There have been many financially stupid things I did in my 20’s: emptied my retirement account, bought a heating alarm system on credit, bought furniture on credit (both entailed paying WAY TOO MUCH over time for those things).
If I could go back in time and talk to my 20-something self, those are some of the things I’d tell me NOT to do.
Here’s what I would tell the younger me (and indeed our current 20-somethings) to do:
Have a written plan for your money. If you’re married, work on developing this with your spouse. Monthly expenses do change, so you need a new plan every month. There are many good free online templates. Be sure that you and your spouse have both input and accessibility to this budget. For many, a handwritten budget works best, perhaps posted in a conspicuous place in your home. Others like to sync using an online budgeting tool. However you best connect with your money and each other, it is very important that within this plan, you should have a line item for paying yourself in the form of SAVINGS! See #2 and #3.
Establish an emergency fund. Even a savings account of $500 would have been enough to keep us from putting an unexpected expense on a credit card. If establishing an emergency savings account had been our first goal while we were in our 20’s, my husband and I could have avoided a lot of pitfalls in our early marriage (like the “emergency” heating alarm system). NOTE: eventually, this account should contain 3-6 months of bare-bones living expenses but only if you have no other consumer debt
Establish an annual expense fund. How often do we shop for Christmas gifts? Every year, you say? Yup! We should have been saving for these in little amounts monthly over the year before needing to buy anything. In addition, think about how many auto expenses are really not emergent but occur annually – oil changes, registration, even a new set of tires can be expected. We should have been saving toward these types of expenses also. Then we would not have put them on credit cards. You can also plan for fun things, like vacations, saving monthly. Then we you go on vacation, you’ll only feel the joy of the experience and not the dread of the bills
Use only cash or debit. Here’s the big one. We began our marriage in our 20’s with a gas credit card. No big deal, right? Well, we actually paid more for gas (because we couldn’t get gas just anywhere, only at Chevron!). And then there were times that we also got some snacks or grocery items at the Chevron that had a convenience store. So we paid a lot more for those conveniences.
As time passed, we finally earned the “right” to have a grown-up credit card – a Mastercard! We would pay off the balance each month in full. Good job, right? Nope. There were so many months that our MC bill was more than our mortgage payment because the previous month we had been “too tired to cook” (so we went out) or we had bought something on the spur of the moment with our “painless” form of payment (until we felt the pain of that purchase the next month!).
Now that we are decidedly…ahem…NOT in our 20s, we use cash for certain purchases (groceries and dining out, for example) and use our debit card for everything else. We feel the pain of money going out right away, and that pain is typically enough to keep us from a purchase we would have regretted later
Begin saving for retirement as early as possible. The numbers do not lie. If you begin saving just $200/month when you’re 25 and save just that little amount until you retire at age 67 (as if that will still be considered retirement age), you will have nearly a million saved. (based on 7% rate of growth). Also, many employers match 401k contributions dollar for dollar up to a certain amount. So if this is your situation, then you’ll be a millionaire in less than 40 years.
Ah, the beauty of compounding interest! And wouldn’t you rather be the recipient of interest rather than doling it out to creditors?
If you’re reading this and are in your 20’s, the time you have left to earn is a gift. We here at StoreHouse Financial can help you harness your income by coaching you to develop a strategic plan. Call us (281) 277-7911 or email [email protected] for more info.