6 Important Lessons People Fail To Learn About Money Until It’s Too Late

Tom Stevenson
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When I was younger, I thought managing my money was a task so complex, I’d never master it.

Investing, choosing a savings account, opening a pension, all of them appeared to be almost impossible to fathom. So, for the majority of my early adult years, I had my bank account and one savings account.

I moved a small amount of money into my savings account and never thought about it again. Do you know what happened next? Nothing. I didn’t bother to move any more money into my savings account or consider opening an investment account. I buried my head in the sand and pretended everything was fine.

Now that I’m in my thirties, I look back at my younger self and cringe. I was in a decent financial position at 21, yet I didn’t have the skills I needed to take advantage of this situation.

Had I done, it’s likely I’d be further along the path in regards to financial freedom and not had to build my finances back up from scratch after years of doing nothing.

It doesn’t have to be that way for you. Even if you’re not young and consider yourself financially literate, there’s still plenty you can learn.

The tips I’m going to share with you will help you get a grip on your finances, pull your head out of the sand and set you up for a stable financial future.

The Earlier You Start The Better

The biggest mistake I made was failing to start managing my money earlier. Believe it or not, when I graduated from university I was in good financial shape.

Sure, I had my university debt to pay off. But in the UK, you only start to pay it back once you earn over a certain amount. If you still haven’t paid it off 30 years after you graduated, it gets written off.

Coming out of university, I had a lot of money in my pocket but little idea what to do with it. My standard account and a rudimentary savings account was all I had. I knew next to nothing about the stock market, knew even less about a pension and any other ways I could save my money.

It was only five years later after I’d come back from living in multiple countries that I started to get serious about my personal finances. By this time my finances had shrunk and I’d missed out on the chance to earn five years worth of growth. Instead of moving forward, I’d regressed.

The number one important lesson to take away from personal finance is to start as early as possible. The earlier you start, the more your assets will be worth down the line. Gain an understanding for the financial world at an early age and you won’t have to worry about getting started as you get older.

Managing Your Money Is Easier Than You Think

When I was younger, I never used to check my bank balance. It wasn’t rare for me to not look at it for a month or two. As far as I was concerned my bank balance was like Schrodinger’s Cat; if I didn’t look at it, my balance could either be better than what it was before or worse.

This is a terrible way to manage your finances. Burying your head in the sand is for ostriches, not humans. All of this did me little good and just made me more anxious about checking my balance the longer I went without looking at it.

The reason I was so reluctant to check my balance was that I believed it was difficult to manage my money. It was easier to ignore it and hope for the best than take charge of my finances.

When I finally pulled my finger out and started managing my money, I was surprised to find it was easier than I thought. Good resources such as Ramit Sethi’s book, I Will Teach You To Be Rich helped, but it was nowhere near as hard as I thought it would be.

Once you realise how easy it is to automate your finances, set up savings and stock accounts and contribute to a pension, you’ll wonder why it ever took so long to get started in the first place.

Spend On What You Enjoy, Cut Back on What You Don’t

The lesson I took from Ramit’s book is the concept of spending lavishly on what you enjoy doing while cutting back on whatever doesn’t bring you joy.

For too long I thought I needed to save money on all aspects of my life. Be it cut back on travelling, on a hot chocolate from my local cafe, or join a cheaper gym. I enjoy all of these things, but my desire to keep my outgoings low meant I felt guilty when I did splurge.

What Ramit argues in his book is simple. Don’t feel guilty about doing what you enjoy. Instead, do more of it. Where you should cut back is on those areas you don’t enjoy. For me, that would be less alcohol, food which gives me no fulfilment and expensive clothes.

The truth is you can save money and still splash the cash on the things you love. It doesn’t have to be one or the other.

Compound Interest Is The Eight Wonder of The World

Compound interest is the interest you accrue on the sum of your original outlay and the subsequent interest. Albert Einstein referred to it as the ‘eighth wonder of the world,’ and if you understand this concept your ability to manage your finances will markedly improve.

Here’s an example to help you understand the concept

  • If you invest $1,000 into the stock market and nothing more until you reach 70, you could end up with around $32,000. This is assuming the stock market returns, on average, 7% each year
  • If you waited until you were 30 to invest your $1,000, you’d make around $16,000 by the time you retired forty years later. Those ten years you missed are responsible for a lot of growth.
  • What’s interesting is that if you invested your $1,000 and then contributed $83 every month until the age of 70, you’d have approximately $465,000 on your retirement.

The magic of compound interest is in the exponential growth that happens over the years. The sooner you have your money in the market or in a long-term savings account, the longer it has to accrue interest and thus, the more you will earn as a result.

This goes back to my first point. The earlier you start the better and with compound interest, the sooner you start the more your money will grow and grow as the years go by.

It’s Better To Earn More Than To Save More

There are two ways to get rich, either you earn more or you save more. Ideally, you'd like to do both, but this isn’t always possible. Earning more is the quickest way to increase the stability of your finances.

Unfortunately, not every job pays thousands each month. If you find yourself in this situation, you have a few options. You can ask your boss for a pay rise, which may or may not work. You can apply for higher-paid jobs, or you can set up a side hustle.

Applying for another job with better pay is a good idea, although that depends on how much you love your current job and the people you work with. Perhaps the best way to increase your earnings is to set up a side hustle.

A side hustle could be anything from setting up an Etsy shop where you sell paintings, jewellery or anything else you make, writing here on Medium, or monetising your own blog. There are many different hustles you can set up to allow you to earn more money than you currently do.

The great thing about these hustles is that you’re in control. The skills you learn can also translate into your current job, or provide you with skills which will make you more employable in others.

When you get to a stage where you’re earning more than you were previously, then you can access the golden intersection where you have more money coming in, and a better ability to save more too.

Your Money Should Work For You, Not The Other Way Around

The final point is a simple one. You don’t want to spend the majority of your life chasing money when you could make your money work for you instead.

One of the main reasons people get into financial difficulty is because they’re unaware of the various savings accounts and tools they can use to improve their finances.

An example for me here in the UK is a Lifetime ISA. This is an account which 18–39-year-olds can open and deposit a maximum of £4,000 a year into. Whatever you invest, the government gives you a 25% bonus on top. So that £4,000 deposit adds up to £5,000 once you factor in the bonus.

You can only add money until your 50th birthday and you can’t withdraw it until you’re 60, but all that time this money is earning you interest and every year you invest £4,000, you’re receiving a £1,000 bonus.

This is an easy account for anyone to open and maintain and one that will set up for the later part of your life. I’m sure there are similar schemes in other countries. You also have stock trading apps such as Freetrade and Robinhood where you can invest in the stock market with the minimum of fuss.

It’s never been easier to take control of your finances and set yourself up for financial freedom in the future. The problem is that many people are unaware they exist.

Again, the earlier you become aware of these possibilities and get your money to work for you, the sooner you can gain control of your finances.

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