Ask the Readers: What Do You Wish You’d Learned About Money?
Published on - May 11th, 2012 (by J.D. Roth) 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?
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I love the advice about not sticking with a crappy job. One of my regrets in life is staying in a job for WAY too long.
I also bought my first car out of college with very little understanding of car loans. I picked a car because it was “cool.” I guess this would be “Research major purchases and understand how much a loan REALLY costs.”
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Sticking with a crappy job led to the BEST career decision I ever made. At the time, I didn’t like my job (actually the work was OK, it was my boss, the corporate culture, and management that made things suck), and I was thinking about starting my own business.
The best parts about staying at my lousy job longer were that:
–>I used my job to fund my new business, and
–>hating my lousy job motivated me to take action and change my situation.
Since starting my business in January 2007, I’ve QUADRUPLED my former day-job salary, have more financial security, and constantly see new opportunities. There’s no way I’d ever go back to a “real” job.
Greg Miliates
http://www.StartMyConsultingBusiness.com
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I should also mention that by far, the MOST important thing I would’ve wanted to learn was entrepreneurship. I’m learning it now, but if I’d been exposed to it earlier, I think I’d be a lot further ahead than I am now, and probably wouldn’t have some of the fears & caution & perfectionism I face in pursuing opportunities.
While saving and budgeting are important, entrepreneurship has the potential to RADICALLY change your life, your worldview, and your financial situation. I’m not talking about get-rich-quick schemes here. I’m talking about solid, value-based business-building skills, how to evaluate and test a business idea quickly and cheaply, identifying marketing channels, managing costs and revenue, how to scale a business, etc.
Being self-employed, I have MUCH more financial security and flexibility, and continually see new opportunities than I ever did as an employee. When I was an employee, I felt stuck, frustrated, and complained a lot. As a business owner, I see–every day–that my actions create revenue for me and value for my clients & customers. It’s extremely gratifying and energizing.
And, yes, budgeting and money management skills are still crucial, but I think that by themselves they’re limiting, whereas entrepreneurship expands your worldview.
Greg Miliates
http://www.StartMyConsultingBusiness.com
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Great self ‘plug’ Greg. Geesh. Standards anyone?
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Speaking of car loans… I wish someone had talked to me more about contractual obligations and how hard it is to get out of them. Whether that’s a loan, a debt, or an unused gym membership with a penalty for cancelling (which is what I did!)
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Yes, learning about contractual agreements is a need.
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Agree agree agree about the real cost of debt! Use a loan calculator to show them something real – like how much you really pay back on that credit card or your student loan. Seeing 35K of student debt turn into 60 or 70K was a huge motivator to pay it back ASAP.
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Do whatever you can or have to do to not touch that long term savings you’ve accumulated – whether that’s house equity, 401(k)/RRSP… Don’t even go there to assume that it’s your money to tap, you’re just stealing from your future self.
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Don’t waste your money on binge drinking. Obviously it’s bad for you, but trust me, 10-20 years later you will cringe at the thought of alllll the money you literally pissed away.
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Agree! That goes for all bad habits. I recently quit smoking after 20 years and figure that I would have $30,000 (!!!!!) in my pocket if I had never started.
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Donna I am in the same boat and I haven’t yet quit.
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Congrats Donna and when you are ready SB, it will not be as hard as you imagine. I just quit April 3rd and, with the help of Chantix, am doing quite well. Being able to address the habit/psychological aspect without the terrible withdrawal is nice.
To the original question, I wish I learned earlier in life not to define myself by extrinsic and material factors. I would have saved a ton had I not equated my worth with my stuff…
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‘Avoid lifestyle inflation’ – that is extremely solid advice.
Keep is simple and keep your expenses simple.
That way, if you face a sudden drastic income cut, you won’t be scrambling to make ends meet or worse – be forced to lose what you have.
A small roof that you can keep for a lifetime is a lot better (and cheaper on maintenance) than a big roof that you struggle to keep!
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Definitely making and sticking to a budget. At the same time, making cross over points 1 and 2 (expenses, income respectively) one of my biggest goals.
-Anthony
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Building on spend less than you earn, I wish someone would have instilled “pay yourself first.” Not only would I have avoided debt, I’d have some savings.
Money mistakes are the type I wouldn’t repeat for the sake of learning.
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I completely agree. Pay yourself first is the greatest financial advice I’ve ever received. It really works nicely with avoiding lifestyle creep as well. Since I’ve decided I wanted to pay off my student loan debt within the next year, I figured I’d have to “pay myself” (in the form of debt reduction) an extra $1000 a month. Because I auto withdraw this amount I find myself saying things like “I can’t afford a fancy new outfit” even though I really could. That’s the beauty of paying yourself first.
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I am doing the same thing with my student loans. I plan on having mine paid of soon too. I think people forget that paying off debt is a form of paying yourself first.
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You know, I never thought of “paying off debt” as a form of paying yourself first. I always thought of it as being punished for past transgressions: “I can’t have X because I was Bad long ago.” I think it’s much more helpful to see it as a form of honoring myself by digging out of a hole that, when finished, will allow me to really take off. Thanks for the idea.
