The money advice I wish I had known sooner
Remember last week when I asked you all What money advice would you have wished for earlier?? You’ve shared some great answers, but many of you said it wasn’t about when you would have the advice it was more about when you decided to actually take it.
“Pay yourself first”
You’ve probably heard this personal financial stereotype: pay yourself first. Essentially, it means that you use your income for a living first, and then automatically save the rest or use it for your financial goals, such as reducing debt. The idea is that if you pay yourself first, you are not giving yourself a chance to waste your money on other things.
This is how one reader put it:
This is absolutely true. For a long time I heard this advice and thought: “Yes, yes, just another money cliché that means nothing when you are broke.” But, like most personal financial advice, it’s even more important when you’re broke. I think it was the last thing Wittyname said that eventually led me to take this advice:
You won’t notice the cash is lacking, but at the end of the year you now have a separate savings account of $ 960. And you will notice that!
After college, I had to deal with student loans and a job that wasn’t paying very well. My parents suggested I “pay myself first” and save $ 25 a week. I didn’t think $ 25 would make a big difference because I was broke, but I thought it was a small price to pay for them to stop bothering me about it. So I set up an automated savings transfer every week. I completely forgot about this transaction and a few months later I was surprised to see $ 300 in my account. When you are broke, $ 300 is a very sizeable amount. It got my motivation up, so I decided to increase my goal and save as much as possible each week. It didn’t take me crazy It took a long time to learn this lesson, but man, it was a powerful lesson that changed everything when I decided to finally take it.
An emergency fund = power
Speaking of power, emergency funds are damn empowering. When I first heard of the concept in Dave Ramseys. have read Total Money Makeover, I thought it sounded cheesy. I also thought, “How the hell am I supposed to have an ’emergency fund’ if I can’t even afford to move out of my mother’s house?”
I always thought the concept was a responsible, adult thing, but as one reader explained, I got it all wrong:
It’s true. When you run out of bolster and find yourself in dire straits, you are making desperate, silly decisions. In the book Scarcity: Why too little means so much, researchers Sendhil Mullainathan and Eldar Shafir found that a lack of resources, especially money, can actually make us less polite, more impulsive, and even affect our cognitive abilities. We get tunnel vision, write the researchers, and we cannot step back and assess our situation objectively. Then people take out payday loans or put it all on one credit card and hope for the best. It’s hard to step back and see the bigger picture when you’re vulnerable, but that’s what an emergency fund is for: to get you out of this tunnel.
A 401 (k) match is like free money
I still lament this one. If you’re unfamiliar with an Employer 401 (k) match, it’s time, especially if your employer offers one. It’s basically a corporate benefit where your employer pulls together a certain amount of your own retirement savings. A common scenario is a 50% match of your own contribution, up to 6% of your gross salary. If you make $ 50,000 a year, you can get $ 1,500 in “free” money from your employer!
There are some caveats about this. Most 401 (k) s aren’t that great, And you generally just want to take the game, then invest in an IRAwhich gives you more flexibility in choosing cheaper and better funds. Even so, the game is like free money! It’s a great perk and especially if you’re not making a lot to start with, you’ll definitely want to take advantage of it.
This reader and I had pretty much the same experience:
I was fortunate to work with colleagues who took the time to explain how great this deal was. Still, I was young and had other plans for my money, so while I took some advantage of the game, I still left thousands of dollars on the table. Don’t be like me If your employer offers this match, do whatever you can to accept it (because that money isn’t really free, after all: it’s part of your salary package).
Your lender wants you to fail
One reader offered another really important lesson worth mentioning:
I think we are all together learned this lesson after the housing crisis, and given the worsening student loan situation, it is worth noting that this is not just true of mortgages: this also applies to student loans, auto loans, business loans, personal loans, etc. While there are some loans (e.g. from credit unions) that have better terms and conditions and To help people get back on their feet, lenders make money with interest.
I learned this the hard way trying to prepay my main balance, and my student loan administrator applied it to my future interest instead of this. This is a sneaky move. Instead of reducing your capital so that you save money on interest over time, they keep your payment schedule unchanged and apply your extra money to maximize their own profits.
It took me months of additional payments to find out this happened. When I finally did, the lender applied these payments correctly, but it’s a good reminder that you may have to act defensively when it comes to your loan. Your lender is not on your side.
One final lesson we could probably all learn: it is It is not worth dwelling on your mistakes. A study published in Journal of Consumer Psychology indicates that focusing on your past mistakes can actually affect your present habits, and not in a good way. The study concluded:
… remembering failures does little to help you control yourself, despite the popular belief that you can learn from past mistakes. In fact, our findings instead argue that focusing on our own past mistakes can doom us to repeat them.
As tempting as it is to look back and regret the past, the best you can do is share the lessons you have learned and not step too much – your current financial health depends on it.