Whether it was poor money management skills or ups and downs in employment, I could have benefited from a better understanding of personal finance in my 20s. I was a compulsive purchaser in my 20s, never saved anything, and often spent beyond my means.
While I’m definitely not perfect now, I like to think I’m in a much better place, having cultivated a healthier attitude toward money and learning to get my finances under control.
Whether you are in your 20s or in your 60s, you can always improve your financial habits. Here are the most important lessons I learned in the last decade that can be helpful to anyone of any age.
1. Do What Works for You – Not Your Parents
They say that opposites attract, but when a spender like me marries a saver like my husband, that theory can be put to the test. Right after we got married, we opened a joint bank account – because that’s what our parents did. When I spent money, my husband stressed out over our balances. It led to constant arguments.
After that first year, we decided to maintain separate bank accounts, and it has worked beautifully for the last 10 years. It allows me the freedom to spend, and gives my husband the peace of mind he needs to keep his nest egg safe from shoe sales. Looking beyond the conventional wisdom and managing your money in a way that works for you and your partner, if you have one, is essential.
2. Start Saving Now
I spent the early part of my 20s working office jobs, which didn’t exactly make me rich. Added to what my husband made working as an architectural draftsman while attending school, it didn’t seem like much, and we spent just about everything we earned. In our minds, saving for retirement was something that older, wealthier people did. It wasn’t until we transitioned from those jobs to our actual careers that we realized we couldn’t keep living paycheck to paycheck.
We eventually set up IRAs and savings vehicles. Automatic transfers from our bank accounts to our savings accounts means we’re less tempted to spend that money. My regret is that I wish we’d done it sooner – more years of compound interest would have given us a hefty sum.
If you’re ready to start saving, talk to your employer – many offer a 401k and are willing to match your contributions. If you’re self-employed, an IRA may be your best bet. Consult a financial advisor about the types of retirement investment vehicles available to you – and get started today.
3. Purchase Quality Over Quantity
As a shopaholic, I spent my early 20s obsessed with making every dollar count. On one occasion I had $100 to spend at the mall, and I immediately hit the clearance rack knowing I could come home with a lot more stuff. I ended up with two pairs of shoes, a necklace, and a handbag. However, the shoes were uncomfortable and the accessories quickly fell apart.
Investing in quality over quantity was a valuable lesson. Quality means taking your time to research large purchases that are built to last. It takes discipline, patience, and a practiced eye – and if you invest in better goods, you may actually find yourself spending less in the long-run on clothes, shoes, and electronics.
4. Make Debt Really Count
Getting my first credit card was pretty empowering. The way I saw it, a creditor trusted me enough to loan me $2,500, which I put to good use buying clothes, paying for movies, and purchasing concert tickets for me and my friends. Of course, I eventually found out that the money I was spending wasn’t actually mine.
After putting a stop to it and paying back a couple thousand dollars over the course of six months, I learned that credit is a tool to be used cautiously. Breaking out a credit card for things you can’t afford (or to keep up with your friends’ spending patterns) only results in a lot of wasted money in interest payments. In fact, a $50 concert ticket would often end up costing me closer to $90 by the time I got around to paying it off. If you do go into debt, make sure it benefits you in the long-run, such as taking out a home mortgage loan, buying a car, or paying for your college education.
5. You Can’t Escape Debt and Its Consequences
When I finally curbed my spending and stopped using credit cards, I also stopped making my minimum payments, thinking that after a while the credit card company would simply forget about it and leave me alone. Of course, creditors never forget, as I quickly learned. They hounded me via phone, mail, and even my husband’s phone until I finally gave in. On the bright side, they let me settle with a lump-sum payment, but the entire process was financially stressful, not to mention extremely embarrassing.
Another result of that sophomoric move was a lower credit score. Luckily, I was able to take care of my debts before my score was seriously damaged, and it never got to the point where it affected my chances at home ownership or a dream job in my career field – but it easily could have.
The lesson is, even if you’re ready to start being responsible and move on from your past money mistakes, it doesn’t mean you’re absolved of their consequences. Debt has to be paid one way or another, whether through regular payments, a lump sum, or worse, bankruptcy. Get yours taken care of so you can move on with your life.
6. Set Clear Financial Goals
Even after deciding that I wanted to be more financially responsible, without clear goals I was flying blind. Should I save money in my bank account or transfer it elsewhere? Should we pay more on our mortgage?
It wasn’t until my husband and I sat down and defined what we wanted for the future that we were able to do some clear financial planning – it made budgeting and saving a whole lot easier. Some of our financial goals included the following:
Getting out of debt
Building an emergency fund (three to six months of expenses)
Paying off vehicle loans
Starting a retirement fund
Starting college funds for our children
Every family’s goals vary, but the end result should always be the same: getting yourself and your partner to work toward concrete, agreed-upon objectives.