EP59 5 Financial Mistakes to Avoid: Lessons from My Younger Self

We have all made a lot of financial mistakes in our personal finance journeys.😬 Sometimes we wish that we could turn back the time and tell our past self to get it together! Here are my 5 financial mistakes to avoid that I have made in the past.

In this episode I share my money mistakes on:
From the critical importance of saving for emergencies to avoiding the pitfalls of low-yield savings accounts. How I started budgeting.

Building a credit score: How not having a credit score affected me when looking for a loan and how I started building my score using credit cards. Investing in 401k and matching benefit.

Open an UPGRADE HYSA

Chapters

• 0:00 Money Lessons for Younger Self
• 0:29 Saving Money
• 1:14 How Inflation Affects Savings
• 2:40 What is a Certificate of Deposit
• 3:49 Using High Yield Savings Account
• 5:01 How Credit Score Affects You
• 7:21 Using Credit Cards Responsibly
• 11:10 Investing in 401k retirement accounts
• 11:59 Learning From Past Financial Mistakes
• 14:05 Create a Budget to Manage Money
• 18:52 Giving Yourself Grace For Past Money Mistakes

Transcript

Violeta : 0:00

I have lost so much money from the financial mistakes that I have made when I was younger. So once you get started in your personal finance journey, it's easy to look back and see the mistakes that you made when you were younger. And sometimes you're like man I wish that I could go back in time and tell my younger self what I know now. So here are five money lessons that I wish I could go back in time and tell my younger self. The first mistake was with savings, and it's actually a two-part. The first one was that I really didn't set money aside for, like a rainy day. Young Violeta was over here living in the now. And you know, if I did save, it was mostly towards like something that I wanted to do, like, for example, a cruise or something similar. But eventually I realized that you know what? I gotta put some money aside and start saving some of my money. And this is where the second part comes in is that, once I did, you know, finally decide that you know what I'm going to be responsible and actually save some of my money and put it aside. I was doing it with just a regular savings account from a regular bank. The problem was that, even though I was, you know, setting money aside is that I didn't take into account inflation. I didn't realize how inflation impacted the money that I had in my savings account. The thing is inflation you lose value of the money that you have in the long run and by having it in a bank that paid me basically almost nothing like less than a percentage point for APY, which APY is just your annual percentage yield, which is just your rate of return of your money that you have in there. And I recently looked at what you know because I still have them open, but I recently looked at one of them and it was like a 0.01 APY, which is like nothing, and with especially inflation recently having gone up to like 5%, and it was like, I mean, it has been high. Like you can see how, over time, I was losing money, I was losing the value that I was putting into there.

Violeta : 2:39

Now, eventually, I did figure out what inflation was and how it affected my money, but I did take a step towards the right direction where I ended up opening a CD, which is a certificate of deposit from my bank. They offered it to me, they told me I got 3% back APY and so I was like, okay, you know something better than just having it in a regular, you know old savings account. The problem was that a CD usually requires you to freeze that, those funds, for a certain amount of time and that's how you would get the three percent. So I had to freeze my money, for I think that one was for a year. So you could imagine that, like, if something did come up like I was screwed, like how was I going to get my money? You know, because they would, uh, give you a penalty. You couldn't get it out. Um, if something came up and I couldn't get out for a year, it was stuck there. So that was a huge problem.

Violeta : 3:49

Finally, I learned about high yield savings accounts, which you know is basically you know what the name sounds like it's a savings account that's going to give you a high yield in APY. And once I found this out you know it was a game changer I switched over immediately. Now the thing is, with most high yield savings accounts, they are from online banks and they don't have a physical location, but you're still. You know, with technology now it's so easy to move your money back and forth, so you still have access to your funds and the one that I use is Upgrade. It is giving me a little over 5% APY, which is freaking awesome. I've been using it for a while and you know it's easy to move my money back and forth. I have access to it whenever I want and the funds are insured by the FDIC. If you're interested, I will put the link down below to open an account with Upgrade. It is a referral link but we both get the bonus, so it's a win-win. But there's a lot out there so you can find one that fits your needs.

Violeta : 5:01

The next mistake that has cost me money was my credit score. You know, being first gen, a first generation immigrant, it is common in our culture to, you know, avoid debt and avoid kind of big like banks and stuff besides just a regular bank. We avoid, like credit, anything to use with credit. We avoid credit cards. We don't want to accumulate debt. We pay everything with cash and you know that stems from the mistrust of these banks and, you know, some financial anxiety. But that's for another day, and I grew up with the same mentality from my parents, right? And so I didn't, you know, use credit cards for quite some time.

