Financial Lessons to learn before you turn 30
Turning 30 is big, and sometimes scary. Your third decade of life is always a big deal, and rightly so. Everything around you is either changing or has changed already. This is also the most important decade of your life financially.
Many young adults make hundreds of bad financial decisions every day. In fact, most of them don’t even realize until they have to deal with repercussions later on in life. Maxing out credit cards and drenching knee-deep in debt are some of the examples of these bad financial decisions. These decisions can not only cost them their immediate adulthood, but also the peace they expect when they retire.
As scary as this all may sound, bad financial decisions are actually avoidable. In fact, most of the people who realize their blunders quickly are able to reverse the impact of these decisions in their life. Making educated decisions about your life is not that hard. Here are some of the most important financial lessons for you to understand, thoroughly, before you turn 30!
1) Budgeting is important.
It is vital to keep a tab on your earnings and spending so you can optimize them over time.
Budgeting might sound super simple, and chances are that you might be thinking to yourself: “Hey! I already know how to budget my money!” which is fine. Sure, you might already know how to budget, but there is a good possibility that many people who think they budget right might just be doing it wrong.
Remember to always document everything, and I mean everything! How you allocate your resources can be greatly influenced by a simple habit of recording your allocations. This also helps you stay true to your budgeting since the written word has a greater impact than just that voice in your head!
2) Emergency funds are essential.
You should always put money in your rainy-day fund with the worst-case scenario in mind.
Emergency funds can be lifesaving, literally! Most people think that emergency funds are an unnatural way of living because instead of letting you live in the present these funds tend to make you worry more about the future. They might be right, but let’s be honest: you’re going to worry about the future anyway.
Contrary to the traditional belief, setting up an emergency fund does not take a lot! In fact, all you need to do is to allocate a small percentage of your monthly income to be deposited directly into the emergency fund. These small transactions will ensure that your emergency fund gets collected at a steady pace, without really straining your *present* efforts at any time.
3) Debt is dangerous.
As long as you are in debt, you cannot make financial progress.
Debt is dangerous – and while sometimes it is an integral part of the cogwheel that runs the economic machine, it is best to avoid it whenever possible. We all know how dangerous debt can be, but do we really appreciate just how much?
One of the most drastic complications that can occur with debt is bankruptcy. You can’t return what you don’t have, and thus you’re left with nothing. However, even more, damaging than that is the hidden toll debt has on your day-to-day progress.
A person with debt doesn’t think about saving big, because the thought of returning that money is always in the back of their head. This constant pressure can actually make you accustomed to a less progressive lifestyle, which is not something you want in your 30s!
4) Investment is better than savings.
The money you invest will always have a greater value than the money you save.
There have been numerous comparisons between savings and investments over the years as to which one is better for you. I believe that there is a fine balance you have to maintain, tilting slightly more to the side of investments. Here’s why:
Savings are liquid money and therefore not affected by the trends in the market directly. Liquid money is out of the market, and, thus, doesn’t flow with it. Investments on the other hand are literally money spent in the market. This is advantageous because market trends affect your investments, and thus your money, in real-time. With every coming period of inflation, people who build more assets will always be a tad bit happier!
5) Assets go farther than liabilities.
Liabilities might feel more convenient, but assets take you farther in the long run.
Assets and liabilities go hand in hand. In fact, they are really just two sides of the same story. Whenever there is a transaction involving credit, the party that receives the credit is said to now hold a liability. Assets are made when a party gives credit to another party, meaning that the party that loans is said to have made an asset, and the party that is loaned to is now said to be liable.
You can clearly see that both assets and liabilities are really just two sides of the same story. You can also see that building assets clearly requires loaning something to someone, and building a liability is simply the reverse. Now I might not be the biggest financial analyst out there, but I can tell you for sure that building assets sound so much more fun and comfortable than taking on liabilities. Go figure!