This is a year of transition. More on that in future posts. For some reason, turning 30 earlier this year has felt like a crossover point. I’m out of my 20s. The 30s are here, and with them, a whirlwind of change.
I’m taking time to reflect on my 20s. Not only with personal life decisions, but also money lessons. What did I do well? What do I wish I did more of? If I went back and did it over again, what would I change? Where did I fail? What would I want others to know? What are the money lessons? How can I help others reflect on making better and more meaningful financial decisions?
My experience is my own, just as your experience is your own. These are my takeaways. Hopefully, they lead to a positive impact on your life.
- Teach yourself. “You don’t know what you don’t know.” Nobody is going to explain how student loans work. They aren’t going to explain the maintenance costs of home ownership. No willing volunteer is going to help you negotiate a better salary. Life insurance? Forget it. There is a good chance you’ll be sold something you don’t need. Disability insurance? “I think I have that”, you might say, “though I don’t know what it covers.” What is a 401(k) and which investments should I select? The market is scary, right?
Very few people have personal finance courses in school. While life is a great teacher, learning how to ski before slapping on skis and tumbling down the mountain makes for a better experience with fewer injuries. The same goes for financial decisions. Learn about mortgages, home maintenance, and taxes before buying a house. It’s probably the largest purchase you’ll ever make.
Even if you have that kind friend or family member, don’t rely solely on them. I’ve seen plenty of well-intentioned people give really bad advice. Trust, but verify.
In today’s world, there are more free, high-quality content resources than ever before. Brilliant minds in finance talk about budgeting, investing, and any other topic you could ever want to learn about – all for free! Use it. Teach yourself.
- Starting early helps. I knew starting early helps, but I didn’t know just how much it helped. I knew it, but I hadn’t felt it yet. People will commonly say building to $100k in net worth is tough and then it gets easier. It’s true.
From there, compounding starts working its magic. 10% on $10,000 is only $1,000. 10% on $100,000 is $10,000. After a certain point, your investments compound at a faster rate than you can save. For example, if you can save $20,000 per year and your investments earn 10% after you have $200,000 saved, your investments will start earning more than you can save per year. Then your net worth takes off.
It’s not just money where starting early helps. With any practice or skill, starting early helps. I wish I had begun writing consistently much earlier. I tried many years ago and stopped. What if I had kept going? I’d hopefully be a better writer, financial planner, communicator, and reach a wider audience.
Starting early is tough because it feels slow at first. Entirely sluggish. It can feel like no progress for years – and then – BAM! Progress. It takes off. I’ve watched it with my fiancée in medicine. When I met her, she was a medical student building her knowledge and skills. Now, as a resident, she’s teaching medical students and remembering how the things she is teaching, she didn’t know a year ago. It’s compounding. The progress is accelerating. Taking care of two patients used to be challenging. Now, ten is manageable.
Start as early as possible.
- Starting late doesn’t mean you are doomed. Okay, so you didn’t start early? Who cares? What is done is done. What can you do now?
The best time to start was yesterday. If you didn’t, the best time is today.
Many people don’t start saving for retirement until later and still end up retiring. People who have taken on too much debt can work their way out of it by creating a plan. The key is to take the first step, however small, to build momentum. If we allow our problems to feel too big, we’ll never start. Break down your large goal into smaller ones and celebrate the mini achievements. Even $5 saved can be a big win.
I’ve met many people who felt behind in their personal finances, but after diving into it further, some were actually right on track. Others only needed to make minor adjustments. Again, you can feel behind without actually being behind.
If you need famous examples of people who were not successful until later, check out this Business Insider article.
It’s never too late to start doing something you want to do.
- You’ll always want more. “I’ll never fall into this trap,” I told myself. I was wrong. This is the one that hurts the most because I feel like I get it, but at the end of the day, I don’t.
Despite, or maybe because I work around money every day, there is always more to be wanted. I can count on one hand the number of people I’ve met who have found enough. They are not yearning after another $100 in spending or another $500,000 in assets. They won’t be “more comfortable” once they have $2M instead of $1M.
The target is not always moving for them.
Those people – those are the ones who have it all. They have it figured out, and I am jealous of them.
It does not matter if you started with a $40,000 salary and now make $200,000, you likely want a little more – maybe $225k or $250k. That’s when it will feel like you made it. But, once you get there, the new target will be $300k. And if you are lucky enough to make it there, you’ll have a new target. It’s a vicious cycle.
I’ve met people with millions and tens of millions of dollars. Nearly every single person wants more. The same can be said for income. I’ve hit most of my income targets, and I’m still aiming higher.
We compare ourselves to those we surround ourselves with. If you make $100,000 and your friends and family make $50,000, you likely have less of this desire for more; however, if you make $100,000 and everybody around you makes $200,000, you likely will always feel like you don’t have enough and want more. It takes a rare type of person to be surrounded by more wealth and not succumb to wanting a little more of it.
My best advice is to learn what is important for your well-being, surround yourself with people who find similar things important, and tune out the noise of wanting more.
If that does not work and you need a real-world scenario, go buy something really expensive and see how you feel about it a month later. You may always want more, but that more may not actually bring more to your life.
- Someone will always have more. Even billionaires trade spots in the top 10 richest people in the world. Gates, Musk, Buffett, Arnault. Nobody stays on top forever.
You’ll always want more and someone will always have more.
After a certain point, I promise you that the additional money that you want won’t actually bring you more happiness or comfort. It just won’t. Numerous studies have been done that more money doesn’t drastically increase your happiness after a certain level.
The BMW, larger home, nicer education, a new toy, country club, or more prestigious neighborhood comes with someone who will always have more.
Your friend with the Toyota has a friend who has a Lexus who knows someone with a Ferrari who knows someone with a Bugatti. Someone will always have more.
