As my 30th birthday approaches, I find myself thinking about what I accomplished in the last decade. My 20s saw me get married, build a house with my husband, have two amazing kids, and start my career. And while I feel great about all those successes, there were definitely a lot of mistakes along the way – especially when it came to finances.
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.
Money Lessons Learned in 10 Years
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 through Betterment 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.
Pro tip: If you have a 401k through an employer, you can use Blooom to make sure it’s optimized. Blooom offers a free analysis to make sure you have the properer allocation, that you’re diversified and not paying too much in fees.
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.
If you find yourself with a considerable amount of high-interest debt, there are options available. You can use get a home equity line of credit through Figure.com, a personal loan from Upstart, or a Low APR credit card.
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:
- Home ownership
- 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.
7. Be Realistic About Your Budget
When I was younger, I’d start a budget the same way I’d start a diet: with tons of enthusiasm, and completely unrealistic expectations. Just like it’s impossible to sustain weight loss by only eating 500 calories per day, I soon realized that it was impossible to stick to an overly restrictive budget.
I’ve since learned that the key to a healthy, sustainable budget is to be as realistic as possible. Instead of limiting my spending, an unrealistic budget would result in the complete opposite: I’d end up going over in each and every category and simply decide that since I’d already blown my plan, I should just keep spending.
To make a realistic budget, tally up your grocery store receipts, utility bills, and other expenses. Add a little wiggle room in there and you may feel less restricted and therefore less likely to stray. Here are some budget basics to help you get started:
- Gather all bills, receipts, and financial statements from the past month.
- Sort them into two categories: fixed (rent, mortgage, car loan, etc.) and variable (groceries, car repairs, clothing, etc.).
- Create a simple spreadsheet, input your gross monthly income, and subtract your expenses.
- Evaluate your expenses. Do you really need that pricey cable package? Could you spend less on clothing or dinners out?
- Decide what to do with any surplus. I prefer my budget to “zero out” at the end of each month, meaning each dollar has a specific place, which includes savings and retirement accounts.
- Try living your budget for one month, then revisit it, adjusting the numbers accordingly. Be as realistic as you can, and remember that like a diet, the only person you sabotage with dishonesty is yourself.
Knowing you’re telling your money exactly where to go means having control of your finances, and that can help set you up for better money habits in the future.
If you don’t want to be in charge of manually updating your budget, you can use Personal Capital. They will automatically import all of your purchases and give you a nice clear report each month on how you’re doing.
8. Volunteerism Adds Up
When I was younger, I didn’t see the value in volunteering because it didn’t provide me with the gratification I wanted most: money. After a six-week hospital stay in my mid-20s, however, I drastically changed my tune and began volunteering as a parent support worker in my local neonatal intensive care unit.
Not only did I get satisfaction from helping the community, I strengthened my professional life as well. While you don’t get paid, the people skills you develop and the experience you gain by volunteering are invaluable, and can help make you much more employable in the future.
9. Health Insurance Is a Must
That six-week hospital stay cost $250,000 – which, luckily, my insurance paid for. However, I didn’t always have good health coverage.
When having my baby a few years earlier, I decided to pay out-of-pocket. I got a good deal from my OB/GYN for paying up front, but it still ended up costing around $4,000. My husband and I had planned well and were able to save for it – but when emergencies cropped up, we were left scrambling for funds.
Health insurance is a must, even if you’re in perfect shape. If a problem were to arise, you can rest assured that you’re covered and your financial goals won’t be derailed. Whether you stay on your parents’ plan until you’re 26, get insurance through work, or purchase it through your state exchange, make sure you’re covered.
10. Understand Your Emotional Connection to Money
The key to doing away with poor spending habits lies in understanding your emotional connection to money. Once you decipher the reasoning behind your spending triggers and attitudes, it’s a lot easier to form healthier financial habits.
I grew up in a family with four brothers in a very expensive city. My dad was an auto worker and my mom stayed home with the kids, so we didn’t have a ton of money for new clothes, electronics, and cars – all stuff my friends in high school had. Once I was on my own, I wanted to prove that I could afford the things I’d always wanted. Other triggers included boredom, reasons for celebration, and even something as simple as a bad day at work. Essentially, I made myself feel better by shopping.
I still struggle with linking emotions to spending, but I’m much better at understanding and controlling it now. By recognizing my behavior I can replace that urge with something else, such as exercise, work, time with family, or talking it out with my husband.
Many of us can think back to our early 20s and pinpoint some pretty bad mistakes. Instead of feeling embarrassed about the way you viewed and spent money, use your new found knowledge as a stepping stone to better habits. Whether it’s an attachment to emotional spending or reckless credit card use, the good news is that in your 20s, you’re just beginning your adult life, and there’s plenty of time to right any wrongs. In fact, it’s never too late start improving your financial habits – start today, and know that your past mistakes have helped to make you a better person.
What were some of the financial lessons you learned in your 20s?