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Dear 20-Somethings, If You Don’t Know These 7 Important Things About Money and Finance, You’ll Regret It in 10 Years

Dear 20-Somethings, If You Don’t Know These 7 Important Things About Money and Finance, You’ll Regret It in 10 Years

It goes without saying that your 20s come with lots of new things: new friends, new experiences, new perspectives, and new legal allowances.

As it turns out, they’re also packed with defining moments that will shape the rest of your life. And while it’s usually very difficult for young people to think about things like planning for retirement and investing in life insurance, the truth is that those AARP discounts are closer than you might think. So if you can learn these important things about money and finance now, in the future you’ll be happy that you did, and probably a lot richer too.

1. Pay Yourself First

“Don’t save what is left after spending; spend what is left after saving.” – Warren Buffett

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    While the concept of saving may be a familiar one, paying yourself first is often misunderstood. I didn’t understand the idea until I was well beyond my 20s, but I wish I had understood it sooner.

    Paying yourself first means taking a portion of your earnings and putting it into a savings account or investment that can then work to earn you more money, all while you sleep.

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    The reason why this is so important is because when you’re saving money it grows in relation to the interest it accrues, so the more money you have to save and the longer you’re saving, the more you can take advantage of this extra “free” money.

    Alternatively, by not saving you’re also losing the money that could be gained in interest. That’s why it pays to learn how to pay yourself first.

    2. Learn how to Leverage the Power of Compound Interest

    “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein

    In his book

    The Slight Edge, Jeff Olson explains the power of compounding with a penny. A penny doubled each day for thirty-one days is greater than one million dollars today, he explains, and actually adds up to $10,737,418.24!compounding
      Photo credit Cviko Vidakovic

      Twenty-somethings have the best opportunity to take advantage of compounding because of the magic of time and the power that compounding gains as it grows. Unfortunately, many 20-somethings ignore this wealth-making practice and lose valuable opportunity in the process.

      3. Grow Your Financial Education

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        Becoming financially literate is not rocket science, though it can seem like it — especially when the majority of us are not taught financial literacy in school. But just like a higher academic education helps you advance in your career, higher financial education helps you advance in life and in what you can do. Thankfully, there’s no better time than your 20s to start the learning curve with any number of great resources.

        4. Know Your Credit Score and Keep it Up

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          In the September 2014 issue of Success Magazine, Suze Orman, the money guru herself, says that understanding your credit is key to financial health. “A FICO score will determine if a landlord will rent to you. It may determine if an employer will hire you. It determines if a telephone company will give you a phone, and it even determines what your car insurance premium happens to be.”

          As credit scores go, anything below 500 is a red flag and, just like your grades in school, it’s a lot easier to slide down than it is to bring back up, so pay attention. For additional queries and your free credit score, use CreditKarma, Credit.com, or Bankrate.

          5. Live Within Your Means

          “Do today what others won’t, so tomorrow you can do what others can’t.” – Dave Ramsey

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            In theory, if you have an income that can pay for your basic needs, you can eventually amass at least a small fortune by paying yourself first, using the power of compounding, making smart investments, and living within your means. However, most 20 somethings are still honing these practices. Not surprisingly, this is also the time when many people begin using credit cards to pay for things not necessarily within their budgets.

            Living within your means may look like skipping the movies on the weekends, trading your daily Starbucks for a homemade cup of coffee, or forfeiting that shopping spree in favor of recycling your wardrobe for a few seasons. However, when you practice this without reliance on debt, you give yourself a better chance to build a strong financial base. You might not think so now, but if you don’t put down that iced latte, you may be kicking yourself in the future.

            6. Learn to Use Discipline to Manage Income and Expenses

            “We must all suffer from one of two pains: the pain of discipline or the pain of regret. The difference is discipline weighs ounces while regret weighs tons.” – Jim Rohn

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              There’s a great book that every 20 something should read called The Richest Man in Babylon. Trust me, if I had read this book in my 20s, I’m sure I’d be a millionaire by now!

