As our kids propel at much too fast a pace toward adulthood, I keep thinking about the money lessons and life tips I want them to know before they fly the coop for bigger things. This list could be ultra-long if I include non-money tips, but since this is a personal finance blog I’ll stick to money stuff.
Growing up, my husband and I were taught nothing about money and/or its management. In my situation, if got to eat every day it was a good month, so for a long time I had a “if I can eat every day I’ll be grateful” mentality about money. There was a self-defeating mindset threaded among that mentality, and that mindset was that we were all “dealt” our money hand, for good or for evil.
I believed that some people had money because the gods had shone on them, and others didn’t because the gods had passed them by with the silver wand, so to speak. I truly never realized that our money problems were our own fault until I started snooping around the Net and reading PF blogs near the end of 2012. I simply assumed – as so many others do – that we didn’t make enough. I assumed that we weren’t wasting money – at least not as much money as most other people wasted theirs; another reason our money problems weren’t our fault.
However, over the past 3+ years I’ve gotten some serious revelations about money, the earning of it, and the management of it. Thanks to those willing to take the time to share their wisdom with grand bluntness, I’ve learned that the responsibility for our money problems – most of them anyway (we all have the occasional expense that isn’t our doing) – lies squarely in our own hands.
If janitor Ronald Read can amass $8 million in wealth through saving and investing, there’s certainly no excuse for our family. As such, I’ve been thinking lately about things I wish I’d known about money when I was younger. If I knew then what I know now (as the old saying goes) I’m certain we wouldn’t have crushed ourselves with massive mortgage and credit card debt for so many years.
So, in hopes of teaching my kids what I wish I knew back then, here is my money advice to them, and to whoever else wants to listen. 🙂
What I Wish I’d Known About $$ in My Twenties
1. Save at Least Ten Percent of Your Income
This one tip alone would have put us at early retirement status had we started back in our twenties. The book, The Wealthy Barber, Updated 3rd Edition: Everyone’s Commonsense Guide to Becoming Financially Independent , documented many who committed to this rule, and their fortunes outweighed any spending snafus, no matter how large.
2. Always Put At Least Twenty Percent Down on a Home Purchase
PMI (Private Mortgage Insurance) is PITA (Pain in the A…..). We’ve purchased three houses during our marriage, and we always thought it was such a great deal that we could get into those houses with a paltry 5 percent down plus closing costs. Well, my mortgage statement tells me different. Right now we’re paying $182.99 a month just for PMI. What a freakin’ waste of money that is. Our next home purchase will have a minimum of 20 percent down, that’s for sure, and I encourage anyone interested in buying a home to consider putting at least that much down and avoiding having to pay private mortgage insurance.
3. Compound Interest Can Be Your Greatest Monetary Asset
Or your worst monetary enemy. Compound interest on investments will help to make you rich. Interest paid on debt will keep you poor. It’s that simple.
At our highest, we were paying nearly $1300 a month in interest payments on mortgages, loans and credit cards. Can you imagine how much fun we could have had with an extra $1300 a month?? Or how fast we could have reached financial independence by investing $1300 a month? Another freakin’ waste of money. We’re done giving banks and credit card companies our hard-earned cash just for the “privilege” of using their money.
4. Debt Wreaks Havoc on Your Life
When I was working in banking many years ago, we were hounded on to sell credit cards. They even gave us promotional t-shirts to wear at work that said “Better living through plastic”. Are you KIDDING me? Yet, we drank the koolaid that they were selling, like so many other people do.
We thought that if we could afford the payments then it was a wise purchasing decision.
Money problems are said to be the number one cause of divorce. This does not surprise me. When money isn’t managed properly, it becomes the focus of life when it was never meant to be the focus of life. Paying the bills becomes top priority. And if you are struggling to pay the bills, the trouble starts.
Debt wreaks havoc on marriages, on health and on a host of other areas of life. Avoid it if at all possible.
5. Being a Giver Can Make You a Better Money Manager
There’s something about giving your money away on a regular basis that makes spending it on yourself no longer a priority. As we focus on increasing our giving – even as we are paying off debt – we are faced with how good we have it, and that makes us not want to spend our money on ourselves. And the more money we give (at the Lord’s leading) the more money we seem to accumulate.
It’s a weird paradox that doesn’t make sense from a logical standpoint, but we’ve found it works. The caveat, though, is that you have to give with a heart to help others who need it – and not give for the purpose of getting more money.
6. “Stuff” Will Never Truly Make You Happy and the Joneses Don’t Matter
For many years we lived under the mentality that if we drove nice cars, had a nice house, wore fine clothes and lived a pampered life that we would be happy. We thought that giving ourselves “the best” meant accumulating stuff.
Well, after driving that road for 17+ years, we finally realized that it doesn’t lead anywhere. In our journey to be debt free, we’ve chosen to buy older, paid for cars. We have a great house but it’s not a fancy McMansion by any stretch of the imagination. I now do pedicures, manicures and all other beauty treatments (including cutting and coloring my hair) at home.
We rarely go out to eat or to the movies. Our clothes leave much to be desired by Joneses’ standards but they are comfortable and we like them. We don’t have cable or satellite TV, or magazine subscriptions, or iPhones.
And guess what: we’re happy!!
What we learned after we gave up pursuing the Joneses is that it’s a completely fruitless activity. Someone will always have more than you, and people – if they do admire you for your stuff – will only admire you for a very short time because someone will soon come along with better stuff and you’ll again be yesterday’s news.
This is not to say that “stuff” is bad. But accumulation of stuff for the purpose of gaining happiness or being accepted by others is a waste of time and money. And I’m SO glad we’re off that merry-go-round. What a relief to be living a life where we make financial decisions because they’re best for our family instead of because we’re concerned about impressing others.
In a way, losing that stress of competing with others is like being on a permanent vacation. It brings a peace that – at least for us – far outweighs anything we could possibly purchase.
If you’ve got a young person in your life who is just learning the ropes of adulthood, I hope you’ll share this with them. My prayer is that no other people/families have to go through what Rick and I went through as we struggled with mounds of debt.
What money tips do you wish you knew in your twenties?
*Image courtesy of Craig Sunter via Flickr