4 money lessons I learned after moving out of my parents’ house
- I left my parents’ house before I was ready and I have learned a lot since then.
- I had to unlearn the myths of money scarcity as deprivation was the key to saving money.
- Credit cards aren’t always bad and investing doesn’t have to be scary.
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I always considered myself quite risk averse, but at 20 I left my parents’ house with no income and very little savings.
I ended up getting an hourly job and freelancing on the side. In retrospect, leaving the nest before being financially ready wasn’t the best idea. However, moving was a turning point for me.
Between worrying about whether I’ll earn rent, working on a tight budget, and paying off my debts, moving has challenged me to take control of my finances and stop being afraid of money.
1. Living below my means does not mean depriving myself
Sacrifice was a common theme among the adults in my life and people in my community. My immigrant parents worked blood, sweat and tears for every penny they earned. They often sacrificed leisure and fun to avoid financial scarcity – their whole growing world.
When I moved, I couldn’t understand the idea that happiness and financial stability could co-exist. I avoided simple pleasures that brought me joy, such as hanging out with friends and trying new dishes, for fear of going broke. But I soon realized that complete deprivation didn’t work. I found myself trapped in a cycle of extreme frugality and overspending. It wasn’t until I allowed myself to indulge in occasion that I felt like I finally had a grip on my finances.
I also realized that my “means” should not be limited to my hourly wage. I discovered the concept of multiple streams of income after moving and started freelancing to supplement my main income. It had given me some leeway in my budget to do the things I love again.
2. Building an emergency fund is essential
An emergency fund is a sum of money you set aside to cover unexpected expenses, usually enough to cover at least three months of living expenses. I like to leave mine in a high yield savings account.
At first, I didn’t like the idea of taking funds out of my spending basket and putting them into a savings account. But life happens. I learned this the hard way when the excruciating pain of an impacted wisdom tooth required a trip to the oral surgeon and a hefty surgery bill.
One of my financial goals was to be free of credit cards and student debt. I knew I couldn’t accumulate any more unexpected expenses if I wanted to reduce my debt. Building an emergency fund means that when I have an emergency — like this surgery bill — I can cover it without having to derail my debt repayment.
3. Credit cards aren’t bad if you use them effectively
I felt like all debt was bad. So, I figured the only way to avoid debt was to never have it.
However, if used correctly, credit cards can be a powerful tool for boosting your credit score and racking up rewards. My first credit card was a Discover card. With an introductory APR of 0% and high cashback rewards, it was perfect for a student like me to build credit for the first time.
I used two simple principles to build and maintain my credit score. First, I only use my credit card to pay for things I can afford, and I make it a point to pay my balance every month. Second, I keep my credit utilization rate — the ratio of total debt to total credit card limit, usually as a percentage — low. As my spending increases, I frequently call my credit card company to request a credit increase so I can spend more while keeping my usage below 30%.
4. Investing doesn’t have to be scary or complicated
I remember the first time I sat down to learn how to invest. I spent about five minutes watching a “how to invest” video before clicking and deciding it wasn’t for me.
The decision not to invest is not a decision to be taken lightly. Thanks to compound interest, in which interest earns interest on itself over time, that could mean the difference between thousands or even millions of dollars left on the table. However, investing was never mentioned in school, nor easy to learn as an adult. I felt like only stock market experts invest and I didn’t have the time or the money to learn.
I quickly realized that investing isn’t rocket science and it doesn’t have to be expensive either. I contribute about $100 a month to a low-cost index fund that tracks the S&P.
As a young person, I dreamed of independence but I didn’t know how to get there. Even though I was far from ready, moving encouraged me to face my fear of money head on. Although I still have a long way to go, I no longer believe that financial freedom is out of reach.