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When I was younger I thought saving was about what was left over when the next paycheck came. You can actually DECIDE how much to save and move that money BEFORE paying the bills? MIND. BLOWN.
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I’m embarrassed to say that I thought this too… until just last year (at age 31), when I found this site! I had always had enough left over to save so I assumed I was doing well. Now I’m realizing that I was doing better than many of my peers, but that that was a lousy way to measure, and I wasn’t doing well enough. I agree that they’ll need to hear this.
I also suggest telling them that even though some of them may not be taking out loans to go to school, they should still be conscious of saving now; they will need savings when they leave school before they get their first paycheck (first and last month’s rent, for example) and if they spend it all now on pizza and beer, they may be stuck later.
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Very true Julie – and so much easier said than done!
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I wish I knew about the Boglehead philosophy and forum when I first started investing.
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If it is a full semester class, I think JD’s Your Money The Missing Manual would make a great textbook!
In my tangentially-related econ classes, students are always asking me about basic investing. I explain why stock market investing is good in the long-run but not the short-run, why fees are really important for investment decisions, what a CD is and why it might be good for short-term investing and so on. (I don’t go into diversification, but I probably should– I do tell them I try to match rather than beat the market with indexes.) They don’t know the mechanics of these things, or in some cases even what they are.
The seniors also ask me about the differences between their different health insurance options that they’re going to be choosing from on their new jobs. What is an HSA, should they choose that or the PPO or the HMO? What should guide their decision? What kinds of insurance should they buy on the open market and what should they get only through an employer?
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Are there classes on health insurance? Maybe through community colleges or adult extension? I would be in that class IN A SECOND. I consider myself of reasonable intelligence, but health insurance forms / claims are like gibberish to me. Or Martian.
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Don’t take out a ridiculous amount of student loans. They’re not as easy to pay off as everyone says they are.
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Same with credit card spending — it’s not as easy to pay off as it to is rack up! I’m all out of debt now, but it took a long time.
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I would add consider different kinds of lifestyles. It may not be your style to live in a yurt in Alaska – but it might be ok to live in a room in a house for a couple of years to save money. Or to have only 100 items that you own. The important part is to be creative! Don’t do what your friends do just because they do it. I am always on the lookout for different ways to do things – I don’t always do the “radical” thing, but maybe I would consider a little less dramatic version of it – like maybe I will have 150 things instead of 100.
Bottom line is – you are in charge of the way your life is lived – not anyone else. Use that to your advantage!
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Oh yes, the peer pressure. It ties in so heavily with lifestyle inflation, especially when there is a group of friends rooming together. I’m embarrassed to admit that I ended up with so many things I had not use for (and charged to credit cards!) as a result of the combined lack of money and budget knowledge of 7 people newly on their own.
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While it’s okay to spend you don’t need it all now, so spend consciously cutting to the bone spending in areas you don’t find important so you can enjoy the money you spend in areas of your life you do find important.
The course shouldn’t just be about minimalism but about money control and so you can give your life options.
My one other bit of advice for avoiding life style inflation is take some of that increase and use it to increase your savings. If you can only start out saving 3% a year (20% seems huge up front), then get a two percent equivalent raise over the next ten years and add one percent to your savings and one percent to your spending, you’ll be saving 13% in your thirties which would be a real difference and you’ll hardly notice it.
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It’s hard to get a lot done and have it stick in a one hour class. Can Shannon assign homework? Why not ask the students to go to wisebread’s list of best PF blogs, pick one, and write up a summary of an article or two? At worst, the student realizes how many resources are available for free online, at best you’re setting them up for a lifetime of financial success.
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I think this is an excellent idea. I have, on occasion, actually paid my 17-year-old son and 19-year-old stepson to read certain GRS posts and comments and discuss them with me. I’ve only paid them small amounts but the promised reward helped them to take the exercise seriously and now they know, at least, that PF blogs exist and may be useful.
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Kingston, what a great idea!!!!
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I would disagree with “do what you love.” We hear that so often, but I can’t help but think of all the research that shows that being paid to do something you love decreases the satisfaction you get from it. Not to mention that for many activities, the hobby and the job look nothing alike! I love to cook, but I don’t love stress, 80 hour workweeks, working evenings, and tight timelines – cooking for a living would be my nightmare!
It’s possible of course to find a job that you love (I have!) because it challenges you and stays exciting, but I guarantee you that I won’t be showing up at the office on Saturdays because it’s just so fun. There’s an important distinction to be made between a job that has aspects about it that satisfy you and make it easy to get up in the mornings, and “fulfilling your passion” the way guidance counsellors always recommend.
The other problem with this advice is that in today’s job market (or any job market, really) it’s not practical to hold out for your “dream job” – if everyone did, we’d have a lot of freelance writers and photographers and not much else. I’m astounded by the number of my peers (I’m 25) that have turned down jobs because it doesn’t fit their vague criteria of “dream job.” Accepting a shitty job doesn’t mean accepting 35 years in that shitty job – it means a paycheque while you continue to search. It also might mean that you discover a new skill or field that you love!
