Normally your 20s are when you start handling and making decisions about your own money for the first time. And it’s often not until you’ve been doing it for a few years that you look back and think, “I wish I’d known then what I know now”.
So we spoke to some people in their 20s and 30s to find out what they wish they’d known when they started managing their own money. Let’s hear what they had to say…
Josh: “I wish I’d known about the impact of compound growth”
Compound growth could pack more of a punch the earlier you start, so it’s not surprising that Josh has this at the top of his list! Compound growth is basically where you could achieve growth not only on your initial investment, but on the growth you earn from that investment as well. It creates a kind of snowball effect which could really boost the value of your money over time.
Think of it like this: let’s say you invest £1,000 and it achieves 5% investment growth each year. At the end of the first year, you’d have an extra £50 from the investment growth, bringing the total to £1,050.
But here’s where compounding comes in. In the second year, you not only earn 5% growth on your initial £1,000, but also on the £50 you earned in the first year. So you’d earn £52.50 in your second year, making your total £1,102.50.
As time goes on, compounding becomes more significant. The growth you earn starts to generate its own growth, which means your money grows faster. And the longer you leave your money invested, the more it compounds, and the larger the value of your investment potentially becomes.
Eleanor: “I wish I’d started saving earlier for big life events”
After recently getting engaged and now facing the cost of a wedding, Eleanor understands the importance of building up a savings pot over time. Either for rainy days or big purchases such as a wedding, a new car or a house deposit.
It can take a long time to build up a pot big enough to fund some of life’s big expenses, so starting early can be key. Think about putting some money aside each month in a ‘just in case’ fund and let it build it up over time.
Try and look for ways to make this as easy as possible. For example, sometimes banks will offer the option of rounding up your transactions to the nearest pound and putting the difference into a savings pot for you. Saving pennies sounds small, but when you think about how many transactions you make in a week, let alone a year, it could really add up. Plus, it’s a quick and easy way to top up your savings pot.
Jason: “I wish I’d known about the 50/30/20 budgeting rule”
The 50/30/20 budgeting rule is the idea that you put 50% of your income towards your ‘needs’, 30% towards your ‘wants’ and 20% towards your savings.
Your needs are really anything you couldn’t live without – things like your rent or mortgage, food, bills etc. Your wants are things like a gym membership, your Netflix subscription, money spent on socialising or clothes. And the remaining 20% goes towards savings – whatever that looks like for you.
It could be money you put into a savings account or you could invest it – or a mix of both. You can find out more about the differences between saving and investing and which might be right for you in Saving vs investing - and how to make the most of your money.
Juliet: “I wish I’d started paying into my pension plan earlier”
It may not seem like a big priority when you’re decades away from retirement, but starting early could make a big difference to how much you end up with when the time comes. Particularly if you’re looking to retire before you’ll get your State Pension.
Something people in their 20s tend to overlook is the benefits of their pension plan and how it can make a little go a long way over time. When you’re young, you’ve got time on your side. So you could still start small and have years ahead of you to potentially reap the rewards.
Read Why when you start paying into your pension plan matters to find out more about the impact of starting early. Or brush up on the benefits of your pension plan in 6 numbers that explain what’s so good about a pension.
Erin: “I wish I’d understood the impact interest rates have on my money”
A good one to think about – particularly when interest rates are climbing as they are now.
Interest rates can really impact two aspects of your finances: your borrowing and your savings.
When interest rates are high, it often means anything you’ve borrowed will cost more to pay back. That can be things like your mortgage, loans or any credit card debt you might have. But it could also mean that you’ll earn more interest on any money you have in a cash or savings account.
On the flip side, when interest rates are low, it’s cheaper to borrow, but it also means any money you have in a cash or savings account isn’t likely to be working very hard for you. And if the rate of interest is lower than the rate of inflation, then you could effectively be losing money over time. Read Worried about the impact of inflation on your savings? Here's what to consider to find out more about the impact of inflation on your savings.
It’s important to keep an eye on interest rates to help you make better decisions when it comes to your savings and debt. For example, when interest rates are climbing, it can be more important than ever to try and pay off any debts you might have, so you can avoid paying more than you might expect.
The information here is based on our understanding in August 2023 and shouldn’t be taken as financial advice.
A pension is an investment and its value can go down as well as up and may be worth less than was paid in.