you don’t want to be in the precarious situation of not owning your own home in retirement – it adds an extra layer of financial stress. Rents are high if you don’t have enough to retire on.”

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