              Through a series of parables the author, George Clason, relates the common experiences of poor money managers and outlines disciplines that lead to lifelong riches and wealth.

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              So imperative to financial health are the disciplines of managing income and expenses that these lessons serve as the foundation of the entire book. Unsurprisingly, failure to have a financial plan with these in mind is the number one regret of people when they reach retirement. Luckily for you if you’re in your 20s, it doesn’t have to be yours.

              7. Learn to Manage Your Emotions Around Money

              “In the world of money and investing, you must learn to control your emotions. High emotions equal low intelligence.” – Robert Kiyosaki

              There’s no denying that having money (or not having it) comes with a lot of emotion. When we have it we’re happy (and often irrational), and when we don’t we’re sad. With each emotion come behaviors that can make or break our financial stability for the future. Many a divorce, bankruptcy, and heart attack have been attributed to the stress that people feel around money that could have easily been avoided.

              Learning to manage your emotions with money is not only a good idea, it’s the thing that will help you to successfully navigate your way through the thousands of financial decisions you’ll need to make throughout your life, so it stands to reason that the better you can do this, the more money you’ll keep.

              While it may be easier said than done, there are always resources that can help you identify your level of emotional intelligence around money and work to improve it at the same time.

              Your twenties are a mixed bag full of fun experiences and new opportunities for growth. But if you can find a way to incorporate the seven practices above, you’ll not only thank yourself later, but even be able to afford to buy yourself an expensive treat!

              Noize Photography via photopin cc

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              Published on September 17, 2018

              How Being Smart With Your Money Leads to Financial Success

              How Being Smart With Your Money Leads to Financial Success

              Achieving financial success is not something that just happens. Maybe if you win the lottery or something, but for the average person like you or me, it comes from a series of small steps you take over a long period of time.

              With each step, you form a new smart money habit. And with each smart money habit, you build towards financial independence.

              So what sort of habits can you form to get on that path? Let’s take a look at smart money habits you can start today to get you closer to a financially independent future.

              1. Avoid being “penny wise but pound foolish”

              It’s tempting to try saving a couple cents here and there when buying small items. However, that’s not where the real money is saved. You’re putting in extra effort for something that doesn’t move the needle.

              You get the most bang when you’re able to cut down on your bigger bills. For example, finding a lower interest rate for your mortgage could save you $50+ per month. And cutting your transportation bill by purchasing a cheaper car or taking public transportation can provide large gains as well.

              So, look at your recurring expenses such as housing, transportation, and insurance, and see where there’s wiggle room. It’s a much better use of your time than trying to pinch pennies here and there on smaller purchases.

              2. When you want something big, wait

              Impulsivity can get you in trouble in most aspects of life. Finances are no different.

              It’s human nature to see something and want it right then and there. It starts as a kid in the checkout line at the grocery store, and it continues on through adulthood.

              We get an idea in our head of something we want, and it’s hard not to go out and get it right then.

              A good example is wanting a new car. Perhaps you’ve had your car for several years. It’s crossed the 100k mile mark. Maybe maintenance is due, and you’re annoyed that you need to replace the timing belt or purchase new tires.

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              So, you get the itch.

              You start digging around online, and you realize you could trade in your current car for something newer and more exciting… all for a few hundred bucks a month. Then you get obsessed.

              Here’s where you have to take a step back.

              Your newfound obsession is clouding your judgement. Rather than giving into the impulse, wait it out.

              Set a timeframe for yourself. Maybe you come back to the decision three months down the road. See if the obsession lasts.

              It might, but often, a funny thing happens. Often, you forget about it. And often, you find that the new car wasn’t a need at all.

              The impulse faded. And you just saved yourself a ton of money.

              3. Live smaller than you can afford

              You finally get that big raise. And you want to celebrate – and why not?

