What do you do once you gain knowledge? Oftentimes, especially when it comes to money management, people cite a lack of knowledge as the reason for not saving, for bank overdrafts, not paying credit card bills on time, not contributing to their 401k plan, etc. While it may be true that you didn’t save because you weren’t taught that you should, that you got an overdraft because you thought the bank wouldn’t let you keep spending if you had insufficient funds, and that you didn’t pay your bills on time because you didn’t know there would be any consequences other than the company not receiving their money when it was due.
The bigger question is what did you do when you were made aware of what you once did not know? Did you start saving, stop over drafting, start paying bills on time, start contributing to your 401k, etc.? Or did you continue to ignore the lessons that you learned and defend them with new excuses? I’ll raise my hand and say that I made excuses for many years before I acted on lessons learned.
I was in high school the first time that my bank account had an over draft. I got mad at the bank. I wondered why they let me spend more than what was in my account instead of declining the transaction. However, when I first opened the bank account, my sister cautioned me to track what I spend because not every purchase shows up on the bank's website right away and may take days to show up. She told me that not seeing all of my purchases may lead me to believe that I had more money than I did, eventually resulting in an overdraft.
She suggested that I use the paper transaction register that the bank gave me when I opened the account. Did I listen? Nope. The thought of carrying around a paper transaction register and recording my purchases in front of my friends was mortifying (although the thought of insufficient funds should have been more mortifying), so I didn't do it. Thus, my account was over drafted. Yet, my initial reaction was to be angry with the bank instead of at myself for not acting on the wisdom that I received and keeping track of my spending. From that point on, I began to use the transaction register. My friends laughed at me at first, as I expected, but eventually they began to come to me for financial advice.
I’d like to say that the last overdraft fee that I got was in high school, but that would be a lie. When I started my first job after college, I figured that I didn’t have to keep track of every penny anymore since I was now making a salary instead of minimum wage.
That would have been true if I kept the same expenses that I did when I was making minimum wage, but of course, I upped my spending since I now had more income. After about four months of working, I got an overdraft. I was ashamed that I was now a grown woman repeating her high school mistakes. I started tracking my spending again, but this time electronically on my laptop.
In my case, I would blame a lack of heeding good financial advice as opposed to never receiving good financial advice as the cause of most of my early financial mishaps. If you haven’t heard it before, I’ll say it now:
Make an attempt to keep some of each paycheck for your future self. Whether you use it for an upcoming vacation, to build up your savings, to save for retirement, to purchase an investment or to revamp your wardrobe, your future self will thank you for keeping her in mind.
If your company has a retirement plan, especially one that they match, contribute to it as soon as you’re able. It’s easier to start contributing with your very first paycheck because then you’ll be accustomed to the lower paycheck amount that results after the deduction. It’s harder to contribute later when you’re already used to receiving a larger check.
To avoid an overdraft, keep track of your spending. Some purchases, like filling up your tank with gas, don’t appear in your online account activity until several days later. If the transaction does appear immediately, it may only show a $1 hold until the transaction clears. Keeping a minimum balance in your bank account, such as never letting your account balance drop below $XXX amount, can also help.
Make a plan for your money before your check comes, so that you can consciously decide where you want your money to go. Without a plan, it may feel like money comes and money goes, and you don’t know where it went.
For example, if you make $1,000 per check, a plan may be to save $150, invest $100, spend $450 on bills and debt repayment, spend $150 on transportation and use the remaining $150 on entertainment. In my opinion, the percentages (e.g., saving %35, using 25% for debt repayment, etc.) are not what’s important; having a plan for your money is what’s important.
Take pride in and ownership of your money. No matter how much you earn, be proud of it. It’s yours. Whether you bring in a lot or a little bit of money, if it’s mismanaged, the money will eventually disappear. You don’t need a lot of money in order to be good with money. It’s actually easier to learn money principles when you have less of it because there’s less at stake. Then, when you eventually earn more money, you will be comfortable with managing it.
Of course the above is is not a comprehensive list of all that it takes to manage money well, but it is a start. What have your experiences been? Has a lack of knowledge contributed to any of your money mistakes?
Zikora is a Certified Public Accountant (CPA) by day. When not assisting and advising clients, she can be found writing, singing, songwriting, exercising, cooking, and or plotting her next move. She is a sounding board for friends and family and enjoys showing people that they can indeed do things that they believe to be difficult or impossible.