Yeah, I’m a bit removed from my 20’s. In many ways, though, I’m still paying for those years. I think we tend to believe that while we spend our 20’s starting our careers, our paychecks are so minuscule that we don’t really need to be concerned about finance. We just need to survive–and fun doing it.
Now, with the heightened wisdom of being in my 40’s, I see the error in my younger habits and attitudes. I can’t undo the effects. I can only shout to the world (by typing really forcefully) the things I now see I might have done differently.
So the following represents some things I know now that I wish I understood then. If I could talk to younger-me face-to-face, here’s what I’d say…
Don’t assume you’ll make more later.
You’ll get raises, but they’re unlikely to be for as much as you think. And they’re going to be nearly negated by periods of unemployment. So your tendency to spend now with an assumption that you’ll have more income to pay it off later isn’t really true.
In fact, that credit card debt you’re racking up compounds interest at a much faster rate than your pay increases. The 3% raises you get annually are not greater than the 19% interest rate you’ll have to pay for splurging on credit.
Plus, there are several years when no raise comes.
Owning a home is not THE thing.
Slow down on your urgency to take on home ownership. It does have some benefits. BUT, it’s not THE thing to do in order to achieve financial security. Buying a home too soon locks you in to marginal financial security. You’re going to need to maintain a certain pay scale in order to keep up with those mortgage payments. AND, the fear of losing equity keeps you from following certain career leads or future adventures. In short, buying a home too soon makes your paycheck your master–because you can’t afford to lose that paycheck or you’ll lose your living situation.
Actually, being independent is THE thing. So wait until you can bring that mortgage payment down enough that you could easily survive a substantial hit to your paycheck without getting bounced from your home.
In order to bring that mortgage payment down. You’ll need a substantial down payment. So remember this…
Savings are sexy.
Do you even have a savings account? Get one. And pay yourself there first–meaning, put money into that savings account before you put money into other things. Money in the bank–not a higher paycheck–equates to greater freedom and opportunity. So please, set the pattern now for putting money in the bank. It doesn’t get any easier when you’re older.
Credit cards are for other people.
Yes, they handed out some pretty nice t-shirts on campus that day you filled out the credit card application. Yes, they made it look like you’d get rewards if you got approved. And you did get approved. That’s great. Now lock that credit card away and forget about it.
Credit cards are a tool for someone else to make money. The are not a tool for your financial well being. They want to give you that credit card because you represent profit to them. You won’t profit from a credit card, they will. So don’t use it unless you have a particular interest in the lending banks make money.
Now is the time to learn to budget.
I know, you barely have any money to speak of. That actually makes the budgeting process so much simpler. It just gets more complicated when there’s more to keep to track. I also understand that having more money to track is a problem you’d like to have. The way to get there is by taking care of the little money you got right now. Start setting some budgetary goals and living according to a budget.
As JC said, “Whoever can be trusted with very little can also be trusted with much…” Work that little you got. You’ll find yourself much more capable of working with much if you do.
Yes, your financial planner friend makes more than you. What’d you expect when you majored in English? Don’t try to keep up with him. You can’t… and nobody but you expects you to keep up. So let it go and just do you. And don’t feel bad for drinking your friend’s expensive beer… or showing up at his house to watch pay-per-view.
The crap you think is important isn’t.
I just told you, making as much as your buddy isn’t that important. Here are a few other things you’re overvaluing:
- An extravagant wedding reception. Here’s a peek into the future: you won’t remember it (and not for the reason you think). It goes by in a blur. My wife and I talk about stuff around our wedding all the time–but the reception really isn’t one of them. Just do enough and spend enough to have a nice party.
- Drinks. Beer isn’t that great. At no point in my life have I thought “Man, I wish I drank more beer.” There have been countless times I thought just the opposite.
- Vacations. Vacations are cool when you’re older, too. You don’t need to take ALL the vacations right now. You don’t have any vacation time anyway! So why are you spending $1200 to go to Disney when you can only stay at Disney for 3 nights because you can’t get off work?! When you’re my age you’ll have excess vacation time and you’ll burn it sitting on your couch thinking, “It’d be pretty cool if I could go to Disney….” Do future you a favor and save the money!
- Romance. Well, OK… romance is important. It’s just the way you pursue romance isn’t that wise. Extravagance does not equal romance. Effort equals romance. So you have a tendency to show effort by shelling out the dough for fancy meals and hotel getaways. Exert your romantic efforts in other (preferably cheaper) ways. Let your significant other know that you’re trying, and that will go a long way.
Learn from my past mistakes, younger version. And, well, it seems that older me could use to grab onto a few of these things, too.