College is an age characterized by impulsive behaviors, rash decision-making, and excess spending above all else. It’s easy to make mistakes when you’re young because you have room to fall down and recover. Plus, you’ll benefit because making a financial mistake and experiencing the loss associated with it will leave a greater impression and allow you to avoid similar financial mistakes in the future.
But with that being said, there’s a saying from German chancellor Otto von Bismarck that goes something like: “Only a fool learns from his own mistakes. The wise man learns from the mistakes of others.” Obviously, this means that you don’t have to trip and fall to realize that there’s something that’s making you trip - you can learn by watching someone else do it. That’s what this article is about: these financial tips will help you develop your financial senses and prompt you to think twice when making expensive purchases.
Make a Budget For Yourself
It’s never too late to make a budget for yourself, even if you’re in your thirties and this article is about advice is about curbing the spending habits of twenty-year-olds. Making a budget is essential because it helps you visualize what you’re spending your money on and it makes you realize what you need to have and what you want to have - a decision that’s not always clear when you’re making purchases in the moment. Try the application You Need a Budget if you want a nice place to start.
Don’t Spend Too Much on Other People
Don’t take this the wrong way - I’m not trying to sound like some sort of cynical misanthrope. However, it’s important to really make sure you have a good grasp of your monetary exchanges with family, friends, and especially your significant other. You might think payments between casual friends or small loans to family can’t really be destructive, but the degree of money that some people are willing to spend for companionship may surprise you - it’s money on the order of millions.
Take Care of Your Health and Your Safety
One of the keys to good finances is having very keen foresight. It’s an obvious fact to anyone that as we age our bodies become more prone to diseases: cancers, heart disease, stroke, and so forth. Even if you’re perfectly healthy, it doesn’t grant you immunity from accidents. The average cost of an emergency room visit is $1,233 - that’s a decent chunk of cash that no one would want to fly out of their pocket because of their negligence towards themselves.
Surround Yourself With the Financially Savvy
Famous fashion designer Coco Chanel speaks about the importance of relationships in spite of money: “There are people who have money and people who are rich.” You might not be the sharpest tool in the shed when it comes to finances. In fact, you might even have an extreme aversion to mathematical calculations, percentages, and the like while still loving your greenbacks. Luckily for you, our society functions on the division of labor, which means that even you don’t specialize in something like financial management, you can befriend or find someone that does and have them help you out.
Recognize the Nature of Sunk Costs
Sunk costs are a very hard concept to grasp for most people and it’s not because the definition is particularly hard to understand, but it is because people simply don’t want to believe it. A sunk cost refers to an expense that’s already been incurred.
Here’s a good example of how sunk costs can negatively impact decision making - suppose you own a restaurant that has just invested a lot of money into making a new menu. There has been no notable increase in sales or revenue. Most people would be reluctant to fully give up on the investment that’s been put into making the menu and keep investing more money in the hopes that it pays off, but the reality is that the invested money is already gone and shouldn’t influence future business decisions.
Protect Your Credit At All Costs
Most people have a general sense of their social reputation and what can raise it and lower it on an intuitive level - your credit score is your financial reputation. Becoming familiar with the five major components of your credit score and doing all you can to make sure that your spending and payment habits reflect positively in those areas is such an important practice when you are in your twenties. If you’re burdened with a common debt like student loans, CreditRepair offers a number of insightful tips on seeking out a professional that can help you drastically reduce that financial - and mental - burden.