As a middle school teacher I often hear my kids say some pretty ridiculous things that make perfect sense to them. Then I think about the stupid things I said when I was their age and shudder. The same is true for the financial decisions I made when I was younger. At the time I thought I was being really wise with my money, but in hindsight I can honestly say I’ve made some pretty terrible decisions. Even though these mistakes are embarrassing, I’m sharing them so that hopefully it helps someone else out.
Don’t Fill Out That Credit Card Application
As a freshman in college I learned that everyone and their mother will try to offer you a credit card. They will offer you anything from a free pizza to a t-shirt in exchange for your signature on the dotted line. The same is true for the airport. Sign-up now in exchange for 50,000 miles. But are you selling your soul for these 50,000 miles? Luckily I avoided all of these pitfalls, but what I didn’t say no to was Gap, Old Navy, or Express. I’m not sure why it seemed like a good idea at the time, but I was that girl with all of the store credit cards. I caught on quickly though and cancelled them pretty early on, but the moral of the story is that I did not need them. Of course you want to hold a credit card or two so you can build your credit history, but because you don’t need that many (it will bring your credit score down), you should do lots of research before committing to one. What rate are they offering you? What perks does the card come with? Do they protect their customers against fraudulent charges? Does it have an annual fee? Do your research before committing to a credit card.
Pay Your Bill In Full
If you can’t afford to buy it in cash, don’t buy it. Let’s say you purchase a new television with your credit card for $1000, but don’t pay it off before the end of your billing cycle. In fact you pay just $60 per month with 18% interest. The total cost of the television would actually be $1160 and by the time you pay it off 20 months later you’ll probably want a new TV. To build your credit score and to avoid throwing away lots of money in interest you need to pay your bill in full every month. When I was fresh out of grad school, struggling to find a decent job, I made the mistake of getting by on my credit cards. Some of the things I bought I didn’t actually need. It took me longer to get out of this hole because I couldn’t keep up with the interest. I wish I had known how hard it would be. If you’re in a similar situation I suggest you do the math so you can figure out how to get out of this situation as soon as possible, but also so that you know what you’re up against.
Don’t Buy A House (Or Create New Debt) If You’re In Debt
Step number one in getting out of debt is to avoid creating more debt for yourself in the process. Every bit of your money should be going towards your debt. Once I started my career and wasn’t just working a job, I started saving for a house. Mind you, I had student loan debt. As soon as I was in a position to buy a house I did. Then I bought another. Well they are both condos, but you get the idea. Instead of having to make just student loan payments, I was now having to make student loan AND mortgage payments. I can’t tell you how much money I threw away in interest. It would probably make me cry to know the exact amount. Of course there are some situations when this would be okay, say for example when you’re spending more in rent than you would on your mortgage, but in my case I was just being impatient.
Start Investing Earlier
Every year in Math we do a unit on interest. And every year I kick myself for not saving money earlier. Just as the interest I mentioned above can be a pain to deal with as a borrower, it can be a Godsend as an investor. Don’t believe me? Play around with this calculator and see how. Even just saving a small amount per month but starting at say age 18 could have been huge. But as the saying goes, you’ll never be as young as you are today, so if you haven’t started saving yet, now is the time to start.
Track Your Spending
When I finally got around to tracking my spending, I noticed something very important; I had no idea how much money I was really throwing away or where it was going. Tracking your spending will tell you a lot about yourself. Maybe you live more extravagantly than you thought, or maybe you have a really expensive Starbucks habit. There are some great sites out there that will do it for you. Now I get alerts to tell me when I’ve spent more than I did this time last month or even last year. But on the bright side, it also tells me when my net worth has increased and it’s free. Nothing like a virtual pat on the back to tell you that you’re doing a good job saving. I love these little notices and it helps keep me on track.
I’ve always been pretty good at restricting myself. But why hadn’t I been restricting my spending more? Once I actually started tracking my spending I knew that wasn’t enough. So what I started doing was going to the ATM at the start of every month and pulling out $500. That’s all I allowed myself to spend. Cell phone bill, taxis, movies, food, hair appointment, etc. I wrote down every cent I spent and forced myself to make the $500 last until the end of the month. My only regret is that I didn’t start earlier.
Now I know we are all different, so I’m interested in hearing from you. What financial advice would you give your younger self?