Some people are fortunate enough to grow up with family who give them good financial advice. Or, they have a good chance to observe and pick up the financial tips on their own.
As you might imagine, I was not one of those people who grew up with any type of decent financial understanding.
My financial lessons were learned the hard way, which isn’t necessarily a bad thing, but definitely costly.
As I was thinking about some of these lessons, it made me realize that there are several things that I really wish someone had taught me.
These are those things.
1. Cars are just wheels that get you from one place to another. They all work in the same basic manner, so there is no need to spend a lot of money on a vehicle when a lower priced one gets you around town just as well as a higher priced one.
2. Always try to live below your means. If you can live on less then you make each month, then you can save the rest for financial emergencies or large purchases.
3. Just because you start making more money does not mean that you should start spending more money. Your expenses are still the same, so don’t act like they have increased as well.
4. Limit your housing expenses so that they do not exceed 25% of your net monthly income. If you really want to live somewhere that is more expensive, then you need to find ways to make more money or stay where you are living now.
5. Avoid financing or leasing a vehicle if at all possible. If not, stick with used vehicles to avoid the new car depreciation and try to keep your monthly payments to under 10% of your net monthly income. An even better idea is to follow the advice of Tortoise Banker here.
6. Start saving at least 10% of your income as soon as you start working. The earlier you start saving, the less you have to save for retirement because compound interest is the magical unicorn of personal finance.
7. Do not carry a balance on credit cards because credit card debt is the chain that only gets heavier and drags you down more and more each month. If you cannot afford to buy something with cash, then you do not really need it. And your savings should cover any emergencies.
8. Max out any company match retirement savings plans that are available at you job. This is like free money for retirement and only a fool passes up free money.
9. Student loans are worse than credit card debt. If you cannot afford to go to college, then wait until you can or find an employer who will pay for your classes. There is no shame in attending college part-time or taking several years to get your degree.
10. Stuff will not make you happy. Instead of spending your extra money on DVDs, more clothes for your closet and other stuff you will eventually consider “junk,” spend your money on experiences that create memories. Coincidentally, this will turn out to be less costly than regularly buying junk.
11. Do your own taxes each year. You should know everything about your personal financial situation, and that includes your taxes. Plus, it will save you the cost of paying someone else to do them.
12. Use a budget each month. Creating a monthly budget helps you know exactly how much money you have coming in each month and how much you have to pay out each month. Sticking to your budget helps you live within (and hopefully below) your means, which means that you will not unexpectedly find yourself in a financial pickle.