Obviously some people have figured out a way to turn an activity they like into a career, but I think that as advice, it’s not applicable to the vast majority of us – not to mention that college students today will have heard nothing BUT that advice since they were small! Instead, I would challenge them to think about how they can find jobs that they love in interesting fields.
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**Accepting a shitty job doesn’t mean accepting 35 years in that shitty job – it means a paycheque while you continue to search.**
Absolutely. I do think we do young people especially a disservice by implying that every job must be very fulfilling and exciting and exactly what they want to be doing.
One of my proudest parenting moments came when my HS senior said, “I don’t get why everyone always uses McD’s as the ‘worst job’ ever. If I had to go there to work, I’d try to get to be a shift manager as quickly as possible, and work my way up. I know they have good benefits and all, too. I might not stay there forever, but…”
Ahhhh.
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I agree 100%.
“Do what you love” is absolutely terrible advice from misguided high-school guidance counsellors.
The truth is, you should “Do something you like, and are good at, that pays well.” Save what you “love” for weekends, otherwise you’ll quickly learn to hate it.
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I completely agree. Sometimes a job can just be a job – something that enables you to live your life and pursue the things, people, experiences you love. It’s not a forever commitment. My daughter wants to major in performing arts in college (3 years away) and although she’s talented and has worked semi-professionally already, I tell her almost daily that 1) she will NOT make much money unless she is superlative and works harder than everyone else and 2) she will have to have a day job for at least 10-15 years. Everyone thinks they’ll be the next big thing, no matter the field. I am insisting that she dual major or minor in something practical (I’m not a tiger mom; she agrees) – the sciences or something else she’s interested in as well.
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agreed.
my mum always said ‘choose a job where you can put up with the boring everyday days, rather than one where you love the (rare) exciting days’
most jobs have occasional days which are good/great/amazing, most jobs have a rather mundane day-today base.
i think most ‘glamorous’ jobs are just ones where we see the (rare) amazing days portrayed and not the boring in-between ones.
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I can understand where you’re coming from, but be careful about insisting on a double major. That can drastically increase the number of classes she’ll need to take, and could increase the time she’s in college. Many financial aid/scholarship opportunities are only for four years, so if she needs to take more to finish, that’s a higher out of pocket cost. It can also mean that neither major gets her complete attention, and if she’s cramming classes in to try and finish in four years then nothing gets 100% effort (or one does and the other suffers).
That’s not to say I disagree that performing arts is not exactly a practical major, but it might be better to let her come to that realization on her own. I started college with a musical theatre major (talk about impractical!), but came to realize that while I was the best at my little high school, so was everyone else in my major and most of them were better than me. I fell into doing video production, discovered that not only was I good at it, I LIKED it, and graduated with a communications major and theatre minor.
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My husband got a performing arts degree in theatre from Minnesota State. He worked a day job in Chicago and acted in the evenings. Often, he had 16 hour days while working all day then rehearsing all night. On weekends, he had shows. When we started dating, he realized that he couldnt live this life and have a wife and kids. He went back to school again and is now a mortician.
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Mortician! Most excellent career choice. I thought about it when I was 18 but went another direction. Looking back now, almost 35 years later, I wished I would have followed that first impulse. My daughter, who is in high school is toying with the idea now – and getting a cosmetology license, so she doesn’t have to hire out for that service for her clients.
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It is a good career choice. I work at the mortuary too. We make a nice living and have lots of perks and benefits….BUT sometimes it can be long hours. Sometimes working with the public makes us crazy. Sometimes we wonder if it’s worth it.
But in the end I think it is.
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I do not think that a double major is always the answer.
If she is a performer, she will be a self-employed business person, and so she needs to study business. Most of the artists that I know are struggling, not because that they are not good, but that they never learned how to use their talents to earn a living.
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Speaking as someone formerly earning a living in the arts:
Know the basics about business finances, contract law and personal liability. It’s not evil or counter-creative to understand this stuff, and this knowledge WILL go a long way to protect you at some point in your creative life, and also help you impress your potential benefactors into funding your endeavors.
Always operate with integrity, do not hesitate to ask for help if you feel you are in over your head. Fix the problems sooner rather than later. Your reputation is at stake.
It is always possible to do more with less. That’s what being creative is about.
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To Kim & KP – good points indeed. I was a freelance writer and editor for much of my career and now have my own small business (completely different field – baking!) and the suggestion that a creative person take business classes is excellent. I wish I had and I bet a lot of my peers do too!
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Good point
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Agreed. Also, we’re looking for advice to give incoming students. As a freshman or sophomore, there are not usually stellar opportunities available to you; you can make a few bucks on the side doing work study, babysitting, tutoring, or working in town at a restaurant or coffee ship. Something else may be available, but I doubt employers are drooling over full-time students who have little or no experience in their field.
Saving 20% may be hard in school, especially if you are trying to get financial aid. If a student manages to save $1000 (just throwing a number out there), the school will often presume that all of that money can go to tuition and will reduce the student’s aid package, especially the scholarships (nice, right?).
