Making mistakes is a part of being young, but unfortunately, financial mistakes can follow you for decades. On the flip side, making smart money choices early in life can set you up for a much easier future.
Like most people, I made some money mistakes I regret. While I've managed to recover from them through financial diligence during my more mature years, here's the advice I would give my younger self, if I could. I hope you'll learn from my lessons.
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1. Don't open too many credit cards or close your oldest ones
When I first started college, stands on campus manned by credit card companies peddled cards to anyone 18 and over and every store asked if you wanted to open a credit card at the register. I didn't realize the harm in it and I opened tons of credit cards, including multiple store cards, Citi cards, Visa cards, and MasterCards.
By my junior year, I was a few thousand dollars in credit card debt. I knew things could get out of hand quickly, so I worked many hours that summer to pay off what I owed. Unfortunately, I compounded my mistake by closing credit cards that I paid off. This damaged my credit by reducing my average age of credit and my amount of available credit, both factors weighed heavily by credit agencies.
By making decisions about credit cards without understanding how my credit score worked, I made it harder to build a strong credit score based on good credit history. And, by having so much credit available, I put myself in real danger of getting into debt that would be incredibly hard to climb out of.
Looking back, I should have opened only one or two major credit cards, and I should have had kept them open. I'd have a longer credit history today dating back to my college years, and I wouldn't have wasted so much money on interest, instead saving or investing it.
2. Don't be careless about making credit card payments
As a college student with multiple credit cards, the inevitable happened: I missed a payment. I accidentally forgot to pay a credit card and ended up with a 30-day delinquency on my record. This haunted me for years until it finally disappeared from my credit report -- and every time I checked my credit, I faced this reminder of my youthful indiscretion.
When you're young, you might not realize that a single late payment could cause your credit score to fall by more than 100 points. If I could do it all over, I would automate payments for at least the minimum due on all of my credit cards so such a careless error could never occur.
3. Automate your savings before spending money
Starting to save money early can help set you up for a secure future.
I always planned to put money into savings but I never got around to doing it, because I spent the money out of my account with the intention of transferring what was left to savings at the end of the month. That never works, for anyone.
I was approaching the problem backwards -- I should have been setting money aside first before spending a dime. By automating savings and paying yourself first, you're not continuously forced to make the responsible choice, it's made for you. Money gets to where it needs to go and helps you work toward future goals and you can spend what's left over without worry.
Now, I have automatic transfers set up for each time I get paid into savings and investment accounts. Had I began this practice 10 years ago, I'd have significantly more money in my accounts than I do now.
4. Only invest when you have a plan
When I first started investing, I didn't understand important investment basics, such as finding investments with low fees and an appropriate level of risk. I also didn't understand how to diversify my portfolio.
I bought stocks of companies at random, because the company appeared to have a good business model, without truly understanding the fundamentals. I also bought mutual funds with high fees because I read a book by Dave Ramsey that said mutual funds would earn a 12% return on investment.
The end result was that my portfolio was a mess; it even included some companies that went bankrupt. Until I switched brokers last year, I had to look at those $0 shares in my account because it was impossible to sell them, and I'd have to pay a fee to remove them.
After losing hard-earned money I invested, I finally sat down and did what I should have done in the first place. I learned how to pick a stock by evaluating its fundamentals, and learned how to invest in low-cost ETFs that give me exposure to a broad mix of assets. I wish my younger self would've taken the time to learn these investing basics.
5. Don't borrow more for school than you truly need
When I graduated from law school, I owed more than $100,000 in student loans -- even though my parents paid for my undergraduate degree and even helped me financially during law school. Sure, tuition was expensive but I lived in a really nice apartment and I also bought a car with my student loans.
Once I started paying back what I owed, I regretted those choices. I should have borrowed the bare minimum to make repaying my debt much easier. I hated making student loan payments every month and paying a fortune in interest, so I made major sacrifices during my first few years out of school to pay off those loans ASAP. I even lived at home for a few years, hardly spending any money at all.
I was fortunate enough to pay off my student loans quickly. Otherwise, having such a high debt burden would've caused problems when I applied for a mortgage, and I would have ended up paying tens of thousands of dollars in interest for purchases I never should've made with student aid money.
Don't make my money mistakes
Had I saved more money early, borrowed less, and been more responsible with my credit and my student loans, I wouldn't have had to work so hard to get into a good financial position. The good thing is, I learned from my mistakes -- and hopefully I can help others avoid making the same errors I did.
