lightning strike by rooymans2000 on Flickr!
After reading dozens of personal finance blogs, I’ve heard many stories of utter desperation. Individuals who were on the verge of bankruptcy. People who were slaves to their jobs. Many of these people just wanted to start over.
Instead of ignoring their misfortunes, I thought it would be helpful to highlight some of the most common mistakes so you and I don’t make them.
1. Be careful with credit cards. Many of the authors I read have a history of enormous credit card debt. Think how you would feel right now if you were told you owe $35,000 at a 12% interest rate. Now imagine you have kids and a mortgage payment. Scary isn’t it? I’m not against credit cards, but you must think before you swipe! If you cannot pay for something in cash right this second, you cannot afford it. Period.
2. Learn the difference between a want and need. Even many adults fail to realize the line that separates the two. This often lends to crippling credit card debt that takes years to be repaid.
3. Start an emergency fund now! If you’re still in high school, you probably won’t be subject to many financial emergencies. Take advantage of this while you can. Then, when you move out of your house at 21 and your car’s radiator bites the dust, you can pay for it without freaking out. Don’t make this harder than it needs to be. Just set a reasonable and realistic goal. My goal is to save up $1000 in my emergency savings account by the end of the year. That’s “only” $2.74 a day.
4. Avoid student loans, especially private ones. You have to repay every cent you borrow, plus interest. You may not get a job when you graduate. These are facts I try to ignore when I’m looking at tuition rates, but they’re too huge to forget about. Loans must still be repaid even if you file for bankruptcy. There is, except under ridiculous circumstances, no way out! Work the sh*t out of scholarships and other financial aid.
5. Avoid flashy cars…unless you can pay for them in cash. Luxury cars and SUVs aren’t just expensive to purchase, they’re expensive to own. Instead, buy a reliable and safe vehicle and drive it for as long as possible. While a car loan might be necessary, use it to buy the vehicle that’s just right for you.
6. Save for retirement. Do you want to be forced to work your whole life? No? Good! Now you need to save up so you don’t have to. Whether you want to retire at 30 or 100, you need to have money stashed and ready to go. A Roth IRA can attain a huge balance with just small and regular deposits.
Even if you obey these “rules”, you’ll make mistakes. I know I do (and will). I’m still paying an iPhone bill every month that I shouldn’t have agreed to until I had a reliable income. But at the end of the day, we all live and learn. Not having the previous 6 things to worry about just makes it much easier.
{ 2 comments… read them below or add one }
Too many people don’t see money when they use a credit card. When you take the card out if you can’t equate it with dollars don’t use it. Better yet think about the hours spent at the nasty time in your job. How many greasy burgers do I have to flip to buy that CD player?
This is an awesome list of basic principles for managing your money! It all really comes down to things that are self-evident, that we know deep down, but refuse to accept for one reason or another.
We all know that we’ll need savings in the future, that if we spend more than we earn, we’ll run out of money, etc…
Once in a while, we just need to be reminded!