Our schools have failed us. They have taught us so much about how to survive in the corporate world but not enough on personal finance. Why is money considered taboo as a topic for discussion when it governs our lives from start to finish? I do not know about you, but personal finance just happens to be one of my favourite topics. Each of us, including myself, has made at least one big terrible financial mistake in the past. Some of those mistakes had us wondering how we could be so foolish with our dollars and cents. Others have led us to live near-poverty lives.
Many years ago, I started to pick up books on personal finance and money management. After spending lots of time reading through them, I wish there were some things I had known sooner, or at least found out sooner than I did, and here they are:
1. Adopt A Lifestyle According to Your Budget
“A budget is telling your money where to go instead of wondering where it went.”John C. Maxwell
Your budget should be tailored to your individual needs and wants. Everyone’s budget is different, and so, it is futile to mimic somebody else’s budget. Your budget is only unique to you and no one else.
Determining your fixed expenses represents the first step of putting together a budget. Afterwards, you can then deliberate how you want to spend the leftovers. For many years, before I picked up my first personal finance book from the bookstore, I assumed that budgets are not malleable, meaning if you have allocated 20% of your monthly income on wants, then you have to stick with that allocation percentage until your monthly income is increased.
Fast forward to the present, and I come to recognise that budgets can be flexible, meaning you do not have to force yourself to treat your money the same each month and again, you definitely do not have to copy somebody else’s budget structure.
It is vital to recognise the things that are valuable to you and determine where and when you need to make trade-offs accordingly. I spend a lot of cash on takeaways for lunch, and because of that, I spend less on entertainment each month, and it has served me well. However, your lifestyle will be different, and that is not a problem. Hence, your budget model will be completely different from mine, which is also not an issue.
2. Credit, Credit, Credit. Take Note of It
Before I got my first credit card earlier this year, I have been using supplementary credit cards given to me by my parents. Additionally, I have been funding my lifestyle by swiping my debit cards. However, they did not help me to build a solid credit score.
I was not able to grab a credit card sooner because neither did I have the financial assets nor the salary slips to convince the banks that I have a steady stream of income. Yes, there are pros and cons of using credit cards, and I know many people youngsters who are genuinely terrified of using credits. However, there are many ways to navigate the concerns of using credit cards and for twentysomethings to start building a favourable credit score. Having a deep understanding of those methods means nothing if you do not put them into practice. That being said, it is essential that you get an early start on it.
3. Save First, Spend Later
I made the terrible mistake of not saving up sooner. And by sooner, I mean when I got my red envelopes soon after setting up a bank account. Even working part-time as a photographer and saving 10% of each pay slips, I would have been saving a decent amount every month, at least.
“Do not save what is left after spending, but spend what is left after saving.”Warren Buffett
It may seem insignificant. However, when I resigned from my job, I had enough savings to last me for two years comfortably. To be frank, I could have saved more than the amount of savings I have today. I spent the rest of the money on things that I did not really need. I could have saved more and further restrict my impulsive buying habits but didn’t. However, damage has been done, and there is nothing I can do to recoup my losses.
Yes, you should live life like there is no tomorrow, but incorporating that into your money mindset is rather foolish, in my opinion. You are guaranteed to have tomorrow. Heck, you have so much time ahead of you. So, why should you dump all your money in the present when you have a long future ahead of you? So, start saving as much and early as you can because when trouble strikes, you can take comfort knowing that you can still move on with your life without any financial worries.
4. Cut Down on Your Fixed Expenses As Much As Possible Without Sacrificing Your Quality Of Life
Let’s go through some of the typical fixed costs that one will have to carry as soon as he or she becomes an “adult”: rent, car loan, your Spotify subscription, your phone bill – everything you know you have to pay monthly is a fixed cost.
Neither can you run away from them, nor can you just decide not to pay them. Hence, it is crucial to minimise them as much as possible without sacrificing much of your quality of life. It is pointless to have a roommate if you dislike sharing belongings or the common spaces. If you are adamantly refusing to give away your iPhone, then do not even think about switching to a different mobile plan.
“Live below your means, but within your needs.”Suze Orman
My personal experience informs me that it is much wiser to spend that extra $100 on rent if that keeps you contented and mentally sound. One noteworthy point to mention here is that you should not use that as a justification to do or keep things you really cannot afford. Accordingly, scout for ways to minimise costs to ensure that you can have the things you actually need and that matters to you.
5. Do Not Spend Money You Do Not Have
I cannot stress this enough.
Earlier I mentioned that there are pros and cons of possessing a credit card. Consider yourself wise if you know how to use your credit card(s) responsibly. The reason is that not many people can summon the self-discipline needed to control their expenses and recognise the responsibility of managing money. The large credit limits set forth by the banks can easily entice cardholders to live way beyond their means, which includes spending money they do not have.
“Don’t spend your money till you have it.”Thomas Jefferson
In order to counter that, an excellent fundamental rule of thumb is to never put more on a credit card than you have in cash. If you are struggling to pay off your credit card debts in full and on time, you have spent way too much.
If you are already drowning yourself in debts, formulate a blueprint to pay them off and then begin with a fresh start. It is never too late to adopt good financial habits, and from this time forward, do not put yourself in the same situation again.
Wait until you have the money to purchase something before you put it on a credit card. If you want to put your new gaming laptop on your credit card to make sure you get the miles, go ahead. However, I beg you, please have the cash in your bank account to pay off the outstanding balance. Do not assume you will just pay it off over the next few months. Let’s face it: you would not. Suppose you fail to discipline yourself to save up beforehand. In that case, you will have a hard time paying it off after you have already bought it (and you will be paying unnecessary interest simply for making a late credit card payment).
Final 2¢: Making “Cents” of Them
You have made it this far. Hence, I will assume that you have taken note of the five pearls of financial wisdom listed above. These are five financial lessons I wish I had taken note of sooner that would have put me in a better financial position currently.
No matter what people’s opinions are, some lessons can only be gained through firsthand experience. So, if you have made a terrible financial mistake in the past, treat it as a lesson and make sure you do not do it again. Lessons are only productive if you have learned something meaningful from them.