There's probably a lot of money advice you wish you would have gotten sooner. But for many people it wasn't about when they got the advice, it was more about when they decided to actually take it.
'Pay Yourself First'
You've probably heard this personal finance cliche: Pay yourself first. Essentially, this means you take your income and put it toward your basic living necessities first, then automatically save the rest or put it toward your financial goals, like getting out of debt. The idea is that if you "pay yourself first", you don't give yourself a chance to blow your money on other stuff.
Here's how reader Wittyname put it:
If you start to automatically save a little bit at a time from each paycheck, you won’t even notice it’s gone. You really won’t. Then you can increase gradually and you will be shocked how much you can save before you start to notice it. Can you afford $5 transferred to a separate savings account every Tuesday and Thursday? I bet you can. That’s $480 a year. Every two weeks when you get paid could you afford $20 transferred immediately to savings? That’s another $480 a year. You will not notice that money missing but at the end of the year you’ll now have a separate savings account with $960 in it. And you will notice that!
This is absolutely true. For a long time, I heard this advice and thought, "Yeah, yeah, just another money cliche that doesn't mean anything when you're broke." But like most personal finance advice, it's actually even more crucial when you're broke. I think it was the last thing Wittyname said that finally got me to take this advice:
You will not notice that money missing but at the end of the year you'll now have a separate savings account with $960 in it. And you will notice that!
After university, I had a student loan to contend with and a job that didn't pay very well. My parents suggested I "pay myself first" and save $25 a week. I didn't think $25 would make much of a difference because I was broke, but I figured it was a small price to pay to get them to stop hassling me about it. So I set up an automating savings transfer every week. I completely forgot about this transaction, and a few months later, I was surprised to see $300 in my account. When you're broke, $300 is a very substantial amount. It jumpstarted my motivation, so I decided to boost my goal and save as much as possible every week. It didn't take me an incredibly long time to learn this lesson, but man, it was a powerful one that changed everything when I decided to finally embrace it.
An Emergency Fund = Power
Speaking of power, emergency funds are pretty damn empowering. When I first read about the concept in Dave Ramsey's Total Money Makeover, I thought it sounded corny. I also thought, "How the hell am I going to have an 'emergency fund' when I can't even afford to move out of my mum's house?"
I always thought of the concept as a responsible, grown-up thing to do, but as reader CheddarLimbo explained, I was approaching it all wrong:
My younger self actually got a ton of great financial advice, I just didn’t listen to any of it... :|
But, maybe the one fundamental thing that has helped the most is to build up an emergency fund. How much will vary from situation to situation, but having that cushion is huge and empowering.
It's true. When you don't have a cushion and you run into an emergency, you make desperate, dumb decisions. In the book Scarcity: Why Having Too Little Means So Much, researchers Sendhil Mullainathan and Eldar Shafir found that not having enough of a resource, particularly money, can actually make us less polite, more impulsive, and even lower our cognitive abilities. We get tunnel vision, the researchers write, and we can't step back and assess our situation objectively. That's when people take out payday loans or put everything on a credit card and hope for the best. It's hard to take a step back and look at the big picture when you're vulnerable, but that's precisely what an emergency fund is for: To get you out of that tunnel.
Your Lender Wants You to Fail
Reader mustbetuesday offered another really important lesson worth noting:
The mortgage the bank will approve you for isn’t necessarily the same as the mortgage you can comfortably afford to pay every month.
It's worth pointing out that this doesn't apply just to mortgages: It's the same for student loans, auto loans, business loans, personal loans and so on. While there are some loans (like hardship loans from credit unions) that have better terms and are designed to help people get back on their feet, lenders make money from interest.
I learned this the hard way when I tried to pay off my principal balance early, and my student loan servicer applied it to my future interest instead. This is a sneaky move. Instead of reducing your principal so you save money on interest over time, they keep your payment schedule as-is and apply your extra money in a way that maximises their own profits.
It took me months of extra payments to figure out this was happening. When I finally did, the lender applied these payments correctly, but it's a good reminder that you might need to act defensively when it comes to your loan. Your lender is not on your side.
One final lesson we could probably all stand to learn: It's not worth dwelling on your mistakes. A study published in the Journal of Consumer Psychology suggests that focusing on your past mistakes can actually affect your present habits, and not in a good way. The study concluded:
...recalling failures does little to enhance self-control, despite conventional wisdom that one learns from their past mistakes. In fact, our results instead argue that focusing on one's past mistakes may doom us to repeat them.
As tempting as it is to look back and rue the past, the best thing you can do is share the lessons you've learned and try not to kick yourself too hard -- your present financial health depends on it.