When I moved to New York to attend graduate school, I thought I had a decent plan. Since all my classes were at night, I took a full-time job (with benefits!) to live comfortably while I was in school. Most of my classmates took odd jobs to make rent, so I felt like I was ahead of the game.
Oh, how wrong I was.
My 29th birthday is next month, and I like to think I’ve learned quite a bit since moving to New York. After paying off my last credit card a few months ago, I reflected on all the poor financial decisions I made when I was younger. And although I won’t be able to share this newfound wisdom with my 23-year old self, here are three tips on managing money I wish I could go back and share with him.
Write a budget every single month
I made a conscious decision to really enjoy myself when I moved to New York. If I wanted to meet friends for drinks, I met my friends for drinks. If I wanted a new TV, I bought a new TV. If I wanted…well, you get the point. The idea of putting myself on a budget sounded restricting, especially considering how my friends were spending money at the time, so I wanted nothing to do with it.
However, by the end of most months, I could barely afford to buy groceries. Even worse, I turned to my credit cards to bridge the gap between paychecks (more on this later).
I felt so "broke," I ended up taking a second job, but still found myself short on cash for basic needs at the end of every month. When I got engaged a little over two years ago, I had no idea how I’d contribute to a household of two if I could barely support myself.
Fortunately for me, my now-wife reeled me in. At the beginning of every month, we take stock of our total income and draft a budget that considers even the smallest of details. We even check Facebook every month to see if any of our friends have birthdays we might need to factor in. This only takes us an hour every month, and even though we actually make less money than we did when we got married, we have a level of peace about how we spend that I never experienced when I was single.
Chip away at your student loan while you’re still in school
When I was in graduate school, a friend of mine mentioned she had already started paying back her student loan. At the time, I thought she was crazy. In fact, I had zero interest in even knowing my outstanding balance until the day I graduated.
In hindsight, I wish I had followed her lead.
Contrary to what I believed at the time, Stafford loans accrue interest the second they’re disbursed. US News recently outlined how making small, interest-only payments while enrolled will help you avoid having additional dollars tacked onto your balance after you graduate. In other words, you’ll avoid paying interest on top of your interest. Because she was proactive about attacking her debt, my friend will actually pay less than I will for the degree we both hold. How sobering is that?
Don’t spend money you don’t have
I alluded to it earlier, but when I got into a little trouble with cash flow, I leaned on my credit cards. Hard.
At one point, I had two cards: one had a $5000 limit and the other had a $4500 limit. Sounds like a lot, right? Well, I still found a way to come close to maxing out both. The worst part? I can’t remember half of what I bought with all of that money.
Of course, there are undeniable perks of having certain credit cards. One of my friends has paid his rent with a credit card for over 10 years (he pays the balance in the same motion with cash, of course). Because he has accumulated so many miles over that period of time, he can’t remember the last time he had to pay for a flight.
However, no credit card perks are worth having if you don’t have the money to pay your balance every month.
One way or another, the credit card companies will get the money you owe them. Before you get lulled to sleep by the temptation of free flights or swag, make sure you have enough cash in your checking account to cover all your monthly expenses, including anything you put on a credit card. If you know yourself well enough to know you don’t have the discipline for that, grab the sharpest pair of scissors you have and give your credit cards a haircut ASAP.
If these 3 financial tips for your 20s sound fairly straightforward, it’s because they are. My dad, who was much wiser than I thought when I was 23, urged me to do all of these things long before I moved out of the house. He also strongly suggested that I avoid taking out a student loan for graduate school in the first place, but I was hell-bent on becoming a writer and thought I knew better. Over time, I learned that I didn’t know much about managing money at all, and I wish I had at least been more receptive to my dad’s advice.
Of course, it’s easy to say that now, and I’m completely empathetic to anyone in his or her early twenties who responds to parental advice about money management by saying, "Please, I’m going to learn by making my own mistakes." While taking advice from your parents might seem a bit lame now, take it from someone who’s still in his twenties (for now): it won’t be long until that un-cool advice becomes key to your ability to do really cool things in the future.