Violeta : 5:51

But the problem was that eventually I had to go get a loan for a car because I had moved to another state due to the military, so I needed some type of transportation to get to work. So I had to go find a car and I didn't have, you know, all the funds to buy a car outright. So I had to go look for a loan and I had zero credit, like zero, none. And so when I started looking for a car and I found this 2008 Honda Accord it was gold, it had leather seats. I loved it I had to go look for a loan and I ended up with I think it was like 16% to 18% interest rate on that loan. The car cost me about 25K and my car payment was about over $600. And so for five years I made those payments and you know I was stuck with that because I didn't have a credit score and eventually I paid it off and I did end up at least using that car for 10 years. So it was nice to not have a car payment for a few years.

Violeta : 7:08

That you know incident, you know, made me realize how much credit score impacts you. And now, as a real estate investor, I'm always making sure that my credit score is on point. Now building a credit score brings me to my next mistake, which is because I was taught to avoid debt, I avoided credit cards, and credit cards is one of the easy ways to build up your credit score. Now, of course, you want to make sure you use credit cards correctly and responsibly, by making sure that you're paying them on time, that you're not maxing them out, that you're trying to strategically use them by making your payments before interest hits. But eventually I decided to go get a credit card because I saw it as a way, like you know, you never know when I might need something. Maybe I get a flat tire and I need to buy a new tire or something like that for the car. It was mostly for things like that that I had in my mindset.

Violeta : 8:12

So I went and got a credit card and then I just never used it. Um, so it just sat there and I thought that was enough. But the thing is, you have to use this credit card. One, because sometimes, if you don't use it, uh, it's going to close on you, and you don't want to have a closed account. It's going to negatively impact your credit score. And two, it's not building credit if you're not using it. So I had to start using it and learn how to use it.

Violeta : 8:44

And actually using credit cards has been a game changer, because there are a lot of credit cards out there and there's two main types of credit cards that you could have. It's either you get cash back or you get points, and you could get cash back on whatever you use, depending on what the credit card rules are for that specific card, or you could get points that you can use for flights, and this is how I started using those credit cards to, you know, pay some bills or whatever, and I ensure with one of my cards is a travel card, so I get five times points every time I book a flight with that card and eventually I end up having a free flight. And I've used it several times. At this point I've gotten several free flights. So that has been, you know, helping out.

Violeta : 9:39

And there's so many strategies to use credit cards. It's kind of like with couponing. You can really, if you do the research and know all these strategies, like there's out there, you could search them up on YouTube and you know you could transfer points to another platform and get more bang for your buck and like, really take the max benefit of these cards. And the last thing with credit cards is that they actually have more protections than a regular debit card. For example, one of my credit cards, if I go buy something and the store doesn't want to give me a refund, one of my credit cards, you know, has a basically a guarantee and will know refund my money anyways, and then they'll go fight with the store and figure it out. But that's an extra protection and there's other protections based on specific cards. So when you get one, you know, check out those, because you will actually have some better benefits and protections based instead of like a debit card. And so I've learned to use my credit cards, you know, more often rather than my debit card, because, one, I get either cash back or I get the points, and two, I'm better protected.

Violeta : 11:10

When I joined the military, it was the first time that I had access to a retirement investment plan In the military. It's called a Thrift Savings Plan, tsp, but basically it's similar to a 401k plan. They're both retirement investment accounts but you know they have slight differences. And I joined, you know they told me about it and they're like sign up because it's an investment and you, you know, for your retirement, and blah, blah, blah, and I was like okay, but like, so I signed up, but that's pretty much all I did. And this is the one that really annoys me because like four years I lost money because I did not realize that when I joined.

Violeta : 11:59

Uh, well, when I signed up, uh, I I'm assuming that at the beginning they were just like you know, put it in this fund for now and then go do your research later. And I failed to go do my research later and change it. Um, so I kept it in a G fund, which is basically, just, you know, a fund that has a lot of investment like treasuries and stuff like that, stuff that's government backed, uh, government backed and insured, and the problem is that, yes, it's low risk, but it's also very low reward. So I was barely making anything with that. So I was sending a few hundred dollars a month for years and I wasn't really making much of a return because I had it in this G fund that was safe but it was pointless at this point. Now, eventually, I figured it out and I moved my funds and increased how much I was sending to those accounts and I started getting way better returns and so now I'm doing better.

