What I Wish I'd Known About Money When I Was 21


Couple holding handfuls of money
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By Gerri Detweiler

At 21, young people have all the financial responsibilities of adults -- without much experience managing them. So we asked some of your elders (via Facebook and Twitter) what they wish they'd known earlier -- or the best advice they'd been given.

Many pointed out that in young adulthood, time is on your side. You may not have much money, but if you put some aside, it has lots of time to grow -- and the money you put aside now will have a huge effect on the amount you have when you retire. (And yes, I know how hard it is to think about retirement when you are just beginning your career.) Save as much as you can. There will always be killer deals and other temptations, but the money you can save now will be incredibly valuable -- whether you are saving it for retirement or for a trip you'll never forget.

Time is on your side in another way, too. You have time to travel, decide what's important to you, pick a life partner (or not) and decide where to live. You don't have to rush other life decisions (though getting started on saving is crucial).

How to Save Your Cash

Savings tips from Twitter and Facebook included:
  • Learn to cook. It's easier to save money when you pack lunches and can make tasty and nutritious meals yourself.
  • From financial columnist and author Kathy Kristof: "Start saving young. Even though you think you're too poor, your financial obligations only increase as you age. And by starting young, you let compound interest do most of the work for you. ... If you saved $250 a month starting at age 25, when you're 65, you would have $1,581,000 (and change). The total amount that you saved was $120,000. If you wait until you're age 35, your nest egg will be one-third as large -- $565,000. In fact, if you save from 25 to 35, you could stop saving completely and still be better off than the person who started at 35 and saved for the rest of their career. That's compound interest for you. ... Einstein reportedly called it the most powerful force in the universe."
  • Putting something aside in your 20s can help keep you from panicking about retirement in your 40s.
  • Live with roommates.
  • Don't get a car unless you live in a place that absolutely demands it. In that case, drive a beater (hopefully one you paid for with cash). That old car will likely have far lower insurance premiums than a newer model, too.
  • "Start a savings account and pay yourself first."
Where to Spend Money

And despite everything we're telling you about saving, it's also important to think about how to spend your time and money, even when you have plenty of the former and not so much of the latter. Know what is most important to you, and don't be afraid to spend money on the things that are.

Travel came up a lot in the financial advice for 21-year-olds. When you're young, you're more likely to happily enjoy some of the cheapest options available (less-than-luxurious accommodations, unpopular flights, short-term jobs). And you may be able to fit all your worldly goods in a car trunk or trailer. Done right, travel is not necessarily expensive. It might even cause you to reconsider some of the things you thought you "needed" for a comfortable lifestyle. I regret not traveling more when I was younger. (But as one man noted, it's not as if you can't start seeing the world later -- it will likely be a bit more complex to arrange.)

Starting a Lifetime of Good Credit Habits

If you've not had a credit card in your own name before, now's the time to do that, assuming you have an income. And though the credit card "limit" logically seems like the amount you can spend, if your balance is more than 30 percent of your limit, your credit scores are likely to suffer. (Keeping it to 10 percent or less is even better.)

Before you apply for a card, be almost certain you will qualify for it. Some cards require high credit scores, and some are geared toward people who do not have them. (Ones judged more creditworthy generally get better terms.) But anytime you apply, it counts as a "hard inquiry," and that reduces your score just a little for a short time. You can buy scores or get them for free online from Credit.com.

Checking your score monthly can give you an idea of where you stand and suggestions for how to improve your scores. Your credit scores come from proprietary formulas using the information in your credit reports -- and you can get a look at those for free once a year from each of the three credit bureaus. It's important to make sure the information on these reports is accurate and to dispute it if it's not. Checking credit reports is a smart financial habit -- develop it while you're young.

