3 Brutal Money Lessons That No One Ever Told You About

Heather Altamirano

Sat, Nov 23, 2024, 10:00 AM 4 min read

Everyone has to manage bills, household expenses, taxes, and money, yet personal finance isn’t something most people are taught. Financial intelligence learned early can help avoid costly mistakes down the road, but according to Ramsey Solutions, only 26 states require high schoolers to take a course on personal finance to graduate.

Advertisement: High Yield Savings Offers

Unless there’s someone giving guidance along the way, hard money lessons usually come from trial and error and are often learned too late.

Here are three brutal money lessons that are not talked about enough and how to avoid them.

Spiraling Debt

Americans are racking up more debt than ever. According to the Federal Reserve Bank of New York, consumers collectively owe $1.17 trillion in credit card debt, up 8.1% from last year. Spending can get out of control quickly, and too much debt prevents a comfortable retirement and a strong financial future.

“When you have more debt than you can handle, you often have to tap into your home equity or retirement IRAs to pay off the debt,” said Shelby Rothman, a financial advisor and founder of EnJoy Financial. “Some people are forced to lose their homes or go into bankruptcy, which can cause their credit scores to drop significantly.

“I’ve seen many people with comfortable wages accrue debt larger than they can handle from buying expensive homes, luxury cars or motor homes. In addition to the debt these items create, they include extra expenses outside of the loan that the budget isn’t prepared for.”

Try This: I’m a Money Expert: 4 Reasons You Should Stock Up on $100 Bills Before the Winter

To help avoid this pitfall, live within your means and create a realistic budget that isn’t credit card dependent.

“Understanding the full cost of ownership is the biggest way to prevent debt from mounting. Taking a loan out on an expensive motor home that comes with insurance, maintenance fees, and repairs can cripple your finances,” said Rothman. In addition, she believes it’s vital to plan for unexpected costs and mishaps by at least $1,000.

Ignoring Retirement Savings

A lot of people in their 20s and 30s don’t think about setting aside money for retirement. It feels like it’s so far away, but missing out on compound interest that could help secure finances in later years is a big missed opportunity.

“Many people don’t get serious about retirement until they are near the age of 60,” said Rothman. “By that point, they’re limited in how much they can save for retirement.”

She explained, “One solution I’ve seen is people working a part-time job to make up the gap in their retirement savings. Others are forced to delay retirement altogether until they can build it up to a comfortable point.”

With Social Security running out of funds, the dwindling program isn’t enough to rely on. Help your future self and save now. Start small and create a routine of putting money away. Once you’ve gotten in the habit, stash away 15% of your pre-taxed annual income and speak to a professional retirement planner to map out a solid plan.

Lifestyle Inflation

As people make more money, spending habits tend to increase, which can cause financial instability and problems for retirement, according to Rothman.

“Often, retirement savings isn’t enough to live at the same income level. People are forced to drastically change their lifestyle to live on a smaller income, which could include downsizing their homes, reversing their mortgages, or moving to places with lower expenses.”

Being financially responsible isn’t always fun, especially when others enjoy lavish vacations and shopping sprees, but don’t let that deter you.

“Don’t spend just because others are on things that don’t align your wealth with your values,” said Jessica Ray, lead advisor at Brighton Jones. “Be aware of your finances and goals, so you have a reason to save that is motivating, like vocational freedom — not having to earn a paycheck anymore.”

Money lessons are tough hardships to endure, but learning financial intelligence early on and taking action helps avoid financial traps and secures a strong financial foundation.

More From GOBankingRates