Violeta : 13:12

But the other thing that I did not take advantage during this time was the matching. So sometimes, depending on your plan, the company that you work for or, for example, with mine, for TSP they will match either a certain percentage or a certain amount from what you contribute. So, for example, if I put $1,000 into my account, then they're going to put another thousand to match my 1,000, so then I have more money in my investment thousand to match my a thousand. So then I have more money in my investment and that's a huge benefit that you want to make sure that you take advantage and you just got to make sure what's your max for your plan and just make sure that throughout the year you take full advantage of that.

Violeta : 14:05

The last financial mistake that really cost me money was that I just didn't keep a budget. You know to me like I had a few bills and I was like you know what, I will just mentally keep track of these things and you know most of these things I just put automatically in um. You know most of these things I just put automatically in um to be taken out of my account and pay, uh, these bills. So my bills were always on point, like they were always getting paid off, and so I that's just how I managed my money I just made sure my bills were paid and everything else. You know, I just used up and, um, at that time this was the same time where I wasn't saving money or anything like that because I didn't know how to manage my money and how to create a budget, and so I had no plan, and so most of my money, you know, went to who knows where, and you know, some of it went into that $600 car payment and of course, course, I had to pay mortgage and stuff like that. Uh, but you know, I know, you know, with single, no kids, no, nothing. So what was I spending my money on? And who knows Cause I didn't have a budget, I don't, I didn't know where all my money was going.

Violeta : 15:26

But eventually, you know, I figured out that you know I need to get serious about you know my finances, and so I decided to create a budget and you know, I started researching how to do that and you know tips for budgeting and, um, try to find maybe like spreadsheets or stuff like that, and so eventually I found a budget that I kind of liked and it's the 60-40, which, you know 60% is for your you know, your main expenses, like housing, you know car, your bills, things like living expenses, and the 40% is actually broken down into four blocks of 10% each, and each one is basically savings. But there are different types of savings. So one is going to be for your retirement, one is going to be for long-term savings, then you got your short-term savings and then the fourth block is just for fun money. Maybe you want to save up for a certain bag or certain shoes, or you want to save up for a fancy computer or something like that, or travel, and so I really liked the way that budget works, so I started using that, the way that budget works. So I started using that and it really started really changing how my finances were being managed and I was starting to like save and starting to plan, and so I was being more financially responsible.

Violeta : 17:01

And now that budget has evolved, like so much, I still have a lot of blocks. It's not 60-40 anymore because there's so much other things that I have to take into account. Like you know, now I invest in real estate, now I have you know kids, I have dogs, I have, you know, the property and land and all this stuff. So I have lots of things to budget for. But because of that foundation that I built, I'm able to do all these things and manage everything that I am working on. And the idea is really just to plan and manage the your funds and make sure you know where your money is going.

Violeta : 17:48

And I will give you one extra tip is that, you know, create separate accounts. So I have so many accounts. I have like several savings account. I still have a few more that I need to um create because I want to split off um accounts for like, specific travel and specific, uh emergency funds, and then I want a separate account for, uh, something else that we're planning, and so you can do that as well have different accounts. I have one for travel, I have one for my, for my bills, then we have one for our joint bills, then we have for our emergency fund, then I have an emergency fund for my properties and stuff like that, and so I just block out everything and when money comes in, I just have everything automatically go, and so that way it's automatic and I already get used to just living with a certain amount of money because it's gone before I even know it's there. So that's one tip.

Violeta : 18:54

Now, yes, I have made a lot of financial mistakes, especially when I was younger, and you know, many of us have too. And it's easy to look back and compare your younger self to the person that you are now and you may feel guilt, you may feel regret, you might even feel anger towards your younger self. And, you know, once I started learning about personal finance and how to manage my finances and all that stuff, like I really would reflect on all the poor decisions that I made when I was younger and I felt that too. I felt the guilt, I felt the shame, I really was angry at myself because I was like I was like man, if I could have, you know, just made better decisions at that point, you know, if I could have, you know, just made better decisions at that point, you know I could have had a bigger investment account, I could have had more savings, I could have bought more properties, like I could have been, you know, so many things that could have, should have, would have.

Violeta : 20:03

But like it's important to just, you know, give yourself grace, forgive your past poor decisions and then just move forward, learn and do better. Now we have figured out better ways to do things. We're in this financial journey, we're learning, we're building our financial literacy and the key thing is that you're doing it now, like you know, once you learn about it, make the change and then um and move forward and just give yourself grace. You can now share your thoughts with me by sending me a text, and that link is down in the show notes. Share your thoughts. What were your money mistakes that you made when you were younger? But other than that, that's it for this episode and I'll see you in the next one. Hasta la proxima, bye.