FInally, if you are a student with really ambitious career plans that require more schooling (law, medicine, etc), getting good grades and being a great candidate for your next school is of utmost importance. It does not make financial sense to get B’s and C’s because you are working 20 hours a week if you want to go into medicine; you probably won’t get into a med school with those grades unless you have other AWESOME ways of selling yourself. I really enjoy this blog, but some of this advice should come with a disclaimer and students who want to go into something competitive need to realize that grades matter more than working (which is an unfortunate reality; I am certainly not a fan of it). Going to a great school, even if it is more expensive, can also be helpful. Again, I am not saying I think that this is great, but merely pointing out what I’ve learned along the way (and what I wish someone had told me years ago!).
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+1 to Katie’s response.
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Actually, a student’s $1000 in personal savings account won’t make a difference in most cases. Mostly it is your parents’ income and savings that matters, and if you are an independent student they don’t even make you report your savings if your annual income is low enough.
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Absolutely agree. Support yourself by doing what you can stand to do while figuring out how to make money doing what you love.
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Accepting a less-than-ideal job also gives you the opportunity to prove your worth as an employee. Said job might not make use of whatever body of accumulated knowledge you have, but it DOES allow you to demonstrate that you’re reliable, that you take initiative, and that you can find creative solutions to problems.
When I worked at a small college, I hired a student employee for a tech-related job. Her only work experience to date had been a stint as a barista in her hometown. When I called for a reference, her former boss praised her dependability and work ethic and told me how sorry he was that she’d left. I hired her immediately. Two years later, I was the one giving the glowing reference to her prospective employer after she graduated.
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I hire students as research assistants without any prior work experience all the time. Work ethic is also shown by class attendance/participation, grades, showing up to the interview on time (you would be surprised) etc. And yes, I’m the one giving the glowing recommendation for their “real” jobs later on.
Kids who skip and sleep through class with cruddy grades because they’re trying to work full time while going to school full time don’t impress their professors.
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Nobody is trying to help you. Everybody is trying to get your money.
I wish I’d learned that at a young age, before the nice man in the suit met me in my home one evening and “educated” me about all the life insurance and mutual funds I should be buying.
“What a nice man,” I thought, “to take time out of his busy week to help me understand how I should be investing my money.”
Of course, he wasn’t doing it to be “nice.” He saw a wet-behind-the-ears new grad with his first steady paycheck and no understanding about commissions, MERs, “whole life” insurance, and conflicts of interest.
Years later, once I learned a little more, I realized what an incredible rip-off all those products were, and quickly dumped them, but not before losing literally thousands in fees, loads, penalties, and everything else. I’m sure he made out very nicely off my naivete.
But when you’re young, you have this notion that older, better-dressed people are more knowledgeable, and “professional.” So you take their advice. I came from a family who would get legitimately excited when the a store would call them up and tell them about an upcoming sale that was only available to special clients like my parents (“special” meaning anything from long-time customers, having spent a certain threshold of money in so many years, living in the right area, anything). So my family would jump at the opportunity and be grateful for having been given advance notice.
Now, of course, I realize there was nothing “special” about my family, and everybody was offered those “deals.” I’ve learned that rules are not written in stone. If you miss a deadline for a sale, ask them to give you the sale price anyway, or walk away. Quite often, they’ll let you have it for the sale price. If they could sell it to you yesterday for $5.99 and make a profit, they can still do so today, even though some arbitrary date has passed.
Basically, my advice would be to understand that everybody is trying to get your money. They use deceitful tactics, like fabricating bogus urgency (“Sale ends tomorrow!”), or faking comraderie (“My boss would kill me if he knew I was doing this, but you seem like a nice couple, and if you keep it between you and me, I can let you have this car for only $27,985″). They’re all just tactics to separate you from your money.
Be smarter than them.
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DANG! I wish I could ‘like’ this comment 1000 times. Well said!
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Yes-yes-yes-yes-yes-yes-yes-yes-yes-yes-yes-yes-yes-yes-
YES!!!!!
My DH has an expression: “They just see me as a walking piece of meat with a wallet full of money they want to take from me.”
Businesses exist for one reason alone: to make money, off of you. Some may provide better customer service than others or even establish casual friendships with you, but don’t be fooled: this only extends while they make money. And for other businesses, you are just a walking piece of meat with a wallet stuffed with money, nothing more.
Yes, it’s cynical. It’s also true.
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Haha, just got the obligatory pitch from a trainer at a gym I just started going to (in fact, still just doing the free two weeks to see if I like it). I got the whole try it out with a free session. He killed it for me when he said “I just want you to know you are the first person I’ve ever offered a free session to”. Yeah, right.
Luckily, the gym (not affiliated with the trainers) is no pressured sales, no contract, and under $20/month.
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You can learn most of the marketing tricks if you read the book “Influence – The Psychology of Persuasion” by Robert Cialdini. That’s what they should have a high school course on.
Internet marketers (sorry they’re your friends JD, but I really hate those carnival barker marketing tactics) are especially repetitive at this with promotions like “only 72″ (hours) sales and such. $20,000 worth of ebooks for only $100!!!!
