Now that I’m 30, I have the advantage of hindsight. I’ve realized that I didn’t always have healthy financial habits throughout my 20s. I grew up never wanting for anything, so perhaps that’s why I took money for granted in my early adulthood. Or maybe it’s because I — like many young adults — lacked financial literacy.
A University of Illinois study by Gaurav Sinha and co-authors Kevin Tan and Min Zhan found that almost one-third of young adults fall into the “financially precarious” group as a result of financial illiteracy, poor money management and income instability.
There are external factors contributing to a lot of us being in this financially precarious group, though.
There’s more happening underneath the surface
One common concern— both among my Millennial generation and Generation Z — is that personal finance isn’t taught in most schools. In a recent survey by Experian, only 19% of Gen Z said they had a solid understanding of credit and 76% thought their high school should have provided a money management class. Financial woes are also a hot topic among my age group.
A second factor is the steep student loans young people carry into adulthood. For students earning professional degrees, 86.2% borrow and have an “average cumulative debt of more than $87,000”. According to FinAid.org, a website that provides financial aid information for students.
It’s no wonder that it’s difficult for young people to save, invest and get ahead. My own lack of financial knowledge meant I bought impulse, neglected to budget and put off any future plans.
Despite my past mistakes, I’ve come out of my 20s with a newfound knowledge and confidence about my finances.
These are some of the healthy financial habits that I wish I had begun earlier.
1. Choosing a positive money mindset
I think this is one of the most important steps you can take to building healthy financial habits. Our minds are very powerful and affect our actions. That’s why we have to harness control over our beliefs and self-talk.
A good place to start is by examining some of the harmful money mindsets you might be holding onto. Then, considering the root causes of those beliefs.
Throughout my 20s I held onto many harmful beliefs about money. One major misconception I had about money was that it was a finite resource that only a select group of people had access to.
But after I adopted a mindset of abundance and gratitude, I positively re-shaped my relationship to money. This in turn shaped my attitude toward my finances. A positive money mindset led to a better experience with my money because I was drawing on positive feelings like optimism and gratitude instead of negatives ones such as envy or fear.
As Ken Honda explains in his book, Happy Money: The Japanese Art of Making Peace with Your Money, there’s Happy Money and Unhappy Money. He says that people imbue their money with their emotions, whether positive or negative and that this affects their relationship to it.
Following Ken Honda’s advice to thank my money whenever I spend or receive it, I now see money as an abundant resource and reflect on all the ways it benefits me. I’m not afraid of money anymore because I now have control over my thoughts and emotions toward it.
2. Investing time and effort in learning about money
Some people might be turned off by financial jargon or might find money talk to be uninteresting. Not only are many of us not given an education in personal finance but it’s considered taboo in many cultures to discuss money.
But when it comes to your financial future and building healthy habits, it pays to have knowledge about money and to talk about it too. This helps you feel more confident when making financial decisions. Money then becomes something with a lot of potential, rather than something with a lot of limitations. You start to see all the options you have available when it comes to earning, saving and investing.
Since taking more of an interest in money, I’ve become more familiar with market growth investments and how the political climate impacts those investments. Educating yourself on financial topics keeps you informed and engaged. And talking to others you trust about financial matters can help you bond over similar experiences, exchange ideas, and gain new insight or information.
3. Experimenting with a minimalist approach to spending
Minimalism isn’t just about de-cluttering and organizing. It’s a lifestyle that favors creating simplicity over clutter. Paying for experiences over material goods. Choosing intentional living over distracted living.
Adopting a minimalist way of life has dramatically curbed my spending. In fact, minimalism has taught me some surprising lessons, particularly that ideas can be so powerful that they change other areas of your life, such as your finances.
Before becoming a minimalist, I used to be an emotional shopper. It wasn’t until I examined my reasons for shopping (anxiety, boredom, insecurity) that I realized that it was just a distraction. It was masking my true feelings. Through minimalism, I was able to let go of the inessential and make room for what I truly valued in my life. Consequently, I became much more discerning and deliberate about what I bought, keeping in mind that whatever I bought might create more clutter or not add much joy to my life.
One way to implement a minimalist approach is to set a budget each time you go out or browse online. You can tell yourself “I’m only going to spend x amount of money” and keep to that budget.
I’m less likely to overspend when I do this. If I do, I’m at least aware that I’m overspending and adjust my spending habits accordingly next time.
Another way I keep my spending to a minimum is by unsubscribing from email lists that send lots of promotions. Some offers can be very tempting but it’s much easier if these temptations are out of sight and out of mind.
4. Setting financial goals for the future
Another mistake I made was being unsure about my financial goals. Whether they were short term, mid term or long term. Sometimes it can be difficult to know what financial goals to set, especially if you’re in a rather financially unstable situation. I was often between jobs, so I was usually thinking in the short term and not giving much thought to long term goals.
With some external forces outside your control — such as the job market, the economy and the cost of living — it can feel as if things are happening to you, rather than happening for you.
However, it wouldn’t have hurt to at least think about my mid-term and long-term financial goals — no matter how unattainable they seemed at the time — because then I would have taken a long-range view toward my finances and future.
Circle of Concern
To accomplish this, we can be proactive rather than reactive. We can choose our response, our attitude and our actions. I learned how to take a proactive approach from The 7 Habits of Highly Effective People by Stephen R. Covey.
In his book, Covey distinguishes between our Circle of Concern, Circle of Control and Circle of Influence. The largest one is our Circle of Concern, where there’s lots we can’t control. The smallest circle in the middle is our Circle of Control, where there’s few things we can actively control — or so we think.
However, between these two circles is the Circle of Influence. This is where the real magic happens because when you think about what you can influence, you start to see that some of the things in the Circle of Concern and Circle of Control can be influenced — or even changed. You might be concerned about your credit card debt, for example, but can you cut out a monthly subscription and put that extra money toward a payment on your card?
