When it comes to managing money, even mistakes that seem small could end up being costly. That's why it's important to learn from mistakes made by others so you can make smart financial decisions from the start.
Unfortunately, I made plenty of money mistakes when I graduated from school -- but the good news is you can earn from my errors. Here are three big mistakes I made that I hope you can avoid by learning from my bad example.
1. Investing too little of my income
When I got my first job out of school, I signed up for the company retirement plan. I'd always heard that you should contribute 10% of your income, so I did that right away -- and kept doing that for years. It wasn't until over a decade later that I actually sat down, did the math, and realized investing 10% likely wouldn't give me enough to be comfortable in retirement.
For more than 10 years, I was investing too little, since I hadn't taken my own retirement needs into account -- and that's time I'll never get back. The good news is that once I realized the 10% rule wasn't a great one to follow, I was able to calculate my target retirement goal and increase my savings rate.
To make sure you don't fall into the same trap I did, don't trust the conventional wisdom when it comes to retirement savings. Instead, figure out how much money you'll need and come up with a personalized savings plan.
Don't worry if you can't hit your savings goals all at once -- it took me a few gradual increases to get up to saving around 18% of my income. But by investing raises before you get used to living on the extra and finding ways to cut costs, you can hit your savings targets, too.
2. Trying to live on an unrealistic budget
When I first graduated from college, I was obsessed with paying off my student loans and wanted to use as much extra money as possible to get rid of that debt. So, when I made my budget, I allocated almost all my cash to student loan repayments and left myself hardly any money for food, entertainment, transportation, or other needs and wants.
Month after month, I found myself frustrated that I wasn't living up to my spending goals -- and it started to feel like trying to live on a budget wasn't ever going to be possible. And I was right: Living on an unrealistic budget doesn't work. Instead, it's important to make sure you track spending, get an idea of where your money is actually going, and make tweaks as needed so you can accomplish financial goals while still having enough to live on.
Now I've found that living on a detailed budget doesn't actually make sense for me at all, so instead I've automated my payments to savings and other essentials and then I live on what's left over. While this approach won't work for everyone, it's important you experiment and find a budgeting solution that feels comfortable for you -- otherwise you won't stick to it. You could use a 50-30-20 budget, for example, or a budget that allocates every dollar, depending on how you best like to manage your money.
3. Failing to set detailed financial goals
Another big money mistake I made right out of college: not setting my financial goals the right way. I had lots of ideas about what I wanted to do with my money, like paying off those aforementioned student loans, saving for retirement, and buying a house. But I had only a vague idea of how much money I'd actually need to do these things.
Unfortunately, this left me with no plans for how much I should be putting toward each goal. As I mentioned above, this meant I wasn't saving enough for retirement -- and I was also putting way too much money toward paying down low-interest federal student loans. And, as far as saving for other things like my house down payment, I'd just randomly deposit money when I had extra -- which isn't exactly the best way to ensure you're on track for a big accomplishment.
Fortunately, once I started learning more about goal setting, I figured out my goals had to be specific, measurable, and attainable -- and that I had to track my progress if I was serious about achieving anything. By setting detailed financial goals, such as saving for a down payment in two years and paying off student loans in five, I was able to appropriately allocate funds. And I was also more motivated as I monitored the growth of my savings accounts and the decline of my loan balance.
If you want to maximize your chances of success at any financial endeavor, be sure to set detailed goals for yourself. Know exactly how much you need to save for each goal and when you want to hit your target; use this info to decide how much to save each month; and track your progress. If you do these things, you're much more likely to achieve your dreams.
Don't make the money mistakes I did
Now you know three of my biggest financial blunders. I hope you can avoid making the same errors I did so you won't waste years saving too little for retirement, struggling to live on an impossible budget, or making little progress toward your important financial objectives.