It’s embarrassing that I’m in my 30’s and am struggling so hard with what should be a very simple task: saving money. I know I am responsible for all the decisions I make with my money now, but here are 4 lessons I think would have really helped me if I had learned them when I was young.
Money doesn’t just “come and go” – I can’t count the times I used the “money comes and money goes” justification as I wasted hard-earned cash on something silly or fleeting. It may seem like such an innocent statement, but I believe the effects are powerful; saying things like this makes you look at money as abstract, something you have no control over and something that’s almost a fixed amount that rotates in and out of your life in a cyclical pattern. But that’s not how it really is. The dollar you have today could be the same dollar you keep until you’re 80. And if you spend $1000 today, you’re not guaranteed to ever make another $1000 again.
I wish my parents had taught me that money is finite. There is only going to be a set amount I’ll ever receive and while I have no idea what that amount is, I do have control over how much of it I keep. Money I give away today to McDonald’s or clothing stores at the mall is money (and opportunity) that is gone forever. If you don’t have money in the future, it’s because you spent too much or didn’t earn enough in the past, not because it just hasn’t found its way back to you yet.
How saved money grows – I’m not much of a math person, but one thing I did love in school was learning the compound interest equation and solving problems with it. This allowed me to see a hypothetical person just making a killing by saving his or her money. Unfortunately, while I was learning this in grade 10, I didn’t have a job and would randomly get money from my parents “when I needed it” which meant it wasn’t disposable for saving. So everything I learned just remained hypothetical.
It’s one thing to hear about the power of compound interest, but it’s another thing to see it for yourself. I wish my parents had given me a “savings allowance,” something like $10/month with a 10% annual interest rate compounded monthly, just to be used a learning tool. If they had done this just in the three years of high school, they would have given me $360 of principle and an extra $74.78 in interest, making it a total of $434.78. Seeing money grow in that tangible way would likely have inspired me to keep saving instead of waiting until my early 30’s to finally try to get started.
How being in debt will actually affect you:
Growing up, I thought I understood the impacts of being in debt – “don’t answer the phone” and “we can’t afford that until payday.” I’m a millennial (just barely), so I don’t want to answer the phone anyway, and waiting till payday is fine because when payday finally comes, it’s a money extravaganza for a day or two until we run out and have to wait till the next payday. These don’t feel like serious consequences.
I wish my parents had taught me the greater consequences of debt. Being in debt robs you of your ability to choose your own life’s path. It limits what schools you can go to, where you can work, what neighbourhood you can live in, what kind of house you can rent or own, how much time off you can take to be with your children or friends, and so much more. Maybe it wouldn’t be so bad to finance things if most debt didn’t come with high interest rates (that are also compounded, just not in your favour at all), but unfortunately they do. Even so, any debt is just robbing yourself of the future money you haven’t earned yet, and since no one can predict the future, it seems like a risky thing to do.
How to prioritize savings goals: Like I mentioned in one of my posts, there are so many different goals we need to save for and so many different investment vehicles we can choose from. It can absolutely be overwhelming trying to decide what money should go where, which is probably why a lot of people just get frozen and end up saving nothing.
I wish my parents had worked with me on setting two money goals when I turned 18 and headed out into the world. I wish they had taught me to focus only on these, a short-term (emergency fund) and a long-term (retirement) goal, and to throw all my extra money towards them. If I had started with these, I could have avoided lots of the debt I got myself into and would be making a killing in my retirement accounts. Plus, I would have learned the basics which would have better prepared me to navigate the savings world.