Money mistakes I made in my 20's

Today I'll be sharing with you some personal finance stories from my 20's - or shall I say, my early 20's!

This topic has often been on my mind, but I've always been a little hesitant. As a believer in the Law of Attraction - which encourages manifestation of your best life through thoughts, actions & beliefs grounded in positivity, gratitude, and living in the present - it has always felt unconducive to dwell on the past and on mistakes.

But, I believe reflecting on the past can be incredibly valuable. If you look back on your past self and dislike who you were, or where you were in life, it's a sign that you've grown and become a better person since then. Your growth is what makes it possible for you to have that realisation. It's the same with personal finances.

So, I'd like to introduce you to the hot mess I was in my early 20's, and the freeing changes I've made since. You could even call it my own financial #glowup! Please note these are definitely not all overnight fixes; whether they've taken weeks, months, or years to improve upon, they are all things younger me could have done better over the last 8 years.

Early 20's: Paying for stupid / unnecessary things
Late 20's: Being self-sufficient / making conscious spending decisions

University is such a beautiful time in your life. You are fresh out of high school; young, ambitious, and naive.. The perfect prey for banks and financial companies to sell you financial products and services you don't need. With all their exciting newfound financial independence, this is why students are the best targets for tertiary overdrafts, credit cards, and personal loans - easy! Effortless! Instant approval!

I was a naive 17 year old when I started uni. Luckily, even back then I was a little cynical. I remember having an appointment at the University of Auckland ANZ branch when the personal banker asked me if I wanted to protect my belongings (translation: buy contents insurance). Even with him insisting I needed it, I knew in my heart that I didn't. While a lot of uni students have high-value possessions, I had just the clothes and shoes that fit into my little inner city apartment plus a Sony Vaio laptop. He didn't get the sale.

Then, one day, I was walking through the quad when someone with a clipboard asked me if I wanted to have my 'tax refunds' managed by them. I signed up without thinking. And just like that, for the next 10 years, they were my tax intermediary.

This was incredibly foolish and it came to light just how stupid it was after I started working for the national tax department. And, sorry to say, it is a stupid mistake to make for most people who are 9-5 salary/wage earners. First of all, tax refunds are not guaranteed, as tax bills are just as common - intermediaries just use that to sell you a promise they won't always be able to fulfill. Secondly, if you are a salary/wage earner and want to find out if you have a tax refund or a tax bill, all you've ever needed to do was ask IRD yourself.

Intermediaries use the unjustified public fear and resistance against IRD to sell you their services, when it is just as easy - and completely free - to ask IRD directly.

The idea that IRD wants your money is a blatant lie. If you have an income tax bill, intermediaries can't make that go away; they will ask you to pay it on behalf of IRD. If you have an income tax refund, intermediaries will deliver this good news to you while pretending they made it happen - while discreetly taking a portion. IRD will give you all of it.

Even for people who aren't salary/wage earners, getting your end of year tax assessment is easy. I've seen too many people pay an agent hundreds to do something they could learn to do in 30 minutes. Even if you have 4 streams of income - say your salary, rental income, self-employed / side hustle income, and dividends, it's all entirely possible to grasp - and complete - filing an income tax return in one afternoon.

IRD's policies are also inherently very lenient and compassionate. But hey, I can't go into detail here or this post will never end.

As for thinking IRD is big and scary, instead of nice, friendly, and on your side? Absolutely untrue. I know for one that many people who I spoke to told me I had simplified and made tax easy to understand for them, really helped by educating them, made their refunds straightforward, and made their debt repayments painless & manageable. I can also say with certainty that the people are IRD are normal human beings like you and me, and some of the friendliest I've ever met at that!

Lesson: Do your research. Get quotes. Read the fine print. Do it yourself. 

Early 20's: Ignoring my bills
Late 20's: Diarising my bills

I used to dread receiving bills, so I never paid attention to them. As soon as I got my bills, they'd get lost somewhere in my paperwork, only to be forgotten until or after the due date. As a result, incurring late penalties, fees and interest was a normal occurrence - which, of course, I ignored too.

In recent years, it's given me satisfaction - a 'got my shit together' kind of satisfaction - to be super organised with my paperwork. In fact, I got a big pink ringbinder I call my 'Life Folder' - with tabs for inspiring articles from magazines, e-books I've printed, home related documents (such as rates), and bills. Even better, I've digitised most of my bills so I receive them via email and have access to them whenever or wherever needed.

But the most effective change is also the simplest: I started diarising my bills! In my diaries, on my monthly calendar spreads, I've made a habit of noting the date that a bill is due - whether it's to be paid by me or direct debited. My bills are always paid early or on time, and late penalties, fees and interest is now a thing of the past. I even do my best to avoid regular banking fees - my partner and I still have monthly account fees waived on our individual and joint accounts thanks to staff work perks.

Lesson: Diarise. Stay on top of things. Don't be lazy. Make it fun - my Life Folder and diary are illustrated and colour-coded!

Early 20's: Saving what I had left over after spending
Late 20's: Spending what I had left over after saving

Pay yourself first. This is one of the most important personal finance rules to live by, if not the most - one that I've talked about here.

If you don't pay yourself first, who are you working 40 hours a week for? Not yourself, that's who. If you receive your paycheck then pay all of it to your landlord, your bank, your power company, your supermarket, or your phone service provider, or give it all to Netflix, Spotify, or your favourite restaurant or bar, you've worked 40 hours for everyone but yourself.

Yes, I speak from experience. I used to spend my fortnightly pay on everything other than investing in myself. My money went to eating out at restaurants, going to the bar for drinks, buying new clothes, or simply paying rent and utilities. My mentality was that I'd save what was left over after spending - but, like many others with this mentality, there was never any left over.

