Personal finances are something that not everyone wants to talk about. It’s a bit taboo to discuss anything about money, but it just happens to be one of my favorite topics. We’ve all made a few terrible financial decisions – myself included. Some that left us struggling to pay off debt and others that left us wondering how we could be so silly.
5 Financial Lessons I Wish I Learned Earlier
In light of this, I wish there were some things I had known earlier, or at least figured out sooner than I did and here they are:
1. Build a budget based on your lifestyle.
Your budget is just that: yours. It should be tailored to your individual needs and wants. After you have identified your fixed expenses, you can then decide how you want to spend the rest of your income. For some reason, it took me ages to understand the concept that budgets can be fluid – you don’t have to spend your money the same way each month and you certainly don’t have to follow someone else’s budget model.
For example, it is important to me to eat organic, if I can. In light of that, a larger portion of my budget is allotted to food than it would be if I just ate ramen for dinner. Be sure to understand the things that are important to you and figure out where to make sacrifices accordingly. Because I spend more on food, I spend less on entertainment each month and it works for me. But you might be completely different and that is absolutely fine, and the same budget blueprint wouldn’t work for both of us. Which is also fine, by the way.
2. Learn about and establish credit early.
My credit started with student loans, but I also realized that I needed other types of credit. I opened my first credit card at the ripe old age of 19. It was only a store card with a $300 dollar limit but it was the only card I could get approved for at the time.
Imagine if that had happened when I was well into my twenties – I expect it could be a major setback if you are trying to take out a mortgage or finance a car. Luckily, this was something I realized early on but I know plenty of twenty-somethings who are deathly afraid of credit cards (and really shouldn’t be). There are plenty of ways for college students to start building credit, but it is important that you get an early start on it.
3. Don’t wait to save (and save at least 10 percent of your monthly income).
Oh how I wish I had started saving money earlier. And by earlier I mean when I got my very first paycheck. Even working part-time as a student and putting away 10 percent, I would have been saving $50 a month, at least.
That doesn’t seem like a lot, but by the time I stopped working during undergrad, I would have had around $1800 in savings. If I’m being honest, I could have saved way more than that, but $1800 would have been a good start.
I could have used that as the start to an emergency fund, put it towards my student loans, or just used it to help me get through the post-grad transition into the real world. Coulda woulda shoulda. But didn’t.
4. Minimize your fixed expenses as much as possible, but do it in a way you can live with.
Rent, your cell phone bill, your car payment, student loan payments, your Netflix subscription – everything you know you have to pay each month is a fixed expense. Since you absolutely have to pay them and can’t just decide not to (at least if you want to continue to have somewhere to live or use the service), it’s important to minimize them as much as possible… but in a way that keeps you happy. There is no point in having a roommate if you don’t like sharing things or living space. If you could never give up your beloved iPhone, then don’t switch to a plan where you can’t use it.
In my experience, it is much better to spend that extra $100 on rent or the extra $50 on your phone bill if that’s what makes you happy and keeps you sane. (Note: Don’t use this as an excuse to do or keep things you really can’t afford – find other ways to cut costs to make sure you can have the things you actually care about).
5. Don’t spend money you don’t have.
Two things to live by: don’t let your mouth write a check that your body can’t cash and don’t write a check that your bank account can’t cash. But really, learning to use your credit cards responsibly is something many of us struggle with. A good basic rule of thumb is to never put more on a credit card than you have in cash. If you aren’t able to pay your card off in full, you have spent too much.
If you are already in the debt situation, create a plan to pay it off and then start fresh. It’s never too late to build good habits and from now on, avoid putting yourself in the same situation again. Wait until you have the cash to buy something before you put it on a credit card. If you want to put your new computer on your credit card to make sure you get the rewards points, by all means do it. But please, please, please have the cash in your bank account to pay off the card. Do not assume you will just pay it off over the next few months, because you won’t. If you didn’t have the discipline to save up beforehand, you will struggle to pay it off after you’ve already purchased it (and you will be paying interest when there is no need to be doing so).
So there we have it. Five financial lessons I wish I had learned earlier that would have put me in a better place financially right now. No matter what people say, there are some lessons you just have to learn through firsthand experience.
What financial lessons do you wish you had learned sooner rather than later? What would have saved you the trouble of financial mishap? Share with me in the comments!