12 Financial Lessons I Learned the Hard Way
Money management is something that you’re expected to simply know. It’s part of adulting — but many for many of us, it’s a process of stumbling and making mistakes before things finally sink in. It might come in the form of crippling debt. Or looking at your bank account and realize you’re 30 and broke. Whatever the case, here are 12 financial lessons that I learned the hard way.
1. Every loan is your responsibility, including your student loan
During my graduation, a group of student loan activists tried to get me to boycott the event.
We’re never going to earn enough to pay off our student loans.
The thing about student loan is that it’s a choice. It’s a side effect of not having enough money to fund your pursuit of higher education.
But when you signed that loan contract to cover your school fees, you are doing so legally and in an adult capacity. When you take out a loan, you are buying an education.
It’s the same concept as taking out a loan to buy a car. The only difference is that one is a tangible object and the other is only tangible through how well you’re able to synthesize it into real life.
You are still responsible for the money owed and interest rates, no matter how much you want it to go away.
2. Debt never pays
Taking money out now for things you can’t afford is a rule that every kid should learn.
It doesn’t matter what kind of calculator you use, or how you try to math your way into a reason for keeping debt.
Debt is debt.
It will always be there to take money out of your bank account. Having full control over where your money goes is a much better feeling than seeing it disappear with every paycheck.
When you’re chasing your own debt tail, it means that you’re trapped and something needs to be done. It might be through changing your spending habits, canceling some subscriptions, or opting for cheaper alternatives to reduce your monthly living costs to catch up with your debt.
3. Living within your means includes not falling into the lifestyle creep
It’s easy to say that you’re living within your means. You watch your budget, you count your bills, you tally up your savings. Then you get a pay rise or your side hustle gets a bumper month. So you tell yourself that it’s ok for a treat. Until that treat becomes a permanent fixture in your lifestyle.
This is lifestyle creep in a nutshell. If you can survive comfortably before, it means that you can survive under the same conditions until you make a conscious choice for a permanent upgrade.
4. It’s ok to not have a credit card
Just because everyone else seems to spend it up with their credit cards, it doesn’t mean you have to have one too. You can live without one. It’s not really the end of the world.
5. It’s ok to have a credit card
Sometimes having a credit card can be handy, especially when it comes to boosting your credit scores for your mortgage. However, you need to be disciplined and use it wisely.
Have a small balance and live by Jay-Z’s money rule:
if you can’t buy it twice, you can’t afford it.
So if you can’t afford to pay off your credit card purchase twice in cash, you can’t afford it. This rule is applied at the moment of purchase — not at the end of the month where you think you’re going to have enough money. Playing with future money is how credit works and the future is never ever certain.
6. Get to a financial blank slate as quickly as you can
We all start with a financial blank slate. But somewhere between turning the legal age and our working lives, we make bad financial decisions.
During this period, we are financially immature.
The moment you clear your slate and start again from zero is the moment of being a financially responsible adult.
If you’re in debt (mortgage not included because that’s a different kind of debt), then you haven’t truly figured out adulting properly.
Being an adult is supposed to bring you freedom — not a lifetime of paying someone for a choice you made half a decade ago.
7. Know where your money is going
It’s easy for our money to slip through the cracks.
We’re talking subscriptions, trips to the supermarket, your bought lunches and that random thing you think is going to improve your life but never end up using.
Know where your money is going. Be aware of it through tracking and tracing.
If you think about it this way — most of us get paid by the hour. How much of your life did you just let slip by? An hour on that taco? Two hours on that pair of shoes? Three hours on that overpriced gym membership that you only use once a week?
Figure out where your money is going and cost it against your time. Is it still worth it? If not, sell it or get rid of it.
8. Avoid the friendship tax
Some friends can be expensive with their nights out, events, parties, and lunch dates.
It’s the friendship tax.
If you’re broke and in debt, figure out your most expensive friend and reign them in. Reduce your outings or figure out a way to stay in touch cheaper.
A real friend will understand. They’re the ones that will do movie night at your house and live through your homemade pizzas. A friend that only wants you for entertainment will find someone else to implement the friendship tax on.
9. Be specific with your financial goals
Many of us waffle through life, wanting to get rich but never truly committing ourselves to it with a specific goal.
The phrase ‘I want to be rich’ doesn’t have the same power and impact as ‘I will make my first 5 million in the bank in 5 years.”
The second phrase has a defined goal. You can measure 5 years. You can measure 5 million. What you can’t measure is ‘I want to be rich’. You can go on for 20 years wanting to be rich but never reaching it.
But 5 million in 5 years will get you working and thinking creatively about how to get to the destination in time.
10. Accept your financial position and do something about it
Sometimes you need to get real with your situation.
If you’re broke, don’t try to act rich. Don’t delude yourself or others into thinking that you’re better off than you truly are.
If you’re in debt and barely making enough to cover your basic costs, you shouldn’t be eating caviar. Accept that you’re broke. If people want you to spend money, tell them that you’re broke.
There’s no shame in honesty.
It’s better to be honest than scam yourself into a false depiction of reality.
Once you’ve done that, do something about it. Get practical. Sell things on eBay. Buy cheaper alternatives. Be frugal with your money and cost it against your time.
Figure out a way to increase your time’s worth and work towards a financial blank slate.
11. Build wealth, not depreciation
My mother used to buy stuff she didn’t need. If she hadn’t bought all the random on sale things, her house would be almost empty — and a lot more money in the bank.
The formula for wealth is as follows:
Savings = Income − Spending
Making that saving grow is hedging your surplus against inflation.
Wealth building assets are things that gain value over time. The most common thing we associate with wealth building is through property investments.
However, owning your own home might not be feasible. Other alternatives is stock investing or buying into commodities like gold.
But before you can do that, you need to have a true surplus. This means no debt and an actual amount left over. Trying to invest with debt in the background is a self-imposed punishment.
How? Because you’re putting money away while a good portion of it is getting eaten away. The cost is the opportunity lost to invest that money that’s paying off the debt, along with true financial mobility and freedom to do whatever you want.
12. You always have time
When I was 25, I thought I was too late because I still had a good chunk of my student left to pay off.
When I was 27, I thought I’d never pay off the bad financial choices I made as a teenager signing into higher education.
When I was 29, I made a decision to be financially free so that I can have the next 50, 60, 70 years free.
When I turned 30, I managed to pay off everything and now just have a small credit card to keep my monthly spending in check.
There is always time.
The past is set and can’t change the decisions you made. But you can influence the future by what you decide to do about your financial life now.
Minus taxes and necessary living expenses — when you are debt-free, you are free to do whatever you want with the remaining money.
I’ve made money mistakes in my past.
I tried blaming the system but that didn’t get me far. So I took ownership of my past decisions and dealt with it. Financial freedom is a liberating feeling, especially when you finally have your entire income for the first time.
What I’ve learned from the entire decade long lesson is that when you shift the blame to someone else, you prolong the process. When you take ownership and responsibility of yourself, you start the journey towards true freedom.