We’ve all made some mistakes when it comes to money and finances, some more than others, some not so much but nobody is perfect when it comes to handling money. I think it’s safe to say that everybody has said “if I only…” or “I wish I had…”statements when it comes to money. If we knew then what we know now, right!?!
Growing up I didn’t have anybody who was really financially savvy to share their wisdom with me and in school the only thing I learned in personal finance class was how important is was to get a good credit score and how to balance a checkbook, but they didn’t really teach you how to manage money.
Over the years I have become quite the nerd when it comes to learning about money and how to manage it. I love reading books, blogs, and listening to podcasts about finances and I love making pretty spreadsheets to track my finances. I’ve done a pretty good job of managing money on my own but I will say I’ve definitely made my fair share of money mistakes through the years. But now I’m on a path to financial independence and looking at retiring earlier than I had ever thought possible.
Here’s the advice that I wish someone would have sat me down and talked to me regarding money management when I was younger. And I realize this is not applicable to everybody or everyone’s cup of tea, it’s just the things I wish I had known early on:
Stay Out Of Debt
Do not borrow money for any reason at all, other than perhaps a mortgage (and only take out a 15 year fixed as opposed to a traditional 30 year mortgage). Consumer debt is at an all time high and people get in way over their heads thinking they can “afford” a monthly payment without looking at the actual cost of whatever they borrow on once interest in factored in. Before you know it you’ve got multiple “payments” due each month. Almost everybody has some form of debt, it’s normal right? But it doesn’t have to be. If you can’t pay cash for something then can you really afford it? If you were to stop making payments on whatever it is you borrowed on, it will get taken away so you really don’t own it.
I’ve borrowed money on everything from cars to student loans to storm shelters to clothes to vet bills to cell phones to my mortgage and everything in between. I thought it was okay because I could afford the payments on time and wasn’t drowning in debt but I didn’t realize how much money was being thrown out the window in interest by doing so. I always knew how much my payments were each month but I didn’t know the actual grand total of my debt but when I actually did the math, totaled up everything I owed on and saw it on paper it was shocking to say the least! Delay the gratification of buying on credit and save up in cash for whatever it is you need.
Never Buy A Brand New Car
Buying a brand new car is one of the worst things you can do financially. They depreciate the moment you drive them off the lot. They can lose up to 25% of their value in the first year, and upwards of 50% within the first few years. Buy a gently used car, one that is 2-3 years old and let someone else take the depreciation hit. Oh, and while you’re at it, pay cash! Do not finance a car! According to Dave Ramsey the average car payment in America is over $500 a month and if instead of making monthly car payments and instead you invested that same $500 for 30 years you would have over 1 million dollars! So set up an account and put money into it each month until you have enough saved to pay cash for the car.
I’ve personally purchased 2 vehicles brand new, the first one I will say I got a stellar deal on but that didn’t change the fact that I was tied to monthly payments and a mound of debt. The last new car I bought was one of the biggest financial mistakes I ever made and was a horrible experience but it led me to where I am today on this path to financial freedom. I went in to the dealership thinking I would only spend a certain amount but they got me. Once I got behind the wheel of that new car I got swept away and I just HAD to have this nice new expensive car that cost way more than what I had planned to spend.
Both of these new cars, along with every other used vehicle I bought previously, were all financed and had an average term of 5 years. Car payments were very normal for me and I figured I would always have a car payment like most Americans. But my buyers remorse got the best of me when I drove off the lot in my nice new car and I quickly realized the mistake I made. I stayed up all night thinking about how I shouldn’t have bought that car and started researching ways to pay off debt quickly and I actually ended up paying it off in about 8 months, you can read about how I did that here.
Invest As Soon As You Begin Earning Income
The power of compound interest is AMAZING!!! And time is your best friend. The earlier you start, the less you need and the more you will have. Start investing as soon as you can and let time do the rest. It doesn’t matter if it’s $1 or $1,000, just start! You have to have the mindset to pay yourself first because it’s one of the best things you can do for your future self.
My first job was as a blueberry picker in Oregon when I was about 13. Me and my friends would do this during the summers and get paid by the pound, we weren’t making much but we were getting to eat all the blueberries we wanted! Then I had a few regular minimum wage type jobs throughout high school. I also worked full-time while going to college but I didn’t really start investing until I was 25. That sounds great to start even that early but thinking about how I missed out on about 10 years of investing from 15-25 makes me regretful thinking about how much money I would have had. The more you can save early on, the earlier you can retire.