In my mid-late 20's, I learnt that a good, realistic part of your income should always be invested back into yourself and your financial future - whether that's paying down your debt or saving for your goals and dreams. Paying yourself first ensures that no matter what, your finances are growing. They're progressing and become better and better, rather than staying stagnant or diminishing. Once I switched my mentality from spending first, saving later to saving first, spending later, my whole financial life changed.

Lesson: Pay yourself first. Save then spend; don't spend then save. 

Early 20's: Making minimum payments
Late 20's: Paying as much as possible

In my early 20's, I had a Q Card. Every month I'd receive my Q Card bill for a minimum monthly payment of $50, and every month I'd pay $50. What an idiot I was! This minimum monthly payment never reduced, but it should have if I had made more than the minimum monthly payment (quickly too!) .

The amounts financial companies ask you to pay on credit cards or personal loans (Q Card isn't either of these but is similar) pays off principal and interest, so by me always making the minimum monthly payment, the principal hardly made progress as the interest would always catch back up.

Since my mid-20's, I've transformed my mindset. I genuinely feel proud to pay as much as I can over the minimum monthly payment. The bank asks me to pay $50? I'll pay $100. I'll even keep on sending extra payments when I get unexpected money in the form of a work bonus, tax refund, overtime or holiday pay, side hustle income, or anything else. I may just be a personal finance nerd, but it is so satisfying to see the balance, interest, and minimum monthly payments consistently reduce. Ah, the freedom of having financial breathing space.

Lesson: Don't just pay what you can. Pay as much as you can.

Early 20's: Being completely out of balance
Late 20's: Following 50/30/20

When I moved to a new city by myself at 21, I rented the first apartment I could - a gorgeous, modern, centrally located but hella expensive apartment in the heart of Wellington CBD. With the high rent and expensive water & power bills (apparently, we couldn't choose our providers), my finances were completely out of balance. At one point, I remember my expenses taking up 90% of my income. That's 90% on fixed expenses and 10% on flexible expenses (eg. food). Completely insane.

When I became aware of the 50/30/20 rule, where 50% of your income should go to fixed expenses, 30% to flexible expenses and 20% to savings, I made a conscious effort to live on 80% of my income and save 20%, no matter what. My finances went from out of balance (90/10) to balanced and sustainable (80/20), to being in great shape (70/30 or 60/40)! If you are spending too much on the fixed expenses, you must find a way to cut down - whether it's moving somewhere more affordable, reducing your internet or phone plan, or downgrading 'nice to have' luxuries in your life. If 21 year old me had looked around for more affordable living situations, she wouldn't have been living paycheck to paycheck every fortnight!

Lesson: 80/20 your income.

Early 20's: Banking where my parents did
Late 20's: Banking where it's best for me

My parents opened up a bank account for me when I was young, which was with The National Bank. As The National Bank became ANZ, I stayed with them until even after I left uni and started working full-time. It wasn't until years later that I started making my own decisions about where I choose to bank, and realising that where you were isn't always where you should stay - in life, or with finances.

Since then, I've been with BNZ, ASB, and Kiwibank.. All depending on the financial products & services they're advertising at the time. I've learnt that loyalty doesn't necessarily get you anywhere, so open up as many accounts as you want, wherever you want, to maximise all of their benefits (just keep track).

For example, I love YouMoney at BNZ, Save The Change at ASB, and Notice Saver at Kiwibank. You've just got to find what works for you - what's a priority for your family, your partner, or your friends may not be a priority to you. Those of you who know me know how I feel about ANZ, and personally, I love knowing that BNZ and Kiwibank - the only two I'm with now - have ethically invested Kiwisaver schemes and support local NZ communities.

Lesson: As Fleetwood Mac would say, you can go your own waaaaay - go your own way!

Early 20's: Not believing in myself, staying stagnant because I 'just wasn't good with money'
Late 20's: Educating myself and believing in my own growth and potential

Believe it or not, this is the number one key to the success in my personal finance journey! Mindset is more important than numbers could ever be.

People dismiss manifestation as a silly spiritual concept, but manifestation is the entire reason your life is the way it is today; where you are where you are at today. Whether you know it or not, you've created your life as it is with your thoughts, actions, and conscious or subconscious beliefs.

My beliefs about my own potential held me back in life personally and financially. In my early 20's, I believed that I wasn't smart and knowledgeable, and - for some reason - that I couldn't be. In my mid-late 20's, I started believing in myself - and that has led me to be who I am today, the same person writing this very personal finance blog.

Years ago, I always told myself and others that I 'just wasn't a personal finance person' or just 'didn't understand money'. I dismissed educating myself in financial literacy as being too complicated and too much work, so I never put in the effort.

Once I started believing in myself, I had both the curiosity and the confidence to learn about personal finance and money management without the voice in my head telling me I couldn't. Working in insurance, banking and tax definitely helped, but that was only a tiny part of it. (I know because you wouldn't believe the number of people working in the financial industry who don't understand their own finances.)

I started reading books, watching Youtube, and listening to podcasts. I started taking notes of what financially successful people do. I started reading reviews of financial products or using financial tools online, like Canstar and Sorted. I started implementing different savings strategies until I found what worked for me. All of this, simply from believing in myself! I may not know everything there is to know about personal finance and managing money, but I definitely know a hell of a lot more than I did before I made the decision to just start. 

Lesson: Believe in yourself. Whether your goal is to be debt free, to own your own home, to travel, or to achieve the work/life balance of your dreams, you create and manifest your own financial freedom.

I hope you've enjoyed getting to know early 20's me - the one who wasn't so mindful with money. I also hope you've found value in my financial life lessons!

As always, you can share your thoughts with me on this blog or anything else by using the contact form.

Love,

Sophia