Oh please.
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My mom always says, “if it’s such a great deal, you’d be going to them. They wouldn’t be coming to you.”
I didn’t realize until a few years ago that most people don’t think this way.
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One thing is to view spending not in terms of dollars and cents, but in terms of hours worked. When I worked part-time during college, I may not have wasted as much money on dumb “stuff” had I thought like that. For example, was that new release DVD purchase really worth the two hours worth of work in the evening? I could have spent those two hours hanging out with friends instead.
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Pay attention to how much you spend, especially if you are not earning the money to pay for your education yourself. Do not use a credit card unless you can prepay for the expense and are diligently paying the balance every month. Do not justify what you cannot afford because of what your peers are doing.
Treat your future self like a loved one you do not want to royally screw over.
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At the ripe old age of 46 I wish someone had stressed the importance of putting more effort into my finances on the front end…sort of like paying a mortgage down…the more you put in the beginning, the less you ultimately pay in the end and the faster it goes. It is easier to work harder and save more when you are younger with fewer responsibilities. While you can never totally control every financial situation in your life (sickness, layoffs, etc.), the better you set yourself up as a young person, the easier it will be as you get older.
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You will pay for your house 3 times if you take the normal 30 year mortgage. It’s the most expensive purchase most people make. Let kids know they can make extra payments to the principal and pay it off years, even decades early. They could even pay cash if they plan ahead . . .
Also, I wish I had seen a table showing how compounds interest could work for me back then.
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In addition to the 30yr mortgage trap:
“Buy less house than you can afford”
Don’t let the mortgage broker or banker determine your household budget for you.
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I second the advice to buy less house than you can afford! I’ve usually done that but didn’t take it far enough. I add the suggestion to RENT in a new area before buying. Hubby and I moved great distances into houses we purchased hastily and later regretted two different times. The second time we ended up selling the house just over a year later (very costly) to buy something half the size and 20 miles closer to our jobs. Our biggest financial mistakes probably are related to poor decisions about buying homes.
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Yeah, but you’ve completely ignored inflation. While your wages will go up and purchasing power will go down, your fixed rate mortgage payment will stay the same for 30 years. You pay the loan back with deflated dollars. Just for fun, find an inflation calculator and play around with various scenarios. This is one case where inflation works in your favor.
Understanding Compound Interest is also crucial. Start early, leave the money alone to grow and you will be richly rewarded.
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That if you sign up for a credit card in order to get a chocolate bar, and then never use that card and refuse to make the payment on the annual fee, because you feel it is stupid and unfair, your credit report will be damaged for many years over $15. Just cancel the card!
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When i was in college it was school work and partying. You want to enjoy everything college has to offer. But going into Credit Card DEBT was my worst mistake. And it has taken me 18 years to get rid of it.
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Hey J.D., the link to the one-page guide to personal finance is broken.
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Shannon – this sounds like a great opportunity. I too am a professor and have thought about proposing a money-related course as an idea for an interdisciplinary freshman seminar. Good luck!
If you only have an hour, I agree with J.D. – the best lesson is that successful money management boils down to the rule “Spend less than you earn.”
If you have a bit of time after that, I would spend time giving them perspective about different amounts of money. For example, how long would it take them to pay for 4 years worth of tuition at your college if they had a job earning $30k a year, and expenses adding up to $25k a year? Some students might be frightened at how long it might take, as I think that many college freshmen don’t realize the patience and time that it takes to save a very large sum of money and/or pay off substantial debt. You can then relate this to J.D.’s main point by showing how the amount of time would change if they either 1) increased their income, or 2) decreased their expenses. Although it sounds somewhat dry in writing, I think that this topic could be really fun/interesting/engaging if you used some fun examples and interactive activities.
Point #2 is what what I wish my younger self would have understood better. It took until I had large savings goals (later in life) before I understood just how much $20,000 really is – how much patience and time and sacrifice and facets-of-life-other-than-money it involves.
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show them the bills. construct a few examples of costs and income for one month. single person and small family of 3. average income.
of both expense units (single and family of 3) make two examples, one that manages to save two hundred a month and one that doesn’t.
then show what expenses that two hundred a month covers during the year when used to maintain an emergency fund.
I think seeing the actual bills will help.
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I would add that you should not try to keep up with the Joneses because that is a sure way to part with your hard earned money. Also, do not let yourself be talked into spending your money in ways you would not normally have. For example, I saved quite a lot of money a few years ago when I moved into a safe rent-controlled area. Some friends could not understand why I would move from an ‘upper class’ area (where they also lived) into a lower one. I did not listen to them and in the process managed to build myself a house whose value has more than doubled.
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One thing that I wish I had had someone explain to me was the idea of an emergency fund. My parents always told me to never use a credit card ‘unless it was an emergency.’ I’d be much farther ahead financially if someone had suggested putting aside a chunk of change for when those emergencies inevitably pop up.