Do A Budget Every Month
Here’s the cycle: get paid, spend money, wait to get paid again, rinse and repeat. Most people spend their money and wonder where it all went. A budget puts you in control of your money and it does not have to be restrictive, it actually gives you freedom to spend while being accountable for where your money goes. Doing a budget and sticking to it every month keeps you on track to a successful financial future.
I always though a budget was for broke people, seriously. I didn’t think it pertained to me and that is was pointless for me to be on a “budget”. How naive I was! I’ve now learned that a budget is for everybody, no matter if you’re rich or poor or somewhere in between, everyone can benefit from using a budget. I started using a zero based budget a few years ago and it has been extremely beneficial to my present financial status and the future. It’s super easy to do and I actually enjoy doing my budget every month. Here’s how to set up an easy zero-based budget that you can begin using right away.
Live Below Your Means
I had heard this statement many times before but it seemed so vague, I never knew what it really meant. Living beneath your means is spending less than you make basically. But there is a wide spectrum to this. It could mean spending less than $1 than you make and that’s living below your means. On the other extreme it could be that you live an extremely frugal life and save 90% of what you make. I think its up to every individual where they fit in on that spectrum but the closer to the extreme side the better off you will be in the long run.
It means buying a home that is affordable and doesn’t make you house poor. It also means not increasing your lifestyle when you get an increase in income. It means not living paycheck to paycheck. It means not buying everything in sight or financing whatever you want. It means being intentional and disciplined when it comes to spending money.
I used to blow my money like it was going out of style. I loved to go shopping and I loved to buy things. I would go on these ridiculous shopping sprees to treat myself just because. I was making decent money and I was paying my bills so I thought there was nothing wrong with spending all my extra money on “stuff”. Thankfully I was able to break that cycle and my values have since changed drastically. I’ve adopted a more minimalist mindset and I don’t find shopping to be very fulfilling or fun anymore. I realize there are more important things to life than just buying stuff, this has helped keep my spending in check and I am able to live below my means a whole lot more than what I was.
If I had adopted the mindset of living below my means back when I started earning an income I would probably be retired by now. It’s that powerful: consume less, save more, and you are bound to end up financially independent sooner that you’d ever imagine.
When it comes to your money, you should be in control and making the decisions on how and where to invest. Everybody and their dog has an opinion on the best strategy or the newest hot stock tip. But you need to learn what works for you. Don’t take other peoples advice and do what they are doing unless you understand what it is and it aligns with your goals and desires. Even financial advisors that are “trusted” can steer you into something you know nothing about. Take the time to do a little research on your own and make informed decisions. There’s nothing wrong with consulting others but nobody has your best interest at heart other than you.
When I started investing in my 401K and other stocks I had no clue at all what I was putting my money into. I just did whatever the advisor said was best for me. I couldn’t tell you one company or one name of a fund that I was putting my money into or what it meant. That has all changed though. Now I know exactly how my money is invested and in which funds. I make my own decisions and do my own research. I still rely on the professionals but ultimately it’s up to me. I find people who have been financially successful and I study what they did to get there. I’m not saying you need to start looking at the New York Stock Exchange and reading books about investment strategies every day but there are so many great resources out there to help educate you that it is definitely worth it to check a few out.
Get On The Same Page Financially With Your Significant Other Before You Get Married
I’ve said it before and I’ll say it again, the number 1 cause of divorce in America is due to finances. Typically couples have different views on money and different spending habits which can create havoc in a relationship. It is so important to discuss money prior to marrying someone. That way you can both work towards finding common ground and working together as a team. It’s also important to know how much debt each person may be bringing into the equation.
I’ve never dated someone and asked “how much money do you save each month” or “how much debt do you have”, it’s always been somewhat taboo to talk about money when you’re trying to swoon and romance the pants off someone. But when a relationship turns real serious and there’s a potential this could be your “forever” then it’s time to have that conversation about money or you could both be in for a big surprise.
Me and my husband were on two different planets when it came to money but we have been able to come together and now we work as a team. I’m glad we were able to but I wish we would have done it sooner. You can read more about how we overcame our differences here by taking a financial class that I would recommend to anybody taking as a prerequisite to marriage! I know our children will be required to take this class with their significant other before they get married. It’s Dave Ramsey’s class called Financial Peace University and it’s held all over America all of the time, check it out for a class near you.
The More You Give The More You Get
You open yourself up to receiving more when you are able to give. Be generous and help others in need. Donate to causes you believe in. Give back to the ones who help you on your spiritual path. Give back to the community. It’s incredible how one little generous act can make a real difference in someones day or life.