Have you ever had one of those moments where you look back at something you've done and can't help but face-palm? That's how I feel when I think about some of the financial decisions I had made when I was still an undergrad.
Sure, hindsight is 20/20, but take it from someone who's been there: if there's a way to keep Future You from smacking Current You upside the head for making dumb finance choices, then this article might be worth reading.
Time travel aside, I've brought together some amazing advice from another generation on finances — and what money advice I wish I'd learned sooner.
1. Tax-deferred retirement savings are your friend
Retirement seems like a lifetime away, and for many of us it's nowhere on the radar. But if you ask the people who've been there, you should start investing for your retirement right when you start your career. Unless you're working for the government or are in a strong and stable union with a pension, you are going to struggle to be able to live comfortably just on your government-given old age social security payments.
Pensions from employers have become less generous than in the past few decades and some companies might struggle to fund them in a weak economic environment, which means even a seemingly strong pension plan might not exist when you retire in 30 to 40 years. To be able to afford retirement, starting early with your own retirement savings or opting for making deposits into a tax-deferred retirement savings account (such as an RRSP in Canada, or a 401(k) or IRA in the United States) are key. You will be thanking yourself in the future, when instead of retiring at 70, you can take an early exit on your own terms.
2. An emergency fund brings you great comfort
An emergency fund does not need to be an expensive thing; it only has to grow as fast as you need it. An emergency fund can be built just by transferring a few dollars per paycheque into a high-yield savings account and leaving it there to grow. When you need it, you can avoid having to approach a payday lender (a.k.a. The Devil) or putting the unexpected cost on your credit card. The inability to pay for an emergency from savings is one of the classic ways people get into ugly debt cycles. Instead, using your emergency fund, you'll be able to pay for the expense and then go back to padding your emergency fund for the future. It's definitely a nice security blanket, and Future You will thank you.
3. Pay yourself first
This is an age-old cliché in the financial world, but it could not be any truer than today. Pay yourself first means you need to cover basic living expenses first, and then you divvy up a small amount of money for savings before allowing the rest to be spent on discretionary purchases. Paying yourself first will ensure that you have enough for rent, food, and car payments, in addition to an emergency or long-term savings fund. Assuming you take two weeks of vacation, if you put $20 from every paycheque (that's $40 each month) into a savings account, you would have $460 saved by the end of the year. Scale that up and you could be making a down payment on a car, or even a house in no time.
4. Lenders lend to help themselves
Whether you're looking to purchase a house or applying for a student loan, the simple fact is that the lender is looking to profit from your debt. The more debt you have and the longer it takes you to pay it off, the more money they make. It may sound terrible to you, but lending you money to make big purchases is just business for them.
Now, I'm not saying you should avoid buying a home or anything like that, but you should make it your business to know where your payments are going. Many lenders will steer you to pay down the interest on your loan first, and only then start in on your principle. Essentially, you could be paying a mortgage for many years, and you may not have paid anything towards your home. This is one way lenders ensure that your loan will take longer to pay off and that they'll profit more from the interest payments from you over time. That being said, a typical mortgage will still have a larger amount of your payment allotted to interest at the outset. This allotment typically decreases over time, and the amount allotted to the principal increases. Just know that you can cut years off your mortgage by paying the principal down faster.
When setting up payments, take a look at the amortization schedule to ensure a reasonable amount of money is going toward the principle of the loan. If it's not, then speak with your lender about your options.
Sometimes it takes a person with a few more years of knowledge to pass on advice that can make a massive difference in your life. The amazing tips above will not only help you save money but will help Future You be financially independent and maybe even retire early!