If you can understand and internalize someone will always have more, you may spare yourself from a few dumb purchases.
Lastly, if you think people who have a mega-mansion, fast sports car, and latest gadgets are more satisfied with life, spend some time with them. You may find that the constant pressure to keep up and the problems the money creates then leads to a more tangled mess of a life.
- Connect the money to something. Why do you need the number you have in your head? Is it to send your kids to school? Retire? Take a trip? Have a nice meal once a month? Support a parent? Travel?
Connect the money to something. It needs a purpose. There needs to be a reason behind it. If you have $1,000 in the bank, what does it buy?
This is where people often go wrong and what leads to you’ll always want more. If you don’t know why you have money and what it brings to your life, you’ll never know when you have enough.
I’ve met miserable people with loads of money. The issue is that the money does nothing for them. They have no idea why they have it. To them, it’s a number on a page and more is better.
I’ve also met content people with little money. The difference is they know exactly what they need and how much money they need to do it. The money is connected to their life and not an abstract figure in their investment accounts.
And, it’s okay for the money to exist “just in case.” Extra money set aside in case of a career change, sabbatical, or peace of mind serves a purpose. You are still connecting it to something.
Please, connect the money to something.
- Lifestyle inflation is real. Oh yeah – it’s real. This is another battle where I said I would not fall into the trap of lifestyle inflation, where I continually spend more as my income rises.
It didn’t work out. I spend more than I did years ago. I spend about double what I did about four years ago. Although that may sound like a failure, it’s not entirely. My income has also risen, allowing me to increase my savings. I’m to the point where I am saving about as much as I earned my first year out of college. It’s odd to think about.
More importantly, I’m meeting my savings goals for retirement, travel, and everything else. Remember, connect the money to something!
Where is the money going? Housing is a big portion. That expense nearly tripled from a few years ago. I went from shared housing with roommates, to a small one-bedroom by myself, to a townhome. Although I “upgraded” my living experience, housing costs have also drastically increased in Seattle. I saw rents increase 10%+ for many years and home prices double in about five years.
Restaurant expenses also increased. I used to eat out less frequently. Since I am meeting my other savings goals, I don’t mind splurging more on meals. Life’s too short to not enjoy the things I love.
Lifestyle inflation isn’t always bad. I don’t regret my housing costs increasing. I love the location, natural light, and warmth in my home compared to the dimly lit small one-bedroom from a few years ago. But, I definitely have wasted some money along the way. I wish I had paid more attention to those small things that add up.
Lifestyle inflation is one of those things to be mindful of throughout life. As needed, look at your spending and make adjustments. I did in the past year with eating out. I was surprised by the amount I was spending and cut it back to once or twice a week. I ended up enjoying it more when I did splurge.
While lifestyle inflation is real, it is not always a negative. Choose where lifestyle inflation makes sense for you.
- Most conversations focus on the wrong topics. What stock should I buy? Is the market overvalued? Will the Fed increase interest rates?
None of it matters. Let me repeat a little louder for those who did not hear me – NONE OF IT MATTERS.
Want to know what matters? Your savings rate. Your discipline to consistently invest through all market ups and downs. Your curiosity to learn about personal finance topics. Understanding how taxes work. Making sure you have the proper auto, home, and umbrella insurance to protect you from catastrophic risks. Buying term life insurance to protect your family. Reading your disability insurance policy and increasing coverage if needed. Having an estate plan (Will, financial power of attorney, healthcare power of attorney, etc.). Please, go get your estate plan done. You love your family, right?
The sexy topics in finance probably make up 99% of conversations and they may help your life 1%. It’s the other 1% of conversations that drive the most impact.
Ask someone what it’s like when a family member dies without a Will. Watch the color drain from their face as they recount the horrible experience. Go look at GoFundMe when someone dies at a young age without term life insurance. That’s a drastic life change. Ask someone in their 50s who is behind saving for retirement if they wish they had started earlier, even if it was $10 a month. I bet they say yes.
The investments are a tiny piece of the personal-finance equation. Most people would be fine buying a globally diversified ETF and spending their time on everything else that matters more.
It’s fine if you want to go to a cocktail party and talk about your latest investment win, but if you don’t have the other stuff dialed in and perfectly buttoned-up, you have no business discussing your investments at that cocktail party.
- Automate to make your life easy. We tend to be our own worst enemy when it comes to money. We want to save, but we also want to go see a movie, take a family road trip, go out to eat, buy a new shirt, finish the deadline at work, hang out with friends, and pursue hobbies.
Before we know it, the time is gone.
Automate your finances to make it easy – to ensure it gets done. If you are saving for a trip and need to save $250 a month, set up an automatic transfer the day your paycheck lands in your bank account to a separate savings account. For your bills, set them up to be paid automatically. Don’t manually pay bills. It’s a waste of time. Make a calendar reminder each year to increase your 401(k) contribution.
Whatever steps you can take to automate your finances or help your future self make better financial decisions, do it.
It may feel uncomfortable at first, but it will serve you well once you have a system running smoothly.
Summary – Final thoughts
My 20s have been interesting. I started my career, which led to thousands of conversations about money and an inside view of how others handle money. Not only have I talked about money, but I’ve also had my own experiences. I’ve grappled with saving for the future versus enjoying money today. I’ve made mistakes. I’ve had successes.
It’s a continual journey of learning. Through it, these are my takeaways. Do with them what you will.
- Teach yourself.
- Starting early helps.
- Starting late doesn’t mean you are doomed.
- You’ll always want more.
- Someone will always have more.
- Connect the money to something.
- Lifestyle inflation is real.
- Most conversations focus on the wrong topics.
- Automate to make your life easy.
I wonder what I’ll learn this next decade. We’ll see soon enough.