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After you get your first job,don’t jump to loans to buy your first car,house etc,try to save atleast 60% of your salary and after 2 years,your will have a solid foundation.Because when you jump to loans,you will waste a lot of money on paying interest,which will never end,you will be going back for top-ups before you clear your loan and the loans will come in many forms,car loan,furnishing loan,education loan etc all promising you a space to breath,they will tie you for along time.Am now 38yrs, i wish i knew this before i tied myself in this endless loans.
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I am now 29 years old and fortunate enough to have no college debt (academic scholarships paid tuition and parents paid my living expenses). My family was middle class/4 kids and I always had a new dress to wear for a special dance but we did without a lot of the “necessities” my other private school friends enjoyed (beach house, ski trips, etc.). Now I understand the reasons behind my parents decisions but I wish they had spent more time explaining their financial strategy to me as money/income was a taboo topic in my house growing up. I had to learn for myself once I finished college and got my first job. What I’m saying is that while I can now appreciate my parents’ philosophy, I will certainly be more instructive with my own children when the time comes. I never got to take a class like Shannon’s in college even though I majored in economics. Now I read blogs almost every day to learn more about personal finance!! The earlier you start, the better.
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What other blogs do you like to read?
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Mr. Money Mustache!
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When many of my friends graduated they started buying “stuff”. I was jealous at the time because they lived in bigger apartments than I did, and I simply didn’t have space to put a fancy standing mixer even if I did have the funds once I started working.
Of course, being recent graduates everyone is still moving every year or two, and as it turns out the less “stuff” you have, the easier and cheaper it is to move. Besides that, if you have too much “stuff” you have to either sell it for less than it’s worth to get rid of it, or pay for a place to keep it.
Really wish I’d known the 50/30/20 rule and some basic resources of where to learn about investing.
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I took a long time to learn that the more “flight of fancy” a purchase is, the more important it is to pay with cash. It works, for me, for two reasons… (1) it is harder to separate from cash which will slow me down on the pretty one-season t-shirt from Target, and (2) it is not adding to debt for even a minute.
I guess there is a third reason, because it is absolutely mine from the start, I feel freer to cull it when my “stuff” gets overwhelming … and college freshmen are going to throw a lot of decent stuff away because it won’t fit in their car come moving time.
I think not keeping up with the Jones’s is a nobel thing … but as college freshmen they are still working through the development of self and it might be too early for most of them to really buy into the notion that keeping up with their peer group isn’t necessary. Most people I know didn’t start to really understand that until their 30s.
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Lots of great advice here already, so I won’t repeat it.
If I was in Shannon’s shoes — and only given an hour — I’d set aside a few minutes to show people where they can find more information. (This blog would be an excellent resource, for example.) Give them the tools to empower themselves.
I’d structure the class like you’d structure an article: e.g. “Ten things people wished they’d known about PF when they were in college” and then walk them through the steps. Find an interesting angle and make it relevant to their lives.
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In my high school economics class when I was in my final year, we had a guest speaker who came in and spoke with us about money. One of the things that really stuck with me was when she told us about compounding interest and how to be a millionaire by retirement using disciplined investing into a retirement account and letting the interest start. She emphasized that it is so much better to start as young as possible and that helped me get into gear and start investing into an IRA once I had a steady job and contribute the maximum.
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When I was younger, I always thought that people that had designer clothes, purses, shoes, etc had a lot of money. I thought that people with big houses and new cars had a lot of money. Now that I am older, I realize that the majority of them are deeply in debt and paying payments on all of those items.
My advice is to not give in to consumerism. Less is more. The less house you have, the less you have to take care of. The less you have to finance, the less bills you will get in the mail and less complicated your life will be. Enjoy the little things in life- beautiful landscapes, inexpensive vacations, time with your children and family. Things will never make you happy.
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I used to have the same viewpoint, too. Now I realize that they usually are in debt, or don’t have any savings.
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So true. Thanks to the easy availability of credit, you can have absolutely no idea how much money someone has.
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Exactly!
I have a best friend who has the best of everything. They bought their kids ipads for Christmas. She will often be wearing $300 shoes. They always have the highest quality clothing. They go out every weekend and spend hundreds of dollars on concerts, drinks, dinners….
But when their giant SUVS break down they dont have the money to fix them. They have no savings. They just spend their entire paychecks as they come in.
Their kids are almost to high school age and they have nothing saved for their college.
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This also reminds me of when I bought my office furniture. I bought a super nice Hooker L shaped solid wood desk with two matching bookcases and a matching file cabinet for $400 off craigslist. I showed up at the house and it was enormous, very fancy, and in a very fancy neighborhood. I met the lady who was selling it and I asked her why she was selling the beautiful furniture for only $400 and she said that that was what she still owed on it! So here was this giant home filled with beautiful furniture and she didn’t even own outright her own office furniture. Unbelievable.
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Here’s my piece of advice — until there are two people living in your apartment/house, you don’t need a 2nd bedroom.
My biggest money mistake out of law school was getting an awesome/huge two bedroom, two bath apartment, and justifying it on the fact that I’d have friends/parents visiting.
