Transmitting the financial knowledge I gained over the last few decades to my younger self is, unfortunately, not feasible. But what I’ve learnt will benefit my children because I can teach them to avoid my mistakes.
Observing millennials and Gen Z who are in debt, I discovered three crucial mistakes that set them back financially, at least, for a decade. Two of the three mistakes pertain to me. You may relate to all three of them. Even if your teenage years are well behind you, setting your children up for financial success may make you feel better about your mistakes.
Teenagers who avoid these three financial mistakes have a better chance of being financially successful than their peers…
Student Loans
I was one of the fortunate students who graduated without loans. That isn’t the case for many graduates. Fifteen years after graduating, I was surprised to discover that some private high schools charge more for one year of education than what I paid for three years of varsity tuition. Times have changed.
Many parents are not in a financial position to spend a hundred thousand dollars for their child’s education, yet they want to set them up for a successful future. Inevitably, a lot of students graduate with debt, which they have to pay back for the next decade.
How do you avoid the student loan trap?
For some professions, a qualification is necessary. If you want to become a doctor or an engineer, you need a tertiary education. But that’s not applicable to numerous other common professions, such as accountants, teachers, nurses and electricians.
We’ve been convinced to believe that the only way to make it in those fields is by obtaining a university degree, and that simply isn’t true.
Think about your experience of hiring a personal tutor for your children or an accountant to prepare your books and taxes. Did you ask for their qualification or someone you trusted referred you to them? Perhaps the professional presented themselves with great testimonials and convinced you of their expertise.
Essentially, you bought into their experience. That’s the key word—experience.
Most companies care more about experience than qualifications. In fact, many companies won’t hire you, especially for professional positions, without experience. But a piece of paper doesn’t necessarily justify your skills. Experiences does.
Since experience thwarts qualifications, how do you get it?
There are several ways, but one way is to proposition a professional in your desired industry and express your interest in working for them. Busy professionals require help, and they want protégés who are hungry for success.
To sweeten the deal for them, you can offer to work for free for the first three months. Teenagers who live with their parents usually don’t have expenses, so they can afford to make that offer. The probation period is for you to prove yourself to your mentor and determine if that’s the field that you want to enter. This is extremely important as numerous graduates spend a lot of money on a degree that they never use because they discover that their chosen career isn’t their ideal profession.
After the probation period, your mentor is highly likely to hire you if you’ve shown a strong work ethic and desire to progress in the field. You have to add value to them.
Choosing this route will enable you to obtain practical experience while being paid for it. Instead of paying a university for an education, you receive a salary and training from a company. Isn’t that a much better deal?
And I know this works because I did it.
After completing my first year of financial management studies, I applied to work as an intern at an accounting firm. Based on my marks, they hired me. But I didn’t even need to attend the first year at university to qualify for the job. If I had taken bookkeeping as a subject in high school, I could’ve used that to get the job.
Vehicle Finance
I drove a 1986 Opel Monza to campus every day. My Dad had gifted it to me—lucky me. It was an extremely reliable vehicle because I was involved in six accidents with it, and it still kept running. After I graduated and got a decent-paying job as an accountant, I wanted to upgrade my daily rider.
At a dealership, I saw a shiny, white BMW with sport rims, which piqued my interest. I had to have it. I felt that I deserved it after years of studies, and I could finally afford it. Or so I thought. Even though I could afford the monthly instalments, I didn’t have cash for the purchase. So I opted for vehicle finance.
I drove that BMW for two years and then upgraded to a luxury one—again opting for vehicle finance.
The loan was for five years. I paid the car for just over four years without missing a single instalment. Then, I ran into financial difficulty and couldn’t afford to pay the instalment. Worse yet, the car broke down and I couldn’t afford to repair it. After several missed payments, the bank repossessed my vehicle. I was about nine months away from owning it.
What was even worse than the repossession was the expenditure to own the BMW—30% of my monthly income. That included gas, insurance, repairs and other expenses. But still, 30% is crazy.
Instead of opting for such an expensive vehicle, I could have driven my Monza, which ended up being one of the best vehicles I ever owned. Even if I didn’t have the Monza, Toyota makes reliable vehicles, and it’s possible to get a used one for $3000 or $4000. Cash is king. Nothing beats owning a vehicle.
The average car payment for a used vehicle in the U.S. is $500 and $700 for a new vehicle. That excludes all the expenses associated with car ownership. Why opt for that option when you can own a vehicle for a fraction of the price of a financed one?
Credit Cards
Aren’t credit cards such a handy tool? Whenever you don’t have money to buy something, you can always swipe a rectangular piece of plastic that makes everything okay. It seems like a short-term solution, but it provides long-term financial challenges.
You have to pay back the outstanding balance with high interest. And even if you do, the revolving line of credit tempts you to get back into debt over and over again. That’s exactly what happened to me.
I wanted to buy clothing, take a vacation, obtain another qualification and eat out, but I didn’t have cash. The solution was simple—swipe my credit card.
Eventually, I couldn’t afford to pay my balance, and my account was transferred to collections. Lawyers bombarded me with phone calls almost daily. I suffered from anxiety and stress for several months until I paid off my credit card and then never used another one again.
Now, I follow a very simple rule: if I can’t afford to pay for something with cash, I don’t buy it. It’s as simple as that.
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