The credit advice from your elders:
  • Don't charge anything that will be gone when the bill arrives -- dinners out, concert tickets, etc. (Yes, we know about rewards cards, but if you're new at handling your finances independently, it's smart to establish the habit of paying the balance in full every month before applying for a card that incentivizes spending.)
  • "Make keeping your credit healthy as big of a priority as keeping your body healthy. With a few exceptions, if you can't pay cash for it, you probably don't need it that bad." (Keeping your body healthy can also be good for your finances, with lower insurance rates and health care costs.)
  • "Beware of anyone who is quick to tell you, 'You can afford the payments, and I know people that can finance almost anyone.'"
  • "Find a banker to explain how loans work. Stay out of debt as long as you can."
  • "Learn something about auto financing before you are in a dealership buying your first car."
The Beauty of a Spending Plan

You need a budget as a road map to those travel adventures and to financial comfort in your old age. If you have never made a spending plan, there's lots of advice online, as well as books and classes to help you learn. If you have a life partner, make sure the two of you are on the same page. Also know that you will have to make choices and trade-offs. You may be able to do all the things that are important to you, but you probably can't do them all at the same time.

A couple of observations from people who aren't 21 anymore:
  • "If you marry and have children really early, you could end up living with your in-laws in your 30s while you finish school."
  • "Think about where you get your first or second job because you may end up living there forever."
Closing Thoughts

Don't even think of buying a house unless you are pretty sure you'll want to stay put for at least five years. Don't spend too much on happy hour or at casinos. (Remember that budget?)

Enjoy -- you're learning about yourself, the world and your finances. Accept that you'll learn some of it by making mistakes. And before you know it, you'll be past 25 and offering your own sage advice.

Gerri Detweiler is Credit.com's director of consumer education. Bev O'Shea contributed to this post.

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It's not always easy to do, but make a budget and stick to it! You want to get out from under debts like mortgages, student loans, car payments, and the like because they can have a big impact on your financial health as you get close to retirement. Learn about how much of an impact at http://www.mutualfundstore.com/financial-obligations-debt. Plus, the sooner you get out of those debts, the more money you can save for your future.

May 16 2014 at 12:28 AM Report abuse rate up rate down Reply

I wish that I started saving much earlier. I am really nearing an age when I can't afford to make mistakes with my retirement savings. I don't think that I have put away enough money, and after sitting down with a financial advisor last fall I am pretty convinced that he just wanted to sell me expensive annuities that won't help me much.
I decided to follow my own plan (after educating myself and deciding what will work for me) and I save money weekly to a Roth IRA. I invest in low cost Vanguard mutual funds, with a 70/30 mix equities to bonds.
I have a wife and two beautiful kids, and I want them safe if something happens to me. I regret to say that previously said advisor sold me a whole life insurance policy about 4 years ago that I have been paying $330 a month for. After some research, and watching shows like Suzey Orman I decided that I would be better off cashing it in (what a waste) for some Term. I got the same coverage from a policy at LifeAnt for $27 a month, and I save the difference to my 401k at work (and get a 4% match.) If you haven't heard of buying term and saving the difference watch Dave Ramsey sometime its pretty crazy.
All I know is that I want the freedom to work a lot less when I get to my golden years and I do not want to rely on Social Security or be a burden to my kids. Luckily I think that I still have enough time to make a push.

April 30 2014 at 9:12 PM Report abuse +1 rate up rate down Reply

Dont get married early, marry a team player not a vain high maintenance person , dont have children, and dont get a divorce.

April 30 2014 at 1:03 PM Report abuse +1 rate up rate down Reply

Wow, this was actually pretty good advice....not at all that common on financial sites.

April 30 2014 at 12:49 PM Report abuse +1 rate up rate down Reply

Save as much as you can while your younge. As you get older and retier the money you save will make a differance. How much money is enought ? There never enought I been retier for ten years and many item bought ten years ago are twice the price today. My income hasn't. Good luck and please save.

