Beth has been a banker for more than five years with an experience in financial planning and management.
Your 20s, as many people say, are one of the most confusing and enjoyable years of your life.
This period is confusing because you start your transition from teenager into adulthood. And with adulthood comes new responsibilities that require major adjustments. These years are enjoyable because it is also when you experience most of your first times: first full time job, first time away from home, first car, first loan, first debt.
My 20s own gave me most of my life lessons. It was during this time that I had to start living independently, I had to manage my own finances, I had to clean my own mess, and I had to decide what career path I would really like to take.
One of the biggest things that I learned in my 20s is how to manage my finances and how to financially plan better for my future.
Trust me, I am no expert. I just started my financial planning and I'm almost already at the end of my 20s. I made a lot of financial mistakes in my 20s. Some lessons I actually had to learn the hard way. So I'd like to share with you the top money mistakes that I had made in my early 20s with hopes that you learn from my mistakes and start creating a financially stable future for you and your family.
You must gain control over your money or the lack of it will forever control you.
— Dave Ramsey
Being a Slave to the Credit Card
I remember the time I received my first salary. I was so happy! The feeling of finally receiving my very own hard-earned money, gained through blood, sweat, and tears, was so fulfilling. It signified that I was finally independent, and finally had the power to buy and enjoy the things that I wanted but couldn't afford when I was still a student.
I worked in a bank. One of the things we did was to try out the products that we were offering in order to market them better and assist our clients more effectively. And of course, one of these products was credit cards.
I had heard about the credit card. It's like a magical card that once swiped, gives you the power to buy anything that you want. For those that have watched Confessions of a Shopaholic, you know what I'm talking about. When I got my first credit card, I was so ecstatic because I was given the credit limit of PHP 40,000.00. For me, it basically meant that I could buy anything up to PHP 40,000.00! My first credit card was the gateway that allowed me to purchase the very first branded, expensive bag I had ever owned in my entire life. Soon after that, I found myself buying a new laptop and then the latest iPhone. It was so exciting!
It was easy at first, one purchase was easy enough for me to pay on its due date. And if I couldn't pay it, I could always pay just the minimum amount and pay the rest of the balance on my next pay day. And because I used my credit card so often and paid on time, I was granted another credit card by a different bank with a credit limit of PHP 50,000.00. And soon after that, another credit card company granted me a credit card with a limit of a whooping PHP 100,000.00. This was all during my first two years of employment! I was so proud of myself because I saw it as a sign that my financial credibility was growing. And of course, it meant that I now had more purchasing power. Dining at fancy restaurants was now possible, buying the latest fashion pieces was now achievable, and keeping up with technology was now easier.
Even though I was paying my credit card bill, since I was still continually using it to cover my other expenses, my credit load was not decreasing. It was actually growing more because of the interest charges. And mind you, maintaining three credit cards is not easy, especially if you happen to max out your credit limit on all three.
Yes, my friends. I maxed out all my credit cards and I struggled to pay for them. I paid the minimum amount due, which wasn't helping because my interest charges just kept on doubling. I know exactly what it feels like to have sleepless nights because your debt is keeping you awake. I know what it feels like to continually think of ways you could earn more and think of how you'll survive until the next pay day. I couldn't possibly ask for money from my parents, so I had to carry all the burden of being financially broke and sinking in credit card debt alone.
So as you can see my dear friends, having a credit card is good. But abusing it is a huge mistake. I had to learn that lesson the hard way. Thankfully, I was able to pay all my credit card debt (with much effort) and now I only use one credit card with minimal balance. One I make sure that I have the means to pay.
For you guys out there, my advice to you is that credit cards are not all bad. But be wise and responsible. Do not be tempted to go on a shopping spree just because you know you have the purchasing power to do so. Never buy beyond your means. Learn from me, and never be a slave to credit cards.
Don't tell me what you value; show me your budget, and I'll tell you what you value.
— Joe Biden
Buying Out of Want Rather Than Need (Because I Know I Can)
When I was in my early 20s, I treated my salary as something that finally allowed me to buy everything that I wanted in life. I looked at it as a means for me to enjoy what I wasn’t able to enjoy before and go all Y.O.L.O.
It is not bad to buy yourself something fancy once in a while. It’s not wrong to treat yourself to that expensive steak or that pricey facial treatment. But guys, you have to realize that as you dive into the fancy things that the world offers, your hunger for getting that new iPhone or laptop and your desire to go on the latest fashion trends will only intensify. Soon, your once-a-month fancy “treat” to yourself becomes a weekly thing, and sooner or later, you are already living the fancy lifestyle. You have to realize though that as your desire to have all the fancy and pricey things in life increases rapidly, your income doesn’t.
You may tell yourself that it’s okay that you get used to the fancy lifestyle because you’ll eventually have that pay increase that will allow you to keep up with your spending. But pay increases don’t happen overnight. It takes years for some. And even if they do, your pay may not increase that much. And commodities in today’s world become pricier and pricier every day.