              You’ve been looking forward to this forever. And after all, it was all due to your hard work.

              That’s fine, splurge a little. However, make it a one-time deal and be done.

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              Don’t get caught in the trap that just because you’re now making more money, you should spend more.

              Too often, people get more money and feel like they that gives them the means to buy a bigger house, a bigger car… you know the drill. Resist.

              The fact is that living smaller than what you can afford is one of the fastest ways to build savings.

              But if you constantly upgrade as you begin to make more, then you’ll never get ahead. You’ll just build up more debt along the way and have just as little wiggle room as before.

              4. Practice smart grocery shopping

              Food… it’s one of the biggest portions of any budget. And if you’re not careful, it can be one of the biggest drains on your wallet.

              But luckily, there are a few things you can do to ensure that you stay smart with your money when buying groceries.

              Create a grocery budget

              Set a strict weekly grocery budget. When you know how much you can spend on groceries, you can then plan your weekly menu around it.

              Once you know what all you need, you can go shopping and keep a running tally as you shop to ensure you’re on track.

              I tend to do this in my head, rounding for each item. However, writing it down as you go would probably work best for most people.

              Make a list… and never deviate

              Never go to the grocery store without a list. If you go to the store with a ballpark idea in mind, you don’t have a true ide of what you need.

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              You’re not well-researched. You don’t know what the sales are. As a result, you’re going to make decisions on the fly.

              These impulse decisions will lead to overspending, which will derail your grocery budget.

              Eat before going grocery shopping

              It’s also important to eat prior to going to the grocery store. Hunger is a powerful force.

              If you’re shopping on an empty stomach, everything is going to look good. In particular, you may find a lot of ready-made, processed snacks will look enticing.

              After all, you’re hungry now and that food is easily available. So subconsciously, you may lean towards those items.

              Unfortunately, not only are those items typically less healthy, but they’re likely more expensive. You pay for convenience.

              However, when you eat prior to shopping, then you’ll shop with a clear mind. Your hunger won’t cloud your judgement, influencing you to make poor decisions like a cartoon devil resting on your shoulder whispering in your ear.

              This makes it much easier to stick to your grocery plan.

              5. Cancel your gym membership

              Now that you’re all set on your food, it’s time to get smart about managing your budget in terms of physical fitness. And let’s begin by avoiding the gym. The gym bill, that is.

              The average gym membership costs around $60 per month. That’s $720 a year.

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              Yet, two out of three gym memberships go unused. That means two-thirds of people who have a gym membership are literally giving away almost a thousand bucks a year. It’s crazy!

              I recommend seeking an alternative. One good alternative is to look into fitness streaming services.

              Streaming services allow you to stream hundreds of workouts like Insanity and p90x, right in your own home for around $10-20 a month. That’s $40-50 less a month than the average gym membership.

              Of course, then there’s the free option. The internet is full of free workouts that you can do on your own with minimal or no equipment.

              For example, there’s the Couch to 5K program, that I personally used a decade ago to ease myself from couch potato to running my first 5K race. If I could do it, anyone could.

              Then there are free resources like reddit that have limitless information on workouts. The Fitness subreddit has done all the research for you, populating workout tips and detailed workout routines for anyone to use in their wiki.

              There are several routines that require no equipment. And you can join in on the subreddit to become part of the community, making it easier for those seeking comraderie and encouragement in their fitness goals. All for free.

              It’s baby steps… And baby steps can start now!

              I’ve never met anyone that can’t stand to be a bit smarter with their money. And on the flip side, anyone can get smarter with their money. But remember, it doesn’t happen all at once.

              Begin by fighting your impulses. Prepare for the week and be smart at the store. And cut monthly expenses like gym memberships that are overpriced and you probably aren’t getting your money’s worth out of anyway.

              The devil is in the details. And the details can change your lifestyle and prep you for a financially independent future.

              Featured photo credit: Unsplash via unsplash.com

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