April 30 2014 at 12:19 PM Report abuse +1 rate up rate down Reply

Whether you are 21 or 61 (or older), the same advice applies. Save money. Save like your life depends on it; because, one day in the future, it just might. Horrible traffic accidents happen. Major illness strikes suddenly. Homes burn down or get wrecked in weather-related events. Good-paying jobs are lost. And those are just for starters. At any moment, something can happen that can completely derail the life you thought was so secure.

So --- forget about trendy clothing, overpriced "good jewelry", the newest electronics and video games, exotic vacations, new cars, pleasure boats, dining out every day for lunch and dinner, etc. Focus on saving. Not spending. Save some money every month. Open a savings account at a credit union and make that savings deposit the first monthly "bill" that you pay. Do this, even if you also have a 401K account.

When you do this, you are "paying it forward" to the person that you will be, in the future. Essentially, you are investing in yourself. And it doesn't have to be a big amount of money to get amazing results over a period of time. You just have to be consistent with your saving. Even small amounts of money often add up to impressive amounts.

This probably won't be easy to get started with a savings habit --- because we live in a society that teaches (from a very young age) that shopping constantly and buying lots of "stuff" is the most fun anyone could ever have. (That's a lie promoted by the advertising and retail industries, but most people still believe it and live their lives, that way.)

Also, when you begin, saving just doesn't "feel" as good as spending money on impulse purchases does. It takes a while for the peace of mind to appear that having a healthy savings account will give you. But, it WILL happen --- and it will feel better than blowing money and living from one paycheck to another ever did.

Ten per cent of your income is a good savings target. Think you can't afford that?? Start with 1% and increase that savings amount by another 1%, every month, until you are at the 10% target amount.

While you are building this first savings account, make a habit of reading and learning about financial transactions and investments. When you have accumulated serious money, you will be very glad that you spent time doing this, because you will understand how to manage your personal finances and you will have learned what the best investments are.

April 30 2014 at 7:56 AM Report abuse +1 rate up rate down Reply

Everybody should follow those steps starting at a young age:

1) Pay off your debts as fast as you possibly can. If this means living in a crappy studio apartment and eating ramen everyday for a couple of years, do it. If you want to buy a car, get a reliable beater. Get insurance for $25/month from 4AutoInsuranceQuote. Forget about buying a house until your debts are paid off.

2) Once you are out of debt, stay out of debt. The only exception to this rule is a vehicle and a house. If you want to get a nicer car, buy used and be able to pay it off in a year or 2.

3) If you are going to stay in the same spot for at least 10 years, buy a house, preferably with at least a little bit of usable land. An acre is good, 5 acres is better. Take the amount you are pre-approved for and cut it in half - that's how much you should spend on a house. Come to the table with at least 20% down and make a couple of extra mortgage payments every year. If you're going to be transferred or relocate every 5 years, forget about buying a house and rent instead.

4) Develop multiple revenue streams. Do contract work. Start a business on the side. Invest in a business as a silent partner. Raise chickens, breed dogs or grow apples. Build websites. Buy and sell antiques. Acquire rental property. Sell something that generates residual income. Learn to play the currency markets or trade stocks. Do whatever you can to generate income from multiple sources.

5) Grow these multiple revenue streams to the point that they generate enough consistent and reliable cash flow to replace your current income.

6) Make as much as you can. Save as much as you can. Give away as much as you can.

7) Retire!- the sooner, the better. Be sure you understand that "retirement" doesn't necessarily mean you stop working, it just means having the freedom to do what you want to do, when you want to do it.

Don't be foolish and fall into the trap of trying to measure your wealth by the value of your assets. Markets change. Valuations fluctuate. Instead, measure your wealth by the amount of cash flow your assets consistently generate.

April 29 2014 at 3:05 PM Report abuse +2 rate up rate down Reply
1 reply to jinoposapu's comment

All of your advice is excellent. Thank you for taking the time to post your thoughts.

April 30 2014 at 7:02 AM Report abuse rate up rate down Reply