When you start looking more at what’s in your Circle of Influence, you start to become more proactive by seeing that there’s more within your power than you realize and you begin making decisions about the things you know you can influence.
Creating financial goals means you’re being proactive. You’re taking control of your future, your decisions and ultimately, your life. You’re clear on your goals, your priorities and your values. And once you know those, you can line them up with your money.
5. Growing an emergency savings fund
I’ve always had an emergency fund. But it’s only recently that it’s been an area of focus for me as I’m building it up — in the case of unanticipated changes. With the pandemic going on, I think it’s even more important to be focusing on emergency savings.
Although everyone’s situation differs, the general rule of thumb is to have anywhere from 3–6 months of savings in your emergency fund, according to financial experts. You have to consider your financial expenses and what amount you’re comfortable with.
Funding an emergency savings fund requires striking a delicate balance though, because you don’t want too little or too much saved away, as explained in this article “How Much Money Should You Have in Your Emergency Fund” by Alaya Linton.
I’m still building up my emergency savings fund. But I feel more secure and confident in the fact that I’m saving with my future in mind. This ties back into setting financial goals and taking a proactive approach.
6. Tracking and analyzing expenses
Looking at my credit card bills and bank transactions used to be painful. I’d look but not dwell too long on the expenses, keeping the discomfort at bay. But avoiding this discomfort will only make things worse.
In fact, it’s even more crucial to check your bank balance if you feel this way. Otegha Uwagba, author of the Little Black Book: A Toolkit for Working Women, says that you should check your bank balance regularly, especially if it pains you. She suggests taking fifteen minutes every few months to study your transactions and see where your expenses are going. Pulling off this band-aid hurts at first but feels a lot better afterward.
I use a personal budgeting template in Numbers to get a pie graph breakdown of my expenditure. Getting this visual representation of my expenses was really eye-opening, especially when I saw how much money was going toward gifts and food. When you take the time to analyze your spending habits, it shows you where you can cut back and be more frugal. This is a vital step in developing healthy financial habits.
7. Utilizing online cash-back and coupon/discount services more
These days, I make sure to really utilize these services because I feel I’m getting a decent return on my purchases. Cash-back services, credit cards with rewards and online coupons/discounts come in handy when you need some extra money to put away or pay toward a bill. I’ve benefited from cash-back and coupon services on anything from travel expenses to credit card purchases.
On the other hand, these services can ironically curb excessive spending. Sometimes when you get a coupon and save, it’s not a whole lot. And earning cash-back rewards can take time if you’re buying lower-priced items. The amount of work it takes to reap the rewards of these systems gives you a good dose of reality.
8. Limiting the use of credit cards
It’s tempting to buy things online with the ease of mobile payments, social media platforms and online retailers. A study by TransUnion showed that while Generation Z has higher credit scores than the Millennial generation, they also have more credit card debt, as explained in this Banking Dive article by Dan Ennis.
With cashless payments becoming more common, we can easily fall into the trap of spending more than we anticipate. In his book Millennial Money Makeover, Conor Richardson says that credit cards reduce the friction of a purchase, or “the pain of the transaction”, as economists call it. We get so accustomed to this pain-free way of spending that it becomes automatic.
To curb your credit card spending, pay close attention to the needs versus wants on your credit card bill. What expenses are necessary and what ones are unnecessary?
I examined my credit card spending by using Conor Richardson’s tip of printing out credit card statements from the last three months, highlighting each unnecessary purchase and tallying the total. It’s surprising how fast unnecessary purchases add up.
Another way to limit your credit card usage is to limit the number of credit cards you own. The average Canadian uses two credit cards for everyday expenses (based on a three month period), according to a 2018 study by JD Power, referenced in this Rate Hub article by Hyder Owainati. I’m sure this is a trend in other countries too.
Conventional wisdom says it’s wise to have more than one credit card. I think one is enough to manage on its own, especially if you’re young and don’t have huge expenses.
9. Pursuing financial security — but not letting it be my only drive
Regardless of whether I’ve earned enough money or too little, the most important factor in my happiness has always been my attitude. Sure, money makes you more comfortable but does wanting more and more of it truly make you happier? When I worked with the sole aim of money in mind, I was unhappy because there was no passion, no purpose, no higher values behind my day-to-day living.
But when I worked with passion, curiosity and purpose driving me, I was happy and thriving. No matter how much I was making. I was infusing my money with happy feelings. I had Happy Money, as Ken Honda would say.
We can’t let money be in the driver’s seat — we have to be. This is the most important of the healthy financial habits you need to develop. Once we master our thoughts and emotions over money, we become free from its hold. I think it’s important to make money and build financial security. I also think it shouldn’t be our only focus in life.
“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” — Ayn Rand
Time, for example, is an even more valuable commodity than money. In the end, it’s not money itself that makes us happy. It’s who we spend our time with and what we spend our time on.
Some final thoughts
Although I didn’t develop financial literacy in school, I feel that the experiences I’ve gained throughout my 20s has given me invaluable knowledge to carry forward into the future.
Although I prudently saved my birthday money as a child and my part-time income as a teenager, I became swayed by the messages of media and society when I reached adulthood. Part of our own self-education is to take the messages we’re given with a grain of salt and decide for ourselves where true financial success lies.
I think your 20s are an especially important decade because they influence your later years. That’s why I think it’s crucial to adopt healthy financial habits as early as possible. The work you do now lays the foundation for your future.
It’s never too late to change your financial habits and build healthy ones, no matter what age you are.
This article is for informational purposes only. If you need financial advice or are making any major financial decisions, please consult with a financial expert first.