When it comes to managing money, even small mistakes can be costly. That's why it's important to learn from the mistakes of others so you can make smart financial decisions right from the start.
Unfortunately, I made many money mistakes after I graduated from college. The good news, though, is that you can learn from my mistakes. Here are three big mistakes I made that I hope you can avoid by learning from my bad example.
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1. I invested too little of my income
When I got my first job out of college, I opted for a company pension plan. I had always heard that you should contribute 10% of your income, so I did that right away and continued to do so for years. It wasn't until a decade later, that I did the necessary calculations and realized that investing 10% probably wouldn't be enough to provide for a comfortable retirement.
For more than 10 years, I underinvested because I didn't consider my own retirement needs – and that's time I'll never get back. The good news is that once I realized the 10% rule wasn't a good rule, I calculated my retirement goal and was able to increase my savings rate.
To make sure you don't fall into the same trap I did, don't trust the general rules of thumb when it comes to retirement planning. Instead, figure out how much money you'll need and create a customized savings plan.
Don't worry if you can't meet your savings goals all at once. I had to get a few pay raises first before I could save about 18% of my income. However, by investing the difference before you get used to raises and finding ways to cut costs, you too can reach your savings goals.
2. I tried to live on an unrealistic budget
When I graduated, I was obsessed with paying off my student loans and wanted to pay off as much money as possible to get rid of that debt. When I created my budget, I spent almost all of my money on student loans, leaving myself little money for food, entertainment, transportation, or other needs and wants.
Every month I was frustrated that I couldn't meet my spending goals. It started to feel like trying to live on a budget would never be possible. And I was right: living on an unrealistic budget does not work. Instead, it's important to make sure you record your spending and get an idea of where the money is actually going. Then you can make changes as needed so you can meet financial goals while having enough to live on.
I realized that living on a detailed budget didn't actually make sense to me at all. Instead, I automated my payments to the savings account and for other essentials, and then lived on what was left over. While this approach wouldn't work for everyone, it's important to experiment and find a solution that feels comfortable for you – otherwise you wouldn't stick with it. You could e.g. B. Use a budget based on the 50-30-20 principle, or a budget that allocates every dollar, depending on how you prefer to manage your money.
3. Not having well-defined financial goals
Another big money mistake I made right out of college: not setting my financial goals properly. I had lots of ideas about what I wanted to do with my money, like z. B. Pay off my student loans, save for retirement, and buy a house. However, I only had a vague idea of how much money I would actually need for these things.
Unfortunately, I didn't have a plan for how much to save for each goal. As mentioned above, this meant I didn't save enough for retirement. I also put way too much money into paying down low-interest student loans. As for saving for other things like z. B. the down payment for my house concerns, so I just put money in occasionally when I had extra money – which isn't exactly the best way to make sure you're on track.
Fortunately, once I started learning more about proper goal setting, I realized that my goals needed to be specific, measurable, and attainable, and that I needed to track my progress if I was serious about it. By setting specific financial goals, such as. B. saving for a down payment in two years and paying off student loans in five years, I was able to allocate funds appropriately. I was also more motivated because I could see the growth in my savings accounts and the decline in my loan balance.
If you want to maximize your chances of success in any financial endeavor, make sure you set precise goals for yourself. You should know exactly how much you need to save for each goal and when you want to reach your goal. Use this information to decide how much you can save each month and track your progress. If you do these things, you're much more likely to achieve your dreams.
Don't make the money mistakes I made
Now you know three of my biggest financial mistakes. I hope you can avoid making these same mistakes so you don't waste time saving too little for retirement, struggle with an impossible budget, or make little progress on your important financial goals.
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