Financial Literacy: What I Wish I Had Known Sooner

As recent graduates, whether from high school or college, start on a new life journey, learning to master money and achieve financial stability can be overwhelming when starting out. When I started working at 16, I didn’t care about budgeting or saving money, so I did a lot of unnecessary spending.

I moved into my first apartment while I was in college, and I had to learn how to navigate bills, debts, and savings through trial and error. Although my bills did not take up the majority of my income and I had little debt, it felt like I should’ve had more money left than I did after getting paid. I was spending so much money on fast food, shopping, and things I didn’t really need.

After I graduated college and transitioned into having a full-time job, I quickly realized that there were better ways of handling money and understanding both the power and the limits of my income. At first, managing my personal finances was difficult, but I continue to learn and am confident in having a stable financial future.

Financial literacy is a never-ending learning game, but here are three aspects of financial literacy I’ve learned that I wish I had known from the beginning:

BUDGETING

Budgeting has been key to my feeling of being financially stable. Some people may think that budgeting is restricted spending, but it’s more about aligning your income with your financial goals. Creating a budget helps me avoid overspending and knowing where my money is going.

The most important thing I've come to appreciate is how I view my expenses, savings, and investments.   

·     Fifty percent of my income goes to needs, like rent, utilities, groceries, insurance, and car payments.

·     Thirty percent goes to my wants, like eating out, entertainment, or shopping. This percentage may vary depending on if I want to reach a savings goal quicker or my needs.

·     The last 20% goes to savings and debt repayment. I prioritize both.

After calculating all sources of income, I list my fixed expenses like rent, utilities, car note, and my phone bill. I then calculate my expenses that vary, like gas, groceries, and other necessities.

Once I’ve dealt with my most important expenses, I map out what I can put toward savings and emergency funds. I’ve also learned that it’s okay to enjoy the money I’ve worked for. I try to put money aside to budget for self-care, hobbies, and entertainment to enjoy when I can.

For the most part, the 50/30/20 split works for me. I review my budget regularly and adjust as needed to stay on track toward my financial goals.  Sometimes the amounts vary a little, but having these three “buckets” helps keep me on track.

It’s important that I be financially disciplined to avoid overspending when it comes to the nonessential expenses – the “wants” category. I don’t classify these expenses as luxuries, but as choices I make. I’ve developed the habit of finding cheaper alternatives. A few things I’ve done is buying press-on nails instead of going to the salon, using coupons while grocery shopping, buying store-brand items, thrifting for clothes, and taking my lunch to work.

DEBT MANAGEMENT

When I got my first credit card, I was so happy to start building my credit. Growing up, I was not really taught how to manage debt correctly and just to avoid it instead. Luckily, my mom had me as an authorized user on her credit cards, so I was off to a good start with my credit score. Ironically, to build credit, you need debt. Being able to manage debt sensibly is a sign of your creditworthiness.

When I got a credit card in my name, I had to quickly learn about interest rates. When those interest fees started to add up every month, it became a burden fast. Since I did not have a diverse credit history, my interest rates were higher than average. I was paying the minimum payment monthly and noticed that my balance was barely going down because of interest fees. I quickly learned to always pay more than the minimum every month.

I try to spend only what I can afford to pay off at once, but of course life doesn’t always work like that. I have found it useful to create a list of all debts with the total balance, interest rates, minimum monthly payment costs, and due dates. That way I can decide how I want to pay it off.

Sometimes it makes sense for me to use a method of paying off the smallest balance first while paying just above the minimum on others, and once I pay off those small amounts, I use the amount that I had been paying on them monthly and apply it to the next balance. Depending on my interest rates, I may go the route of paying off balances with the highest rates first.

It’s easy to become stressed when dealing with debt but now I know that there are many options to handle debt repayment, like requesting lower interest rates, balance transfers, and debt consolidation.

SAVINGS

Even though I am paying off debt, I still make sure to put money aside for both savings and emergencies. Being debt-free is one of my financial goals, but I also recognize having a savings account is necessary for my financial security.

I wish I would’ve started a savings account right away when I started working at 16. An emergency-funds account can make all the difference when unexpected expenses or life problems crop up. Once, my car was having issues, and I wouldn’t have had the money to pay for it if I didn’t have my savings account.

My emergency fund also saved me when I was laid off from a previous job. My target is to save at least six months’ worth of living expenses. That sometimes feels like a stretch, but I try to add as much as I can with each paycheck because I know the peace of mind that comes with having that safety net when you need it.

At times, I tell myself that I have a long way to go before retirement, but I want to be able to live well down the road. At first I didn’t see the point of contributing to my 401k account, but I don’t want to be 60 years old regretting that I did not start saving for retirement sooner. So now I contribute to my 401k with my job monthly.

Outside of emergency funds and retirement, I also have a savings account for personal ambitions. Currently, I save for vacations and furniture that I want to purchase. Those goals will change, I am sure. For example, I know that in the future, I plan on saving a down payment to purchase a home.  

Setting up separate accounts helps me to stay motivated and has made it easy to track progress. When I began to see my money add up in my account, it encouraged me to keep adding more and I was so motivated at seeing the amount sitting there that I never wanted to touch it. Automatic transfers from my checking to my savings account when I get paid have made saving easier.

I know it’s important to practice mindful spending and frugality to secure my future. It’s easy to get caught up with the latest trends, overconsumption, and excessive spending. Sometimes I want a new pair of shoes or new clothes, but usually I decide to put that money to paying down credit cards or savings. But not always, and I feel okay about that.

As a young adult, I am always looking to travel to new places, try new experiences, and buy new things, but I try to exercise discipline and balance enjoying life now while also building for my future. I’ve watched people in my family work their entire lives, but never get to enjoy their money, and that’s not something I want for myself. I take pride in rewarding myself for hard work, and sometimes that is about treating myself to something. I try not to stress about money because I know I have the capabilities to do better for myself.

Taking control of my spending, paying off debt, and saving have helped me to build discipline and feel stable. Being financially prudent has given me a sense of pride and accomplishment while also making me optimistic about my future.