It’s only within the past couple of years (of my salaried, adult working life) that I’ve bothered to learn anything about personal finance or how money works, but now I’m actively seeking out and learning about how to manage it (401k is investing!?). It’s a process! A journey! A uphill climb! However you want to view it, feeling in control makes managing your money seem less of a challenge. I just wish I knew some of this basic information when I started earning a paycheck as a teenager. Basically, I didn’t have a lot of financial guidance when I was growing up. I was babysitting in my early teens and eventually I did get a retail job at 16 that I would have through college. I opened a checking account at the bank my parents used and when I turned 18 I got a starter credit card with a $500 limit from the bank. I didn’t know about shopping for the best interest rates or how credit cards worked, though I did know enough that I would always pay my bills on time no matter what. However, I didn’t know that I shouldn’t max out my credit cards or that 20% is the recommended amount to save from each pay check. It’s only with hindsight that I see what I could have done SO MUCH better for myself. Here’s some advice to my younger self:
1. Save your goddamn money! 💰You don’t have to spend every pay check at the mall. You don’t have to buy food from the food court during your lunch breaks. There are expenses in your life that will come up: like repairs on your car. If nothing else, saving for college should be a priority! (Even when you don’t know what college is going to look like at 16, it wouldn’t hurt to have a small amount saved for the future.) There was a time where you wanted so badly to study abroad for a summer, but your student loans didn’t cover it as well as your housing expenses at the time. College is tough on a small income, but a bit of preparation for day-to-day expenses would have gone a long way.
2. Educate yourself on finances. 💸Ask yourself things like, “what is a budget?”, “what is an APR?”, “what does a credit score do?” All of this will help you make your money work for you. At one point you worked enough to qualified to open an IRA with your job, find out what that is and use it! Don’t be afraid to ask questions!
3. Just because the clothes are on sale does not mean you need to buy them. 🛍️Hello, over-spender! Having an employee discount and sale-on-sale does not mean that you have to get that item. In most cases, you won’t wear it that often and it gets donated within a year. Plus, you barely even wore the clothes that you bought because they didn’t fit that well anyway. TRY to be more selective about what you bring home. It will save you so much money in the long run. Why do you think you’re always working pay check to pay check or have a credit card payment each month?? You don’t need all the material things that you think you do.
4. Make a budget! 💵I know you don’t have a lot of expenses right now, but even being aware of what your income is and what your expenses are will save you so much hassle. Learn about how to anticipate expenses, like car insurance or how much gas your car needs. Make sure you stick to a food budget. Try to pay down a credit card. Literally, just be aware of what your money is doing.
5. Credit cards are not free money! 💳Pay down your card before it becomes too much to handle. Live below your means. If you have to put the expense on a card, pay it off as fast as possible. This lesson I’m still learning well into my late 20s. It literally never occurred to young me that the money I’m putting toward the credit card could be used for something else. Elizabeth Warren explained this in her book All Your Worth, when creating a budget, you should calculate your credit card spending as savings, rather than a monthly bill because once the card is paid off, that money can be re-directed into a savings or investment account. I ALWAYS thought of credit cards as just a bill that I had. It didn’t occur to me, especially when I was in my early 20s, that I didn’t have to put all my expenses on a credit card or that I should pay it off in full to avoid interest fees. No one told me this. It’s a trap that young people fall prey to because it’s so easy to open the account. I’m very fortunate that I always was able to pay the minimum balance and that I never missed a payment, but I could have easily ruined my credit score if my job situations were ever rocky.
It’s easy to beat myself up over past mistakes, but I should be thankful that I know what I know now and can put that information to good use. There’s still so much I continue to not know. Finances are not easy and a little guidance can go a long way if you’re motivated to understand it.