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I have always been frugal, yet, my frugality did not help me during my early 20’s. Mostly due to the things I did not know. I didn’t know the difference between buying a brand new versus used car and the financial implication. After all, a car is a car. Little did I know how that will impact my life afterward. Some of the six money mistakes I made in my early 20’s have shaped my life today.
Below are the six money mistakes I made in my early 20’s. It is my hope this helps someone else to avoid the same mistakes.
FINANCING A BRAND NEW CAR
I financed a brand new Honda Civic in 2013 with only 1000 dollars down payment. I spent prior years frustrated with the cars I purchased off Craig’s list. So, to fix this, I financed a brand new car. I signed up for something I wasn’t financially ready. My monthly payment was 523 dollars. The amount depleted my account month after month. After 12 months of paying, I realized I must find a way to pay off this car.
In 2015, I was able to pay off the car and saved myself 7k total I would have paid to the bank.
Good news, I still use the same Honda Civic. Besides routine maintenance, I have not had any issues. So in a way, I have been saving money. I do not plan to buy another car until there is a need for a bigger family car.
NOT INVESTING
I knew little to nothing about investing in my early 20’s. Compound interest is the reason to start investing early. Compound interest is the interest you make on your interest. If you invested 100 dollars and made 50 dollars, your total amount becomes 150 dollars, which increases your overall interest. It is crucial to start early. If you have not started, it is never too late to start now.
TAKING OUT EXTRA STUDENT LOANS
I needed to take out student loans to pay for my tuition plus room and board. My first two years in college were free, and during the last two years, I took out about 15k total (mainly to supplement tuition and fees). Without the 15k, I wouldn’t have been able to register to take classes, etc. so that amount was needed, and it was the only way.
For my doctorate program in New York City, I took way more than needed in student loans. Besides, the cost of living and tuition, I took out extra money to get around. That’s the extra money I wish I never took out. That’s money I will spend years paying for, and if I made better decisions then, my overall debt would not be as much as it is now.
PURCHASING EXPENSIVE GIFTS
During the holidays, I used to spend tons of money that I didn’t have to buy expensive gifts for my family and friends. I do not do that anymore. Now, I’m still able to gift without breaking the bank and not feel bad. Don’t break the bank trying to impress your folks!
NO HIGH YIELD SAVINGS ACCOUNT
I saved a lot of money when I stayed at home in my early 20’s. I worked throughout high school, college, and graduate school. The money I earned during that stretch would have a higher return had it been in a High Yield Savings account than the 0 dollar interest I earned in my regular savings account.
MAINTAINED HIGH CREDIT CARD BALANCE
Remember, I was buying all those expensive gifts for loved ones with the money I didn’t have? Yup! I was swiping my store credit cards. Then I would spend months paying for it. A perfect example of living beyond your means. Once I started educating myself about personal finance, the rest became history.
I do not carry credit card balance from month to month because I only use it when I know I can pay for it right away to avoid interest charges. I use my credit cards mainly for rewards. The only time I may have a balance on my credit card, is if there is a grace period of no interest charges.
The six money mistakes I made in my early 20’s are the reason I strive for better finances now, and I have made several changes so far. I won’t finance a car without calculating if I can afford it. I do not carry credit card balance unless there is a grace period, and in that scenario, I make sure to pay for the balance before the due date. Investing aggressively has become a priority, and I keep my savings in two different high yield savings account.
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Till next time,
Charly.
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