Last week I hit a milestone in my life – I turned 30! I thought that this would be a good opportunity to look back on the last decade and recall some of the lessons that I’ve learned about money and careers. Regardless of your age or stage of life, I hope you find value in these ideas. Enjoy!
1. Live Like You’re Still in College
After graduating from college and getting a first job, there is a temptation to want to buy fancy things and spend all the money that you make. Don’t do it! If you continue to spend your money like you did when you were in college while making a decent paycheck, you can begin to build a solid financial base. A number of the other tips I’ll share come out of this mindset.
2. Live with Roommates
By living with other people, you can easily cut your rent in half or more. Plus it’s more fun! My first year out of college I lived with three friends in a very nice apartment in an awesome location for less than $375 per month. If I’d tried to live in the same apartment complex alone, I’d have paid more than $1,000 per month.
3. Don’t Buy a New Car and Pay Cash if you Can
New cars can be nice because they sparkle and should be reliable; however, what’s not nice about them is that their value declines significantly the second that you drive them off the lot. Additionally, it’s probably safe to assume that if you are buying a new car in your 20’s you are taking on a car loan. I’ve decided to only pay cash for my vehicles up to this point because I don’t like the idea of making monthly payments for something that is declining in value each year.
4. Bring your Own Lunch to Work
Packing your own lunch not only saves you money, but it is probably healthier as well. Generally, the meals that I pack for lunch cost me about $2. If I were to go out I might spend $7 per day or a difference of $5. Assuming 240 working days in a year, I may have saved about $1,200 per year by brown-bagging!
5. Take Time to Understand Employee Benefits
When starting a job that offers benefits, there may be many decisions to make. Take the time to understand your options when it comes to insurance, retirement savings, vacation, and other services that may be available. Each company that I’ve worked for has had very different benefits packages and it was valuable for me to understand. If you don’t understand something, talk to HR or someone else who does.
6. Protect Against the Unexpected
The most basic way to protect against the unexpected is to have an emergency fund in place. This way, you can cover unexpected car repairs or other surprises without using debt. It is also important to have auto, homeowners, renters, health, life, disability, and long-term care insurance to fit your situation. Before my wife and I had our first child we significantly increased our life insurance because our situation was changing.
7. Open an HSA Account
A Health Savings Account or HSA is especially helpful for those who are healthy and don’t tend to go to the doctor much. An HSA can only be opened and contributed to if you have a High Deductible Health Plan. Any money that you put into an HSA is tax-deductible, grows tax-free in the HSA, and can be withdrawn tax-free if used for qualified medical expenses. I used money that my employer contributed to my HSA to pay for Lasik Eye Surgery.
8. Start to Save for Retirement
Money that is saved for retirement in one’s 20’s can grow significantly prior to retirement because of the time value of money. Assuming an 8% growth rate, if someone were to save $300 into an account each month from their age 22-30 and then never save into the account again, their total saving of $28,800 would have grown to $593,788 by their age 65. Conversely, if a person waited until age 35 to start saving and saved $300 each month until their age 65, their total savings of $108,000 would be worth only $447,108. The moral of the story: start saving for retirement now!
9. Pay Down Debt
The most common kind of debt that people in their 20’s have is student loans but you also may have credit card debt, an auto loan, or a home loan. Come up with a plan for how you will pay off your debt. I choose to aggressively pay down my student loans with an interest rate above 5% in my 20’s. Paying down a loan with a 10% interest rate is equivalent to a guaranteed 10% rate of return on an investment. Make paying off any high-interest rate loans a priority!
10. Understand your Accounts and Fees
Make sure to understand all of the fees on your checking and savings, investment, and insurance accounts. Some banks today may charge $4-5 per month if your balance is below a certain figure while paying 0% interest. If this is the case, make sure to keep your balance above the minimum requirement or move your money to a bank that doesn’t charge these fees.
11. Know Where Your Money is Going
If you desire to steward your money well, understanding where it is going is essential. When I got my first job out of college, I kept every receipt and recorded every single expense in an Excel spreadsheet. Although this was a tedious process it helped me to understand how I was spending my money. Today things like Mint.com can make this process much easier.
12. Evaluate your Priorities
Know what is most important to you in life and make sure that the way that you spend your money reflects these priorities. When it became clear to me that I value experiences and people over things, I decided that I would limit the amount that I spend on things like housing and vehicles, in order to be able to spend more on the things that are more important in my life. Matthew 6:21 says, “For where your treasure is, there your heart will be also.” Strive to have your spending align with your priorities. Creating a spending budget is the best way to do this.
13. Think Carefully Before Buying a House
It is a common belief that buying a house is always a better financial decision than renting, but this isn’t true. After factoring in property taxes, insurance, potential mortgage insurance, repairs, maintenance, and improvements owning a home can be very expensive. I first considered purchasing a home right out of college but ultimately decided to wait three years before pulling the trigger, which in hindsight was a great decision. If you do decide to buy a house, plan to own the house for at least five years and don’t get a mortgage for the maximum amount that you are approved.
14. Shop and Sell on Craigslist
Use Craigslist to get some great deals on quality items. Although there is some risk involved, purchases on Craigslist don’t need to be limited to small transactions. In my 20s I sold two vehicles and bought one on Craigslist. And learn to negotiate. My wife found a couch that we really liked listed for $1,500 ($3,500 new) that we really liked, but we couldn’t afford what they were asking. We sent them an email telling them that we’d give them $750 and never heard anything back. Then two months later, out of the blue, the seller emailed us to tell us they’d sell it to us for $1,000. We’ve been enjoying the couch in our living room for the last couple of years!
15. Be Generous
Regardless of if you make $15,000 per year or $80,000, give sacrificially. The truth is that God owns all that we have, and we are called to be generous. Although it required sacrifices in other areas of my life, it brought me joy to be able to give to my church and those in need over the last decade. Developing an “open hand” mentality in one’s 20s can lead to an attitude of generosity for one’s entire life.
16. Travel Inexpensively
Stay at hostels or with friends and family. With kids, traveling becomes more difficult and more expensive. In my 20s, I traveled to New Zealand, Australia, Fiji, Uganda, Indonesia, and Hawaii and paid very little or nothing for lodging on these trips. Also, take advantage of the value and fun of road trips!
17. Informational Interviews
Make a habit of asking people that you’d like to learn from if you can take them out for coffee or lunch. Before taking my first job in financial planning I sat down with about a dozen different financial planners. This was invaluable for learning about the different career paths and types of financial planning firms. Although the focus of these interviews should be to learn, they can often lead to job offers!
18. Get Involved
Use your skills and abilities to get involved with organizations outside of your work. This can be fun, a way to help others, and a way to grow as a leader. In my 20s I got involved at my church, prepared tax returns for low-income families, tutored inner-city high school students, and served on the board of the local Financial Planning Association chapter. My life is richer and fuller because of my involvement with these organizations.
Never stop learning, whether formally or informally. There are infinite ways to continually grow professionally, personally, and spiritually. Some of the ways that I have learned are by obtaining my CFP®, joining a public speaking club, reading many books, and participating in a full-time leadership development program at my church for a year.
20. Take Risks
I am a person who prefers certainty and security, but I have learned the importance of taking thoughtful risks in order to achieve things that I otherwise couldn’t have. The biggest risk that I have taken after much thought and prayer is starting Wacek Financial Planning, LLC. The reward has been being able to help many people I couldn’t have had I not taken this leap of faith!