When we’re young, we think we know it all. We make decisions — financial and otherwise — based on what little we know of the world, and these decisions are colored by a relentless optimism that comes from not having to deal with the harsh realities of the world. Realities like the high cost of health insurance, steep interest rates on credit cards, and trouble finding a job.
Wouldn’t it be nice if you could go back and give your younger self some words of wisdom? Since time travel doesn’t exist, the best thing you can do is try to help other young people. That’s what Shannon wants to do, and she wants your help. Shannon writes:
Like many of your readers, I made some bone-headed financial moves when I was younger. Luckily for me, none were really all that bad; rather than spending more than I earned, they were more on the lines of spending all that I earned as opposed to saving.
Now, I’m lucky to be in a good place financially. Even better, I also have a job that I love: I’m a college professor. I’ve just learned that this fall I’ll have the opportunity to teach some incoming college students about money management. While this is a great opportunity, I (unfortunately) only have one hour to do this as it’s part of a “learning about college” course, and we have a lot of other content to cover.
Right now I’m a bit overwhelmed when thinking about what is absolutely essential for students to learn during that hour. Could you ask your readers to let me know what they wish someone had taught them about personal finance way back when?
For a couple of years, I would travel to Western Oregon University in the spring to speak to graduating seniors. I told a bit of my story and talked about things I might have done differently. As part of that, I shared my one-page guide to personal finance and tried to stress the following points:
- Develop a basic budget. It doesn’t have to be fancy. Whatever you choose to do, make it a goal to set aside 20% for saving and investing. This sounds like a lot, but if you can start the habit young, it’ll be easier. (And will yield greater returns in the long run.)
- Avoid lifestyle inflation. As your income increases, it’s tempting to increase your spending in proportion. The more you can resist this urge, the more successful you will be with money.
- Do what you love. A low-paying job that leads to future prospects in a career you like is better than a high-paying job in a career that doesn’t move you in the right direction. Never stick with a shitty job. It’s easier to change jobs now than it will be in five or ten years.
- The less you spend, the more flexibility you have. When I graduated, I bought a new car and developed credit card debt. I had to take any job I could find because I was tied to monthly payments. When my friend Sparky graduated, he had a lot of freedom. His debts were minimal. He traveled the U.S., taking whatever job struck his fancy. He spent time in Mexico. He spent five months traveling southeast Asia. He was able to do these things because he didn’t have expensive obligations.
But really? If I could just pick one thing I wish somebody had taught me about personal finance? It’d be that everything boils down to one simple equation: Spend less than you earn.
What about you? Can you give Shannon some help? What do you wish you’d learned about personal finance when you were younger? If you could give your teenage self one piece of advice about money, what would it be?