In my last blog, How to Get Real About Money in Your 30s, I shared my thoughts and advice about setting yourself up for financial success in the decade that often symbolizes venturing into adulthood.
Now that my 20s have come and gone, I couldn't help but reminisce about my life as a 20-year old, and what I've learned about money in the last ten years. When I look back at that time, it’s overloaded with moments that are cringe worthy and laughable, but most importantly, those moments are lessons that have taught me what I know today. Here’s what I would say to 20-year old me about money.
1. Hey Dummy, Don’t Cash Out Your Retirement Account When Switching Jobs!
My 20s were filled with a lot of job hopping, paired with an equal amount of financial ignorance. I was smart enough to establish a few employee-sponsored retirement accounts along the way, but, I wasn’t smart enough to transfer the funds over to a new retirement account when I landed a new job. Instead, I would foolishly cash them out and spend the money on frivolous things that made no positive impact on my life today.
In hindsight, when I add up the early withdrawal fee, income taxes paid, and the growth I lost out on, was it really worth it to cash out my retirement plan? Most importantly, I robbed myself of the opportunity to grow those funds into a nice retirement nest egg that would be worth more today. Although they were small amounts here and there, let's just say I kick myself when I think about how much it added up to.
2. A Credit Card Is a Tool to Build Credit…Not For Shopping Sprees
I remember the day my first credit card arrived in the email. That little piece of plastic felt like my ticket to adulthood and empowered me with a new-found sense of financial freedom. The truth was, although I was ready to start charging right away, I wasn’t ready to deal with the grown-up ramifications that come with using a credit card. If I could go back in time, I would scream at 20-year old me, “Don’t charge that pair of designer jeans!” Secondly, I would say, “You can’t really afford them!” And finally, “Pay off your balance each month; it’ll save you in the long run.” I shudder at the thought of all the credit card interest I paid in my early twenties. Sadly enough, most of it was on trendy clothes I no longer have because quite frankly, they're no longer trendy. That has come and gone :-(
3. Save What You Can
When you’re 20, it can often feel like there’s no tomorrow. Why would you need to save? You’ll be forever young, just living in the moment, right? Wrong. There is a future, with a much older and wiser you in it, who will eventually learn to cherish saving! I didn’t quite have the salary I earn now, but I still could have managed to save what my budget afforded me to. This brings me to my next piece of advice…
4. Get a Real Budget...And Stick to It!
My idea of a budget ten years ago was drafting one up and then…nothing. I wouldn’t follow through or commit. I thought it would just, you know, magically happen! I was really good at wishing and hoping for the ideal budget, and putting it down on paper, but I was really bad at being truthful to myself about my spending habits. A budget isn’t useful if it’s not realistic or attainable.
If I told 20-year old me that in ten years I would become a penny-wise, compulsive saver who gets to bed early and writes a blog about personal finances, she probably would have laughed. At that time, I thought I was living the life. Parties and socializing where at the top of my list, and a plan for my financial future was at the bottom. I’ve come a long way, and I’m grateful for all of the experiences I had in my 20s, but it’s nice to have a much clearer financial picture. Not to mention, I can afford to indulge on a pair of designer jeans now. But, I’d rather invest that money into my retirement account, which will not be cashed out anytime soon. Thanks to my 20s, I know better now.
What would you tell your 20-year old self about money? Share and comment below.