Learn these lessons the easy way
This is not me bragging; these are facts: at 33, I live comfortably, I own an apartment, can afford to travel extensively, and I was never in debt. If you want to know how I manage all this, you can read about my best financial decisions here.
But I certainly have also committed some mistakes in managing my finances. Over the past 11 years, the time I’ve been working and earning, there were decisions that cost me thousands of euros. Money that I lost and that could have been invested to generate even more profit.
Here are my lessons, just so you don’t have to learn yours the hard way.
#1 — Quitting Too Early
At 28, I lived in London and had a 9–5 job. I also had 3 side hustles that kept me busy both before and after my day job. All the income sources combined made a pretty good sum.
But I felt tired most of the time, so after 5 months, I quit my day job, moved back to Portugal, and focused on a more simple life, living off my (not anymore) side hustles.
Even though I became happier — and definitely less tired — I could have continued juggling everything for a few more months. If I had, I would have saved an amount of money that, under normal circumstances, would have taken me around 3 years to save.
Often, people balance between extremes: those who praise the hustle until its last consequence and those who privilege a life focused on enjoying the moment. But, sometimes, the answer is in the middle. If you hustle intensely for a couple of years, you will reap the benefits in the long term. If something is going well for you, squeeze the maximum out of it. Quitting is wise, but only if you do it at the right time.
#2 — Letting People Abuse You
In my early 20s, I had a good salary and a bad partner. Someone who hadn’t worked in a couple of years and yet, was one of the biggest consumerists I have ever seen. Someone who picked up fights all the time, only to make things right again whenever I offered something: a new shirt, a pair of sneakers, or even old plain cash. It’s embarrassing and not the point of this story. The point is: I spent a lot more money on that person than I should have.
Luckily, most people are not this way, but it’s not rare to stumble upon someone like this in our lives: the boyfriend who constantly relies on you to pay for dinner, the wife who maxes out the credit card to buy new clothes, the son who terrorizes the parents into buying the latest phone. When you are emotionally connected to the person, it’s hard to say no, and you might end up hurting your finances out of love and care — don’t do it.
Just to make it clear: giving money to charity, helping friends in need, or making things easier for your family is certainly okay.
#3 — Not Tracking Expenses
I don’t know exactly how much money I spent on my ex, for a very simple reason: I didn’t track my expenses back then. I had a comfortable income, and there was always some extra at the end of the month, so I didn’t feel the need to know exactly how much I was spending and on what.
But this changed when my income reduced a few years later. I started religiously tracking every expense, to the point that I can tell you exactly everything I spent in the past 5 years.
If you don’t track your expenses, any financial decision will be based on a feeling. You have an idea you save 10% of your income. You have a feeling you spend 25% of your salary on food. You think you can take up a credit for a new car. But is this true?
The idea of tracking expenses is often associated with restriction but, rather, it is an exercise of freedom. It gives you the knowledge you can use to gain control over your life.
If you have exact numbers, you can do correct calculations and confidently plan the next steps in your life. For example, you can calculate that you need a 10% raise in order to take up that car credit. Or maybe you have the car already and realize you could save 15% of your monthly budget if you switch to public transportation. And maybe that 15% is exactly what you need to save to finance that trip abroad you always wanted to make. Knowledge is power.
Everybody’s financial situation is different, and sometimes it is rather impossible to follow generic financial advice that simply doesn’t fit into your life. But one thing you can’t argue with: you can always do better.
You can’t save 20% of your salary? You certainly can save 2% more than what you save now.
You have never invested your money? For sure you can save up $100 and start investing now.
You have no financial literacy? That’s where you should start. No excuses; you have all the resources you need online, for free.
Most financial mistakes are not a one-off thing; you will not ruin your accounts by buying those $200 shoes. Rather, you will shoot yourself on foot every day, slowly, without notice, with every little decision you make. Be aware, be mindful, take control.