After reflecting on the money lessons I wish I knew or at least wish I listened to at age 18, I decided to share some financial wisdom which my parents instilled at me while growing up. I am lucky enough to have parents who had an education and careers in finance as well as frugal habits, both of which created a culture at home where money was openly talked about and financial wisdom was passed down.
The below lessons are the most valuable words of financial wisdom which has been passed down to me from my parents, and have helped me build a solid foundation of frugal values, an understanding of the value of money and importance of having a stash of emergency cash.
ONE: Never buy depreciable assets on credit.
The first money lesson I ever learned was understanding what a depreciable asset was and why it’s important to never buy depreciable assets on credit. That is, assets that lose value over the life of the asset and this loss in value becomes an expense. Depreciable assets reduce in value over time due to wear and tear or obsolescence.
My first car cost $5,000 – it was the cheapest car for sale in the car yard and was the only car I could afford. Paying on credit would mean the loan would be immediately underwater; my loan would be more than the value of the car the minute I drove it out of the car yard. Instead, I used all of the $5,000 savings I had and paid the car outright on that day, avoiding unnecessary loan interest expenses.
As with cars, electronic gadgets (iPhones, laptops), furniture and appliances are all examples of depreciable assets. If you can’t sell it for more than you paid for the item then pay in cash, not credit.
TWO: Start investing young.
This was a skill my Dad encouraged me to do from a young age by convincing me to invest my savings into the share market and he would foot any losses. While at first I listened to him, as I went through my teenage and university years I prioritised social outings instead of saving and investing, cashing in the small value of shares I had at the time and emptying the share portfolio. It’s only been now that I’ve valued this advice and wish I continued to invest.
The main benefit of starting investing early is time. Time to learn what investing is, how to invest and what to look for in an investment. Time to reap the benefits of compounding interest or dividends and see it grow. While anyone can start investing at any age, it takes more capital investment reap the same return compared to if I had started early and continued to reinvest the yield.
THREE: Never get a credit card.
The principle lesson was to never buy anything that you couldn’t afford and pay for it on credit. When I turned 18, many friends signed up for credit cards (whether with department stores or banks) and few found themselves in trouble after seeing their unpaid balances increase by 25% p.a.
While I see many benefits to getting a credit card – mainly travel points – I still don’t have a credit card for the main reason that I don’t buy anything I can’t afford and so have no immediate need for one.
FOUR: It’s not how much you make but how much you save.
If you don’t put a portion of your salary away towards savings every paycheque it doesn’t matter whether you’re living on minimum wage or on an investment banker salary – you’re still living paycheque to paycheque.
Setting aside a reasonable portion of your income towards savings becomes a security blanket in case unexpected expenses are incurred, a financial buffer in the event of an economic downturn, fun money to play around with if you want to treat yourself and most importantly, piece of mind.
It become much easier for me to start saving once I had a purpose to save. Once I decided I wanted to be financially independent, I had the motivation to work towards something bigger and a long-term, meaningful goal to reach.
FIVE: Don’t try to keep up with the Jones.
Last but not least: Don’t throw your money away on lifestyle otherwise you’re working to fill other people’s pockets but not your own. Spending on lifestyle purchases is okay as long as you’re already saving money, investing and watching your spending. Most people however, don’t check off the first three before they splurge on clothes, cocktails and cosmetics.
Growing up I felt envious of my friend’s big houses, glamorous clothes and nice cars. It was only a few years ago that I realised that many peers’ parents were funding this lifestyle by debt and found themselves in bad financial situations when the economy turned sour. Many didn’t have other investments or savings to fall back on.
I try to consider each and every item before purchasing to understand whether it is bringing me happiness and fulfilling a need or whether I’m purchasing it for status or social purposes or even to fill a personal void. Lifestyle wants are unlimited but unfortunately your wallet is not!
What money advice have you received that you’ve found valuable? Comment below as I’d love to hear your thoughts and don’t forget to subscribe to this blog!
xx Miss Piggy
Cover illustration by Lena Ker