By Tara Mastroeni
Oct. 19, 2019
When I was younger, money scared me. I turned 20 in 2009, smack dab in the middle of the Great Recession. During that time, I saw my mom working as a real estate agent as the housing market bottomed out and my dad get laid off from the job he'd been working at for 30 years.
To say that I was freaked out about the prospect of economic instability was an understatement.
I knew that my ultimate goal was to feel financially secure no matter what, but I had no idea how to start making that happen. So, I simply avoided money as best I could. I avoided spending whenever I could help it. I avoided taking big financial steps like opening investment accounts or starting to plan for retirement. I even avoided checking in on my account balances.
Looking back, ignorance was not bliss. I just turned 30 and I can honestly say that the way I handled money in my early 20s caused a lot of unnecessary financial anxiety and led to more than a few missed opportunities. If I could go back and do it all again, here are six money lessons I would share with my 20-year-old self.
1. Learn everything you can about how finances work
Thankfully, I've learned a lot about money since those days of being too scared to log into my bank account and that's drastically changed how I handle my finances. However, I'll admit that, for the most part, it happened by accident. After college, I started working as a writer and eventually fell into writing about financial topics. Most of my early financial education came from learning on the job.
The more I learned, though, the more confident I became in my ability to work with money and the less anxious I felt. If I could, I would tell my 20-year-old self to start her financial education even sooner. In truth, there are lots of ways to start learning about personal finance without spending a dime. You can enroll in free courses online, check out books from your local library, or watch YouTube videos. But, however you make it happen, this is definitely one situation where knowledge is power.
2. Continue paying off your credit card balance in full each month
The one good thing to come from having so much financial anxiety is that I developed a habit of paying off my credit card balance in full each month. I knew that credit card debt was one of the things that really hurt people in the Great Recession so I resolved never to spend more than I could afford to pay off in full each month.
To this day, I haven't broken that promise to myself, and my credit score has thanked me for it. If building a better score is your goal, one of the best things you can do to get there is to make your payments on time each month and to pay off as much of your balance as possible. If you do have to carry a balance, make sure you're using a 0% APR card to help minimize the amount of interest you'll accumulate.
3. Make your money work for you
When I originally started using a credit card, I had the credit equivalent of a learner's permit. It was a student card with a very low maximum. At the time it served its purpose, but looking back, there was one thing the card was missing: rewards. These days, I know enough to know that my money should work for me, meaning that if I'm going to spend it — or save it, for that matter — I should get something in return.
That's why I always recommend that people look into credit cards with rewards systems and high-yield savings accounts. With credit card rewards, you can earn points towards flights or other types of travel, get cashback on the money you spend, or take advantage of special perks and discounts.
With a high-yield savings account, you earn more interest on the money you're saving. While you need to be sure to read the fine print in both cases, they can be good choices when you're trying to get the most bang for your buck.
4. Separate your money into multiple accounts
That said, a single high-yield savings account shouldn't be the only account you have at your disposal. Part of getting my financial life together included organizing my money and a big part of that meant separating my funds out into multiple, dedicated accounts. With multiple accounts, it's easier to keep track of any specific savings goals you may have, and it means that you'll have backup funds in place in case one of your accounts is ever frozen or hacked.
In terms of what accounts you should have, I like having an everyday checking account, a rainy day fund that ideally includes three to six months' worth of expenses, and a dedicated savings account for each specific savings goal you have at the moment. These could include taxes if you're self-employed, a down payment for a house, or an engagement ring fund.
5. Set concrete savings goals
Once you have your accounts in place, the next step is filling them. In my early 20s, I thought that simply trying not to spend money was the same as saving it. While that's true to an extent, I've since learned that the key to really seeing your wealth grow is to set concrete savings goals and to stick to them to the best of your ability.
To me, this means having an overall goal in mind. For example, saving up $20,000 to put towards a down payment on a house. Then, breaking down that large goal into bite-sized action steps. In this instance, you could aim to put away $1,000 a month toward your down payment. With those goals in place, you should be ready to buy in a little less than two years.
6. Start planning for retirement now
The last piece of advice that I would give my 20-year-old self is that it's never too early to start saving for retirement. Ultimately, by my mid-20s, I did end up going to a financial planner who was kind enough to get me set up with a Roth IRA and some other investment accounts. But, I can't help but think about how much further along I'd be if I had taken that step earlier.
The truth is that reaching retirement age will happen whether you're ready for it or not. So start saving for it now, even if you can only save a little bit. Make it one of your dedicated savings accounts or research financial planners in your area who can help you get set up with an account or two. You won't regret it.