Unless you were born with the knowledge of Donald Trump or Warren Buffett, you have probably experienced problems with money management. I have made my share of money mistakes during my early twenties; however, I thought once I hit my thirties I would have learned my money lessons and matured into an adult who knew how to budget and manage her personal finances. Wrong! My thirties were spent trying to juggle a house payment, car payments, and private school tuition for our daughter, normal living expenses and a recession at the same time. There were times when some of those balls hit the ground with a big, thundering thump.
Working in bankruptcy for so long, most people would assume that I would have all my financial ducks in a row and my golden eggs in a basket; however, I am not the best money manager and not actively managed my finances in the past few years. During 2010, I changed jobs and began working with clients who were filing bankruptcy and took a long hard look at my own personal financial situation. The top five money lessons I learned in 2010 should keep me from making the same old money mistakes from my twenties.
1. Avoid credit like the plague – Obtaining credit to purchase a home is one thing; however, using credit cards to buy luxury items I cannot afford is not a very bright decision. Credit cards make it too easy to overspend because there is no immediate consequence for using them – – you do not see the money leave your checking account or wallet but you get the instant gratification of getting what you want. We canceled all out credit cards but one major card this year that we will keep for emergencies. We have paid all our balances in full but one and we are working to have that paid in full very soon.
2. Creating and using a budget helps you save money – If you do not know where your money is going, you cannot fix leaks in your budget. In a world of fast food and convenience items, it is easy to spend more money than you realize if you simply live from paycheck to paycheck without a clear idea of your financial goals. I see this all the time with our clients when they must sit down and prepare a budget – – they really have no clue where their money is going each month. Whether you use a simple pad of paper or use the Dave Ramsey idea of putting cash in separate envelopes for each budget item, having a budget will help you save and manage our finance.
3. Emergency funds are not for vacations – Vehicles break down, tires go flat, hot water heaters burst, refrigerators stop working – – every week it seems that something attacks my budget. Having an emergency fund for unexpected expenses not only keeps your budget in balance but it lowers your stress level. To keep my husband and myself from dipping into our emergency fund for “non-emergency” desires, we opened a money market account that limits our ability to withdraw funds without penalty and we do not have an ATM card for that account.
4. Time does begin to go by faster no matter what scientists say – In our twenties, we purchased burial plots because some old man came by our home and talked us into it. My husband and I were pretty proud of ourselves for planning for the future. Unfortunately, other than contributing to his 401(k) account, we did nothing else for the next 10 years to plan for our retirement. It was never the right time, something always came up or we just thought we would do it tomorrow. No as we turn 40, we look back over the past 20 years and wonder how we managed to waste so much time before investing in our retirement. We are aggressively investing for retirement now; however, I wish we had done so in our twenties – – oh, the money we would have now.
5. Being frugal is not being cheap – I used to get tickled at my parents who refuse to go out to eat at a restaurant unless they had a coupon; however, now I realize that was not being cheap it was being frugal. They were able to eat for ½ the price and use the money they saved for other purposes. Being frugal is not the same as being cheap – – being frugal means you look for bargains, think before buying and make the most out of what you