Fast forward 6 years, and I while it was nice occasionally to have the extra space on the rare occasions guests were around, I really wish I had banked the money from the lower rent on a one-bedroom apartment towards paying down my astronomical law school student loan debt. Now that I’m engaged and living with my fiancee, we could actually USE a 2nd bedroom….but we’re saving money by living in her one-bedroom condo.
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My parents always say it’s cheaper to rent a hotel room when guests come to town than it is to pay for a guest room all year round
I think it’s important to resist the lifestyle inflation that happens after graduation. I was lucky that I could continue to live in a shared townhouse for several months after graduation so I could save up money. My apartment is fairly modest, but it took me a while to furnish it! I avoided debt by understanding I couldn’t have everything right away.
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Yes! Not just for apartments, but for cars and clothes and restaurants. I wish I’d known about the hedonic treadmill when I was 18. If you start out with really basic stuff, you save money AND get the joy of upgrading later.
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Spend 5 minutes (or so) showing the Dave Ramsey power point demonstration on Driving Free cars and retiring rich. It is a lesson in compounding illustrated in a practical and easily understandable format. They’ll appreciate the visuals, too.
http://www.daveramsey.com/article/drive-free/
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Being the first person in my family to go to college, nobody could give me any advice, so I just went with the flow and learned as I went. One of the things I learned very early on, was that student loans, in my case every semester, paid more than what I actually owed. Therfore I received a refund check. Well, I thought I was in heaven being paid to go to school. I spent all of those checks on whatever I wanted.
Fast forward to after I had graduated and I needed to start paying those loans back. Had I saved all that money in an interest bearing account and paid it all back on my first payment, I wouldn’t still be paying my loans today, 15 years after I graduated.
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Sadly, some of my classmates felt the same way. Their “left over” student loan money got spent on non-essentials and vacations. They thought if they didn’t spend it all, the government wouldn’t give them as much the following year.
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I absolutely HATE that these are called “refund” checks. It’s not a refund of anything!!! I think they should be called “excess” checks.
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I call mine the YEAH I CAN PAY MY RENT CHECK
I wish I could live with family, but it’s simply not feasible. I’m incredibly grateful for the loan money, but I know that in just two short years I should start paying it back! I can drag it out a little longer, but I refuse to do that to myself and my wallet barring some awful disaster.
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I am still young (21), but I wish that a lot more of my peers would know (and I would have known at 16) to scrape as much as you can off your paycheck before you even see it. After you’ve set it up to take money out beforehand, then add more to it in increments every so often to see how much you can save. You’re only going to spend it on BS, food, and drinks anyway (and you’ll have nothing to show for that).
Also, I think more people should be more focused on trying to get internships, or any kind of volunteering experience while you are in school, even if it makes school take longer. I have so many friends that have gotten their BA, and are still working a crappy job unrelated to their field because they have no experience. Since they would still be in school looking for these experiences, it would be easier to find them by networking and clubs. This indirectly relates to money because a more lucrative job can be found in the end.
I try to suggest things like this to my friends, but people in my age range are going to do what they want to do.
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Yes,include ramit sethi’s material on automating savings into targeted accounts, even if it’s $20/mo for xmas presents or summer rent. It is way easier to do it once, ie,set it up, than make an effort every time you get a check. Use behavioral psychology to their advantage. Dave Ramsey on paying cash. And minimize unsubsidized loans, they cost so much more.
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Spend less than you earn.
You can’t tell this to incoming college students. The whole institution is based almost entirely on taking out giant loans while you’re unemployed.
It probably doesn’t matter anyway, though, young people are notoriously bad about listening to advice old people give them. I don’t think this is necessarily bad, though, since old people are notoriously bad at keeping their advice up to date in a changing world.
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Live like you’re in college when you’re in college. I’m moving into my third year of graduate school, and I still have ramen for lunch, hand-me-down furniture, and a penchant for pot-luck dinner parties rather than evenings out at a bar.
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I’m 24, a recent grad and a current engineer. After being on my own for 2 years some good tips that I’d suggest are…
* It’s okay to buy nice things. They last longer and you don’t have to replace them. Plus they generally work better and cause you less headache.
* The money you save by packing a lunch is phenomenal.
* Look at interest rates. I recently merged my credit card debt at 20% down to a 6.5% line of credit.
* Automate everything. 401k, personal savings, debts and utilities all get deducted from each paychek. Meaning the money I see in my account is what I can afford to spend (or save). Also prevents overdrafts/missing payments.
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I would say that there is no “Get Rich Quick Scheme” that actually works.
And save as much money as you can when you’re living with your parents and not paying rent because (God-willing) it won’t last forever.
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Save yourself…by developing healthy self-esteem…and then save 20% of your income – always. People with low self-esteem can never figure money out!
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I wish I had discovered Dave Ramsey while in college and not bought into the idea that I “needed” to build credit.
I probably could have graduated debt-free with a paid for car with all the money I let slip through my fingers.
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An older friend of mine gave me great advice right before I went to college. She said when you see the credit card booth giving away something awesome for signing up (a giant bag of m&ms, a fresh t-shirt when you’re out of clean laundry, etc) fill out the form with made up information so you get the prize but you never get a credit card that you are tempted to use. Having a credit card in college can destroy you because it’s so easy to say “what’s a little more debt” when you have mounting student loans.
