A lot of the financial lessons I’ve learned over the years could be considered common sense, and yet it took me until recently to learn them all. If I had learned these earlier in life, my financial situation would be very different now, and I’d probably be significantly wealthier as well. Here are 10 money lessons I wish I learned when I was younger.
1) Money Doesn’t Grow on Trees,
Money doesn’t grow on trees. If you want to make it, you have to work for it. This is a money lesson that’s so important to learn early on because most of us develop a false sense of security when we’re young and don’t think about money as something that actually has to be earned.
This sense of security makes us more susceptible to impulse purchases; before long, our spare change is funding new toys and gadgets that come with real costs attached.
Money can only grow if we take advantage of opportunities that are presented, then use our money wisely once we have it. We can’t learn from mistakes unless we first make them.
Money doesn’t grow on trees. If you want to build wealth, you need to spend less than you earn. It’s easier said than done, especially if you didn’t learn about money growing up.
To get a head start on making more money when you’re young, here are 10 simple money lessons that will help get you started on your path to wealth.
One of my first money lessons was that money doesn’t grow on trees. It was one of those teachable moments when my grandmother sat me down and gave me a quick lesson in economics (aka: where does your money come from?)
After school, she drove me to my local library, where I walked out with a set of library cards and a pile of books about personal finance.
There were no pictures or diagrams in any of those books, just lots and lots of words — but after reading them all cover-to-cover, it finally hit me: Money comes from work. To make more money than you have now, you have to be willing to put in more hours at work or take on more assignments at your current job.
2) Investing at a Young Age Is A Must
While earning money may seem like a full-time job at a young age, saving your money is just as important. If you put aside a few dollars every month, you’ll be surprised at how quickly it can add up.
Start small: do any odd jobs you can that pay cash, or collect cans to sell for some spare change. Anything helps!
Make sure to start investing as soon as possible and stick with your plan: no matter how old you are, remember that compound interest works in your favor. Investing early on can help you build a solid base of capital to support your future dreams and goals.
Even if you’re not much of a risk-taker, putting aside a small amount every month to invest in an index fund or exchange-traded fund is an excellent way to grow your money and achieve long-term financial success.
That said, please note that investing isn’t for everyone, so make sure to do your research before making any investments. The earlier you start investing, the less risky your investments can be.
You can invest in low-risk stocks or, if you have a big enough portfolio and a strong stomach for risk, high-growth options such as penny stocks.
A small investment at an early age will help your account grow into an impressive one by retirement time. It’s never too late to start investing (although it’s often not wise), but waiting till your 30s or 40s may mean that you have to take more risks than you’d like. If possible, start saving early!
3) You Don’t Need That Many Credit Cards
That’s not to say you shouldn’t use them at all — but don’t overdo it. It’s tempting to max out your card, but you should really only put on as much as you can pay off each month.
You won’t build your credit by using a ton of cards simultaneously, either — instead, you could end up paying higher interest rates for years.
Just one or two high-quality cards are plenty for now; aim to become an excellent long-term customer, and that will do more for your credit score than any number of super-high limits.
A few years ago, my roommate convinced me to get two credit cards. Before she added them to my wallet, she asked if I knew how much money people waste by charging things they don’t need on their cards and then never paying off their balance.
She was right — I’d seen friends use credit cards carelessly, but it didn’t really sink in until she put those two pieces of plastic in my hand.
As a twenty-something with little disposable income, more credit cards may seem like an easy way to build your credit history. They’re not. Credit cards are a form of debt, and they cost money in fees and interest payments.
Before you get another credit card, look into other ways to build your credit, like getting a secured credit card and using it responsibly over time.
If you really need to open a new line of credit, make sure it’s with one of these great second chance cards instead of more traditional ones that come with high-interest rates. And never spend more than 30% of your monthly budget on paying down debt — your housing payments should always be priority number one!
4) Take Advantage of Your Employer’s Benefits
Many employers offer some sort of retirement plan, whether it’s a 401(k) or a traditional pension. Investing even small amounts regularly in your 20s can go a long way towards providing for you later on in life. The average millennial has $13,000 saved for retirement, which is far from enough to live off of for decades.
For maximum benefit, contribute as much as you can afford to a 401(k) up to any employer match. If your employer doesn’t offer an account with matching contributions, consider other options such as IRAs and Roth IRAs.
