Fresh out of college, a person is young, wild, and suddenly free. You feel indestructible, and it seems as though the entire world is right in front of you, ripe and ready for the picking. You might be tempted to spend all your money because you feel that the next payday is always just around the corner.
Besides, the thrill of finally earning your own paycheck is so exhilarating, and it seems like a bottomless pit that will never run dry. You splurge on all the items that you could only wish for back when you were still studying.
A new car and an entirely new wardrobe is a must. After all, you now belong to the corporate world and need to look professional, impressive, and personable. But while youthful exuberance and fearlessness might be admirable, they unfortunately usually come with a lack of foresight and planning.
Fast-forward ten years and you might start asking what you have to show for your hard work of the past decade. Now that you have a bit of wisdom and experience, you suddenly realize that you could have done better had you been more discerning about your spending. Here is a list of the top 10 things you wish you knew then about money back in your younger years.
10 You cannot get rich quickly
Everyone wants to get rich as fast as possible, but unless you were born with a billionaire dad, you should remember that there is no substitute for hard work. Patience is a virtue, they say, and for good reason. You should work yourself up the ladder, and in time, your patience will reap its rewards. Get rich quick schemes are always bound to fail. For those who fancy trying their luck with the lottery, always remember that there’s a better chance of landing a date with Kate Upton or Ryan Gosling than there is of winning the lotto jackpot.
9 You need to build up your credit rating
A credit card may be a good way to manage your finances and expenses, but many young people treat them like magic cards that allow them to spend without limit. The problem is that it tends to come back to bite you when payment time comes along. So, learn to use your card wisely. Smart spending will also help build up your credit score, which will be important when you start taking out loans for your car and mortgage.
8 You need to keep track of your spending habits
Young people tend to spend lavishly on useless things. Every night is treated like a weekend, and money is spent freely on beer and pizza. As you get older, you realize that you should have kept better track of your spending habits. Is gourmet coffee necessary, or would the coffee in the office pantry do? Treat yourself occasionally, but focus on your needs, not your wants.
7 You should share expenses with a roommate
Sure, it is nice to live alone - there’s nobody to argue with on how to run the household. But then again, there’s nobody to share expenses with. If you have even one roommate, you can cut your rent and utility expenses in half. You might even find that some of your food expenses get reduced as well. Zooey Deschanel and the rest of the characters on “New Girl” seem to be having fun while sharing an apartment, and so should you.
6 You should be aware of fees and charges
Bank ATM cards are supposed to provide you with the convenience of banking anywhere and anytime you want. However, you should keep in mind that if you use the machines of a bank other than your own, there are charges and fees to be applied. Late credit card payments, where a payment is made beyond the due date, would likewise result in extra charges, plus finance charges for all future purchases. You may think that the amounts charged per transaction are paltry, but if you put them all together, they can add up to become quite substantial.
5 You shouldn’t act too quickly when buying a new car
Once you start earning decent money, the tendency is to start salivating at the idea of a new car; one that is shiny, impressive, and that can drive a conversation the next time you’re chatting someone up. Despite the allure, young people should think long and hard before purchasing that new vehicle. On top of car payments, there are all the other little expenses tied into it: insurance, maintenance, registration, and gasoline, to name a few. Parking expenses are another problem. Be sure that you are ready to shoulder the responsibility of a new car, and take time to weigh the pros and cons before deciding.
4 You should learn how to prioritize your bills
Bills are pretty much inescapable, a monthly reminder of the true cost of day-to-day life. Student loans, car payments, mortgage, credit card bills, utilities, magazine and newspaper subscriptions, Internet connection, insurance, HMO, are just some of the monthly costs you might incur. While you should always to pay your debts, when money gets real tight, you need to learn to prioritize your bills. Don’t pay according to the size of the bill. Instead, pay the ones that may affect your credit score in the future. Particularly, mortgages, loans and credit card bills should be given priority. Short-term problems can have long-term repercussions, so be sure to handle your finances accordingly.
3 You need to set up an emergency fund
A car rear-ends you. A tree is blown over and lands on your house, breaking through the roof. You’re struck by sudden illness, and find yourself unable to work. You never know when an emergency will pop up, and you could suddenly find yourself in need of a large amount of money. You should make sure that you have around three to six months worth of savings as a contingency plan for whatever unexpected expenses come your way. Call it rainy day money or an emergency fund, but make sure you have enough stashed away that you can take care of yourself in the event that something really important comes up.
2 You need to set goals for the medium term
Remember those corny interview questions about where you plan to be in five to ten years time? You might fluff them off, but you should really answer them seriously and set goals for yourself. It may be a trip to Europe, or finally marrying your high school sweetheart, or attaining an advanced degree; regardless of what your medium range goals might be, you should make an estimate of the expenses and start saving up for it by putting aside a certain percentage of your pay every month. Don’t be afraid to start investing your money in stocks or bonds to help you toward your goal. Invest wisely, and your piggy bank will grow faster than an ordinary savings account, and you can avoid the pitfall of trying to get rich too quickly.
1 You need to save for retirement
Of course, there is also the long-term plan to think of. It’s never too early to start saving for your retirement. Study your options, like the 401(k) or individual retirement accounts offered by mutual funds. There are retirement funds that offer decent interest rates free of tax, even while allowing you to withdraw the money anytime in case of emergency. Put in as large amount as possible - you are going to need it in the future.