I’ve recently exchanged e-mail with Wesley, a reader who has exercised self-discipline to become debt free while still in his twenties. He’s even paid off his mortgage. Here’s how he did it.
 
I’ve been following a fairly rigid financial plan for about eight years now.  It’s about to pay off in the next few months — I’ll be 28 and completely debt free (including no mortgage). My planning started on a small scale when I was in college, so let’s start there.
 
College is the easy part.  Take out a government loan and don’t worry too much with it.  Enjoy your time at the school of your choice, and just be sure to pick a major with some potential (not underwater basket weaving).  If you plan on staying in the same state as your college, establish a good network of friends in whatever specialty you pick.  They’ll come in handy later when you’re looking for work or need to bounce an idea around.
 
When you graduate, things start to get interesting.  A few rules of thumb: 
 

  • Unless you travel for a living, don’t buy a new car.  Buy a used vehicle, and get the mechanic’s book for it.  Do some small maintenance yourself.
  • If you rent an apartment, rent something reasonable — stay within budget.
  • No need for credit cards!  Just use your bank card that drafts from your account.  If you can’t afford it, you likely don’t need it.  (Think, what would Fred G. Sanford do?)
  • Save money where you can, but don’t get cheap with your daily lunch.  Go out with the folks from work and put your business networking skills to good use.  Lunch is a key social time.  If your buddy in the next office is meeting with some old friends in the same industry, be sure to tag along to meet the competition (who could also be your future employer).
  • Pay off your college debt immediately.  I’ve heard the adage about splitting pennies on interest, but there’s a psychological benefit to getting rid of debt, and I’m a firm believer.

Those rules are things that are fairly commonly advised, and you’ll find them scattered in various books and financial planning sources.  I’ve got a few items you won’t find in many books, that may be a bit more painful and perhaps unpopular.
 
We’ll start with an easy one.  Don’t start any new business venture that takes anything more than your time.  If you have to invest a ton to get it going, it’s likely not worth it when you’re just getting started in your career.  Sure, you’ll have plenty of those opportunities later in life, but when you’re just getting the ball rolling, don’t start out with a wild idea and a mound of debt. I’ve seen several friends pull the short straw.
 
This is a bit more edgy:  If you have a significant other, support them in their education and career choices.  If you don’t have a significant other, find one.  Finding a partner to help you both emotionally and financially is the single most important thing you’re likely to do in your life.  If you’ve found that special someone, get them onboard with your financial plan and help them contribute as much as possible. 
 
Here’s an unpopular (but very important) step:  No kids until you’re financially secure.  Hear me out on this.  Kids are expensive, and don’t let anyone tell you any different.  If you have them early on, they will take time, money, and thought — they’ll shred any financial planning you had in place.  Wanna go to that industry meeting that could land you a job paying double?  Sorry, one of the kids is sick.  Need some time in the evening to work on the next big thing?  It’s not likely to happen given the time constraints you’ll be facing. I’ve seen it happen to numerous twenty-something friends.  Sure, they’re happy with their children, but if they had waited a few more years, would they be less happy?   Doubtful.  They’d probably have less debt, less stress, and even more time for their children.
 
Now for a different spin.  Don’t invest until you can afford to do it.  If I invest $1000, maybe I’ll have a few bucks more at the end of the year.  However, if I pay off any debt with that $1000, I get peace of mind and one less account to monitor when I’m getting started.  Sure, get that Roth IRA, and if you’re employer will match you, fuel up the 401K.  Just don’t get sucked into the idea that a small interest loan won’t hurt when you can invest that money in something else.  Take care of the debt first.
 
Now that I’ve written a bit about what not to spend your dough on, how about some things you’ll need to have:
 

  • Insurance (life, auto, disability — insure the necessities)
  • Education (it pays itself back every time)
  • Networking expenses (these may be tax-deductible anyway)
  • Moderate vacations (if you’re working hard, be sure to take a break at least once a year)

The underlying theme of my plan comes to “pay off debt first”.  I have moderate savings and investments, but heck, once I pay this last debt off (my mortgage) in a few months, you better believe the vast majority of my family’s income will go toward investments.

Congratulations, Wesley, for making smart choices early in life. And thanks for sharing your plan. I’d like to stress that his suggestions require discipline and hard work. I suspect you need at least a moderate household income, too. But the key is to avoid debt. If you have a story to share, please drop me a line.

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