Health insurance and a retirement plan are some of your most valuable assets, especially when you’re young. If your employer offers these benefits, you should always take advantage of them.
Employer-sponsored health insurance allows you to have a high-deductible plan at an affordable price, which is perfect for millennials who aren’t accustomed to paying major medical bills.
In addition, employer-sponsored retirement plans can be worth thousands of dollars if you contribute enough to get matching funds from your company.
Most companies offer an array of benefits to their employees.
From simple items like annual leave and employer-subsidized cafeteria meals to more complex perks like stock options and matching 401(k) contributions.
In many cases, you’ll need to do some homework on your own or have a conversation with HR before you can start taking advantage of these benefits. But, if you’ve never explored them (or are unsure whether your company even offers them).
Spend a few minutes searching through your employee handbook and looking at your company’s website. It’s likely there are quite a few valuable offerings that you don’t know about.
5) Always Pay Your Bills On Time
It’s no secret that a four-year degree is expensive. According to Forbes, In 2012, in-state tuition and fees for full-time undergraduates at public four-year colleges rose 30% from 2007 levels.
Part of what makes paying for college so difficult is that it often requires taking out loans, which can be even more problematic than student loans.
If you can avoid borrowing money to pay for school entirely by working part-time or full time, do it. The less debt you have upon graduation, the better prepared you’ll be to start managing your finances on your own.
Not only that, but if you work while in school (which will likely help increase your chances of graduating), you may get a head start on some of these lessons!
If you’re guilty of missing a payment here and there, now’s yours to rectify that behavior. Missing a bill means late fees, which can add up and put you in hot water with your creditor.
Your credit score can take a hit, too, which means it might cost you more money down the line for things like insurance or financing for a car or home. A habit of paying bills on time is an important one to develop if you want to be financially successful as an adult.
Nothing is scarier than receiving a call from a collection's agency — particularly when you’re still in school and don’t have much income to speak of. The truth is, though, that not paying your bills on time can really hurt your credit score.
So if you’re trying to build good credit for something like buying a car or getting a home loan someday, it pays to be on top of what you owe. Otherwise, pay off debt as soon as possible, so collections calls become a thing of your past.
6) Do the Math Before Taking Out Student Loans
If you’re reading a personal finance website, chances are you already know that taking out student loans for college is often not a good idea. If you’re like most college students, however, and choose to take out student loans anyway, then it’s helpful to know how much debt you might be getting yourself into.
Keep in mind that some schools are more expensive than others, so if your financial aid awards aren’t quite enough to cover all your costs or if you receive scholarships or grants, adjust accordingly. The cost of tuition is just one part of going to school; living expenses can add up quickly, too.
One of my biggest regrets is taking out student loans to pay for college. Unfortunately, when you’re in school, it can be hard to see what your financial future will look like. Your young brain doesn’t realize that today’s education costs.
Could leave you carrying a balance on your student loans into your 30s and beyond — and set off any number of problems down the road with everything from credit card debt to struggling to buy a home or maintain a healthy weight because you’re struggling financially.
Student loans are not a game. They’re some of your most important (and expensive) bills, so make sure you know how much you can actually afford to spend on college and consider how fast you can pay them back before taking out student loans.
If you don’t know what type of repayment plan is best for your needs, check out our post on student loan repayment options. Know Where You Stand:
This might sound like common sense, but knowing where you stand financially is crucial to keeping your money in order. Take time at least once a year to see where all of your money is going and set up budgets for each account so that you have an accurate picture of what’s coming in versus what’s going out.
7) Consider Working While in School
Work in your spare time to help pay for school expenses, but don’t put yourself into crippling debt. It’s fine to work part-time at a job related to your field of study, but avoid taking on unrelated jobs that could distract you from your studies or place an unnecessary financial burden on you.
If you need help covering tuition and living expenses, apply for scholarships as well as federal and state grants. Also, if there are ways that family members can support you financially (aside from loans), such as selling possessions or doing odd jobs, take advantage of their generosity while still working in the school.
Finally, set aside money specifically for emergencies — such as unforeseen car repairs — and create a separate savings account. You’re never too young to get a job or start a business — and even internships can help you land a job post-graduation.