If you do not keep an eye on the way you spend and start spending more practically, you’ll find yourself living outside of your means. No matter how many designer bags or shoes you own, if you can’t buy your weekly groceries, it doesn’t matter.
The lesson for you guys is to always think twice before you buy something that you want. Always buy your needs first. Buy your supplies first rather go dive in and buy that much coveted new iPhone model. If you really, really want something, save for it for a few weeks rather than spill all your earnings on it.
Impulse buying often leads to regret once you realize how much you have actually ridiculously spent on that new item and it starts to sink in that it isn’t really a necessity.
The first time I heard about investing was when I started working. I got hired by one of the biggest banks in the country as an officer and one of the things that I had to do was to be knowledgeable in the financial products that my company offers. Prior to that, I had zero knowledge about investing.
I knew I had to learn that product because of my line of work, but I never really gave much thought about how it applied to myself. I encouraged my clients to get investments but didn't think about them for myself. I kept telling myself that I was too young to invest and that I didn’t have the financial means to do so yet (mainly because my monthly salary went to paying my credit card bills). And I kept telling myself that I needed to invest in myself first since I am still young and invest in my future later on. That was not very smart of me.
The longer I sold investments to my clients, the more curious I got. And as time passed by, I was starting to see the big picture when it comes to investing. My clients would come visit me and we’d check their investments and we would both be surprised as how much their money had grown over a few months.
Investing early while you are still young, I have learned, allows you to grow your money more than when you start investing later on. Investment is also a good place to keep your money and allow it to earn interest rather than let it sleep on regular savings account with very minimal interest.
I also know that not all investments are as aggressive as most people believe. There are various investments that are suitable for conservative investors like me. Investments in government bonds and time deposits are less risky than equities which are invested in various white chip and blue chip companies. The thing with investments though is that, the higher the risk, the higher the return. The lower the risk, the lower the return.
When I started really thinking about it, if I had started investing in an investment with a potential return of 8% per annum when I was 22, and placed PHP 10,000.00 with monthly additions of PHP 1,000.00, by the time I was 50 years old, my money would potentially amount to PHP 1,300,000. If I start investing at 35 years old I woiuld potentially get only PHP 370,000.00. The significant difference stunned me and I had immediately started regretting not starting sooner.
Lesson? It’s good to go YOLO. But you also have to think of your future. The sooner you start having a financial plan, the more comfortable you’ll be retiring.
Not Setting up an Emergency Fund Early On
An emergency fund, as the name itself connotes, is money you have set aside to use in cases of emergencies such as hospitalization or loss of job. Many articles state that your emergency fund should be at least six times your average monthly expenses.
For someone young and still trying to enjoy his or her first paychecks, this might seem like something that doesn’t need to be prioritized. After all, it’s your first taste of having your own hard earned money so why keep it when you can spend and enjoy it?
The thing with being young, I realized, is that we tend to be impulsive. In your early 20s, all you think about is how you can enjoy the present, not how you will prepare for your future. Trust me, I believe that the Y.O.L.O. mentality is normal. I have asked all of my friends and family and they told me that their first paychecks mostly went to restaurants and shopping malls rather than their banks.
I’m only rich because I know when I’m wrong…I basically have survived by recognizing my mistakes.
— George Soros
Here in the Philippines, we also live in very close-knit families and it has been drilled in our minds since we were young that once we are able to earn our own money, we should help our family and younger siblings. I think that one of the main reasons most Filipinos don’t have savings or an emergency fund set aside is that part of their earnings go to helping out their family.
Don’t get me wrong. I believe it is important that we help out our family. But I also believe that setting up an emergency fund will help you as well as your family. Imagine what you’ll do in the event that a family member suddenly gets hospitalized? Or what if you unfortunately were laid off? If you haven’t set aside an emergency fund, you’ll have a really hard time.
My suggestion in setting up an emergency fund is to take it out of your salary first. Once you receive your salary, immediately set aside a certain amount like 20% and put it in on your emergency fund savings. If you eat out with your family every pay day, why not save this money instead? Over time, this could build up, and trust me, an emergency fund is a very vital part of your life in order for you to be able to sleep comfortably at night not worrying about sudden situations that would need financial assistance. Besides, having your own fund is also more practical than taking out a loan each time a financial crisis arises.
These are the major money mistakes I made which I wish I could undo. I’m sure that a lot of people out there have made other money mistakes in their early 20s. And we all can learn a thing or two from them.
Being a banker for almost six years, I have met so many kinds of people with different kinds of financial struggles and financial successes. But at the end of the day, I realized that all of us have one thing in common; financial security and stability are important to us in so many ways.
As you venture into your 20s, or if you’re almost at the end of your 20s or already in your 30s, I hope that you start thinking of your financial future and put more thought into how you’ll be financially stable. We all want to be comfortable when we reach our retirement years. And the best time to start preparing for that is now.
© 2019 JB Sevillo
Liz Westwood from UK on August 17, 2019:
The points you make all sound familiar. It's good that you can use your experience to warn others.