As a 20-year-old, I thought I knew everything about money. Now at almost 30, I know the exact opposite. Between personal loans and credit card debt, my first few years out of school were rough ones (especially since I wasn’t making a lot of money as a freelancer). But after a few years of learning from my mistakes (and some great advice from others), here are the best money lessons that have stuck with me as I’ve gotten older:
1. Don’t Be Afraid to Invest in Yourself
Investing in yourself is one of the best money lessons you can do to help yourself and your future. Spending money on things that make you happy or take care of yourself is not bad.
I’m not saying go out and buy stuff because it’s fun, but if there are things that will help you be a better person, then why wouldn’t you get them?
If some classes or programs help you become better at something, don’t hesitate to sign up for them! If there is something that will improve your life, it can’t hurt to try it out. You’ll never know until you try, and you can use nifty savings calculators (like this one on SavingsCalculator.org) to get started. I use this for everything from vacation planning to expensive purchases for my business or my closet. You’d be surprised how much more focused you become when you can effectively plan and map out your savings.
I would argue that self-improvement should be something everyone strives for because who doesn’t want their lives to get better? Everyone deserves happiness and if learning how to live happier makes me happier, even though my bank account may suffer from the cost, well then so be it!
2. A Bank Account Is Not an Emergency Fund
You can’t spend what you don’t have. I learned these fundamental money lessons early on in life, and it still holds to this day. When I started working, I had no savings account to cover emergencies or unexpected expenses: my only option was to rely on credit cards. As a result of this decision, I ended up maxing out my credit card before the end of the month and paying interest on top of it all—a terrible mistake that cost me thousands over several months.
The lesson here is clear: if you don’t have enough money in your checking account (or savings account), don’t spend it! Instead, save up until you have enough cash so that any potentially large expenses can be covered without having negative consequences later down the line (such as high-interest rates). This is still a lesson I’m working on, but it holds.
3. Not All Loans Are Bad
Not all loans are bad. If you take out a loan to buy a house, start your own business, or pay for college (and then graduate), the money you eventually earn will likely be more than enough to pay back the loan without any trouble. But if you use a loan to buy an expensive car or go on vacation and don’t have any way of paying it off? That’s when things get dicey.
Money lessons involve knowing what kind of loan is right for your situation—and whether or not taking out that loan will benefit your finances in the long run.
4. Paying Off a Loan Early May Not Be Your Best Move
- You may not be able to get a lower interest rate on your loan.
Your first instinct might be to pay off your loan as soon as possible so that you can save money on interest. But if you’re paying more than the minimum, it might make sense to let the balance stay higher and put more toward paying off the principal instead of just paying down the monthly balance. This will help you avoid having to refinance or take out another loan to make large payments at once.
- Paying credit card debt isn’t always a good plan.
If you’re maxed out on multiple credit cards and trying to make headway on them before they send collection agencies after you, it’s tempting to make all those payments at once. Resist this urge! Suppose these cards have high APRs (this means they charge more per month in interest). In that case, this strategy could cost more than simply making minimum payments each month until all of those balances are paid off—and possibly even costing much more if there are penalties involved with missing or late payments.
5. Don’t Confuse Student Loans for Free Money
Don’t confuse student loans for free money.
I know, I know: Your parents were so excited when you got accepted to college, and they lectured you about how this was a great opportunity to go learn something new and build your future in a way that no one else could. But as we get older, it often becomes clear that what our parents tell us isn’t true anymore. Maybe it was never true? Maybe things have changed since then? Or maybe we’re just being cynical now because life has kicked us around? No matter the reason, please hear me out on this: Student loans are not free money. You have to pay them back with interest!
While I was blessed to have no debt during undergrad, I’ve amassed quite a bit getting my Master’s.
Consider these the key money lessons from this entire article. When it comes time to borrow money for school or anything else in life (renting an apartment), make sure you understand exactly how much interest will be added to your balance before borrowing any funds at all! Otherwise, all those numbers may seem like nothing more than gibberish (or “your destiny”) and end up causing more harm than good in the long run…
6. You Don’t Need to Charge Everything to a Credit Card
If you have a credit card, use it for convenience—not to spend. If you don’t have the cash to pay for something upfront, don’t charge it. This is especially true if you can’t pay off your balance in full each month (and even more so if the interest rate on your credit card is higher than any other personal loan option). While using a credit card allows you to earn reward points and save money on big purchases, those benefits aren’t worth the high-interest rate or late fees that come with carrying over a balance.
If you struggle to manage your finances daily, consider getting help from an organization like Credit Counseling Services Inc., which provides counseling services designed to help people understand their financial situations better and make better debt repayment decisions and budgeting techniques.
7. Don’t Pay Down the Lowest Balance First
The first thing to do is to focus on the highest interest rate. The idea is that you can afford to pay more than the minimum on your debt, but this only works if you’re paying off the highest interest rates first.
The money lessons include saving money on interest payments by first focusing on the highest balance. Once this balance is paid off entirely, use any extra money from those payments (like $50 per week) and apply it toward an even higher balance until they are gone too!
8. It’s Never Too Late to Save for Retirement
I’ve found that the best way to start saving for retirement is by doing so automatically.
I’m not talking about auto-escalating your 401(k) contributions, which I don’t recommend because you’re likely to opt out before your salary increases. Instead, I mean linking up a dedicated savings account with an online bank or brokerage, making regular transfers from your checking account into it, and then forgetting about it until you need it in ten years (or longer).
The money you put away must be invested in low-cost index funds rather than actively managed mutual funds or other investments that will cost more in fees and may perform worse over time.
A good rule of thumb is to invest at least 10% of your gross income each year (20% if possible) into different types of assets like stocks and bonds as well as real estate investment trusts (REITs), which are simply companies that own properties like office towers or shopping malls but instead trade on stock exchanges just like any other company does. This is one of those money lessons I’m still working on!
As we move into the next phase of our lives, it’s important to remember that money management is a lifelong journey with money lessons. It’s not just about how much money you make but also how you manage the money you do have.