If you’re aiming for an advanced degree, having some extra income from working part-time can ease stress as you pay off student loans.
As with any type of employment, be sure to check out your employer’s benefits package before taking on a side gig. If you have kids, summer babysitting gigs could provide extra cash.
One great way to gain valuable work experience without taking time away from your school studies is to consider working part-time during semesters.
If you’re attending school in an urban area, there’s a good chance that there are jobs available even during the summer months; if you do manage to snag one, it’ll look really good on your resume.
Plus, with four (or more) years of schooling ahead of you, now might be a perfect time to practice managing responsibilities on a tight schedule.
8) Learn How to Cook — It Saves Money!
Cooking your own food is one of the best ways to save money. The average American spends more than $3,000 a year eating out — and that doesn’t even include drinks, appetizers, or desserts.
If you start cooking your own meals at home, you can quickly cut that cost in half and become healthier by avoiding fast food and unhealthy takeout options.
This simple habit will also help you to appreciate eating at home more and make cooking even more enjoyable — even if it feels like a chore! After all, what’s better than dinner for two prepared by your very own hands?
Cooking your own food is cheaper than buying prepared meals, and it’s healthier too. Take a cooking class at a local community college to learn basic meal preparation skills, like making meatloaf or roasting chicken.
The more you cook, the better you’ll get at it — which means you can spend less on takeout later!
Cooking isn’t just a fun hobby — it can save you hundreds of dollars each month. By learning how to cook simple, delicious meals, you eliminate paying for convenience foods.
When you learn how to cook your own meals, you are in control of what goes into your body and what ingredients are used. And you’ll likely be amazed at how quickly your grocery bill shrinks! Stop Buying Lunch:
It might seem convenient and inexpensive to run through the drive-thru line or buy lunch at work every day, but it really adds up over time. Instead, make a plan with friends on certain days that everyone cooks their own lunch instead of eating out during the week. Or try meal planning during a weekend when there is nothing else going on.
9) Don’t Get Carried Away With Wedding Costs,
If you can’t afford it, don’t do it. Your wedding is not a good time to go into debt or use your credit cards. Consider asking friends and family for donations instead of gifts, and set a reasonable budget from day one — both for guests and vendors alike.
Don’t assume that everyone will want to contribute financially; most people won’t mind contributing something else (e.g., help with planning or providing a meal). Asking people if they have any limitations ahead of time can also eliminate disappointment later on down the road.
Making a financial plan to get married is crucial. But overspending on an unnecessary, over-the-top wedding can become a burden for years to come. Even more important, it will create a vicious cycle in which you spend most of your money on rent and bills.
Depriving yourself and your future spouse of financial security. If your dream wedding comes with a price tag you can’t afford, it’s time to reevaluate what’s really important.
It’s easy to get carried away with wedding costs, but a lot of times, you can’t afford an extravagant wedding. The important thing is that you and your spouse-to-be are happy with your wedding.
It doesn’t have to be a 5-star affair in order for that to happen! Take some time out to sit down and see what it will take for you both to have your dream day, within a budget range that makes sense.
10) Stay Away From Friends Who Waste Money.
Have you ever noticed that your friends influence how you spend money? It’s true! If you’re a person who likes to save and invest, hanging out with a bunch of impulse shoppers isn’t likely to help you keep your habits in check. On my journey to financial freedom.
I’ve found that hanging out with people who share my values is key. You don’t have to stop seeing your old friend — just make sure they understand why they can no longer participate in certain conversations or decisions when it comes to money matters.
If you have friends who are big spenders, whether they’re buying rounds of drinks or splurging on expensive vacations and cars, it can be tempting to emulate them.
But if these people influence your behavior in a way that encourages you to overspend, you could hurt your finances more than help them — and possibly risk losing those friendships.
Friends are great and have an important place in our lives, but it’s important to know who is a real friend and who is just someone passing through. A friend with poor spending habits can be bad news for your finances, especially if they’re looking for you to join them for dinner or drinks after work almost every day.
Make sure that your friends won’t negatively impact your wallet before you let them into your life. If you do find yourself spending more than planned with friends, take some time to evaluate whether that friendship is worth it and how much money you really want to lose.
You may need to make changes in how much you spend or where you go out so as not to impact your budget. Remember: There are always ways to celebrate without overspending.
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