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Having a credit card in college CAN be very important if you want to establish credit, but that obviously requires a lot of responsibility.
However, most students cannot get them now even if they try (at least at my school).
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Back in the ’90s when this became common, colleges were making money pimping out the students to debt. We didnt’ know it, but they signed contracts with the credit card companies where they got paid for access to us.
I had a roomate who signed up with a different name every day and came home with armloads of t-shirts, frisbees, ice cream…there would be two or 3 credit card companies in the student union every day the first few weeks of classes.
Later, just to complete the company store atmosphere of campus, they made our student IDs into campus-bookstore charge cards (the campus bookstore having become a tenant franchise, not a service of the university) and stocked the bookstore with junk-food “groceries” that would have shamed a ghetto bodega – but, if you were broke, hey, food! Clothes! Toys! oh and books too.
This is part of why credit use among young people exploded, to the point that (way too late for most of us) the law had to be changed to protect young people – because the big institutions that are supposed to be trustworthy were targeting us instead.
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You’re not going to get a lot covered in one hour and you certainly won’t able to erase 18 years of bad habits taught by foolish parents. However, I think that a simple lesson on creating a budget would be a good start and then suggest a couple of good books like TMND, Rich Dad, Poor Dad, etc. and suggesst that they SUBSCRIBE to a couple of good blogs like this one or Get Rich Slowly.
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I’m at a loss as to why you’d say “18 years of bad habits taught by foolish parents.” Not sure how old you are, but how often did you listen to your parents when you were a teenager? A parent can be an excellent role model and give great money advice, but still have a kid who doesn’t listen or emulate and does his or her own thing with regard to money (or everything for that matter). Many times it’s just a case of keeping up with the peer group, sometimes it’s rebellion, but I really don’t think you can put the blame on “foolish parents.”
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AMEN!!! I am the mother of a college student…and as much as we have educated her on what to do and what not to do, she makes her own decisions. Some of them we agree with and some we don’t.
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I wish I had been taught to talk about money.
I had perfect credit(avid saver) when I got married but the more accounts we jointly opened, the worse my credit got. And the topic of money wasn’t discussed. I didn’t know how to approach the DH who was a major spender. I didn’t want to hurt him because he worked really hard for the kids and me. I was young and naive.
Our doors of communication are wide open, we save even more now, have retirement funds, and the spending is much less than it was. But it took alot of years to get there.
My advice is not to be afraid to talk about money while you are dating. Look for the signs of a saver or spender. Be upfront about your future goals when it comes to money and see if that person is on the same page. Because once you are married, his or her credit is yours too.
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Exactly the same with me.
A huge problem is being married to someone with differing views of earning, spending, and saving money.
My wife grew up fairly wealthy, spending money whenever she wanted. It has caused no end of difficulty in our 30 years together.
When you are picking a life partner, be sure to discuss money management and come to an agreement. I know that when someone is young and in love, that topic seems mercenary, but there can be no end of conflict and upset if you and your spouse do not agree.
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You can give kids lots of good advice, but it’s a rare few who listen and don’t end up learning by making their own mistakes. Just about everyone here learned by making mistakes.
What I would say (and have said to my own kids) is buy things only when you have the money to pay for them, buy less house than you can afford, don’t cash out the retirement savings you may pick up at various jobs along the way, try to stay in one place because moving is expensive, don’t take the equity out of your house, don’t get a 401(k) loan, take the time to think about big purchases, eat at home more often, entertainment doesn’t have to be expensive, you don’t have to take big vacations every year or buy a new car, and always have an emergency fund. While I didn’t make all of these mistakes (or what I consider mistakes), I’ve seen enough people who’ve made these mistakes and gotten into huge financial holes. My son’s ex-girlfriend started out with a $180,000 house in a suburb of Seattle 12 years ago and now owes $360,000 on a house that’s worth a lot less. That’s one of the more egregious mistakes, at least to me.
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I worked my way through college and had almost no money. My financial aide office had emergency loans available and I took them out sometimes. Unfortunately, at one point a check I wrote to pay them back for the emergency loan bounced and that cut off ALL FUTURE LOANS OF ANY KIND FROM THE FINANCIAL AIDE OFFICE. This was at the University of Georgia but there may be similar policies at other colleges. Fortunately, I was almost at the end of my schooling and was able to find a way to finish. My advice would be READ CAREFULLY EVERYTHING YOU SIGN. Try to minimize financial loans as much as possible.
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I was always a saver, but I did not start investing until I was in my early 30s. I bought my first house at 27. I made up for the late start by making a lot of money in rental property. I achieved financial independence at 38 years old. Who knows, maybe I would have more or never invested in rental property. Looking back, I don’t know.
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To add to JD’s “spend less than you earn,” don’t bow to peer pressure to spend more..
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There are a lot of things about being 20 that are awesome, but the best thing about being 20 and saving money is compound interest. I didn’t really get this until I was in my 30′s and it will be much harder for me to catch up. Even if you can only afford to set aside a little money, do it.
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