Jump-Start Your Life With a Financial Plan

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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Leesa
Leesa

Part of this sounds like the Dave Ramsey approach.

While I will never be rich, hubbie and I are “comfortable.” No debt, no budget, no unmet needs and no real burning wants (we are a bit thrifty, which helps).

RJ
RJ

A lot of good ideas here, though I agree with J.D. that it helps to have a moderate income in order to see some of these ideas through. Education is definitely important, as is choosing a plan of study that helps to develop a financially rewarding career (however that may be defined). But unless you only have interest in career-building or vocational training, don’t lose sight of education as a way to develop all sorts of skills and knowledge, including skills and knowledge that may not be directly linked to a job or career. I’m a college professor, and many… Read more »

Dennis @ A Pile of Coins
Dennis @ A Pile of Coins

Kick-Start in ein Leben ohne Schulden (German)

[…] Wesley, einer der Leser von Get Rich Slowly, erklärt ein paar seiner Grundsätze, mit deren Hilfe er sich ein angenehmes und schuldenfreies Leben gönnt. […]

Susan
Susan

The odd thing about college debt is that the people I know who are the best off now are the ones who took on a lot of it and are still carrying a lot of it. It really depends on the interest rates, of course, but as I was told once: “You’re never going to get those rates ever again.” But I think it’s a personal decision, though. The no-kids one is one I wish more people would follow. I’m 25 and trying to prepare now to be the best mom I can be… in five or six years. Getting… Read more »

Jeff
Jeff

I think focusing on debt is a great idea, but in mentioning psychological benefits, it’s important to grow in both ways: Less Debt & more savings. Right now I’m doing about 60/40: Debt/Investing. Debt is the priority, but I have small amounts (Probably just under 400/month) being invested right off the bat. Much of this is tax deferred as well, which makes the hit on my paycheck smaller. If one waits until they pay off ALL debt before they start investing, there is a risk in delaying for years. Better to start now – even if it is only modest… Read more »

Brian
Brian

I love the process! Working hard to be out of debt is one of the best things we ever did. I just have the house left, and it should be done in a few years. Here is my question though – If you are busting your butt after you graduate paying off debt, why not just avoid the student loan debt in the first place? You can go to an in-state university (University of Texas, University of Michigan, Ohio State) very inexpensively. Seems like the wiser move would be to work hard before or while in school to come out… Read more »

MIchael Langford
MIchael Langford

I have to disagree with the credit cards point. Automatically paying off your credit cards every month is the winning strategy, but using debit cards is having unprotected financial sex with everyone you do business with. If someone steals their records ZAP, your bank account it empty and you’ve bounced every check you have. If your PIN gets stolen ZAP, the bank even has discretion when/if to refund the money. If the merchant double charges you, continually bills you, over-bills you or any other number of things, ZING, your checking account is screwed up. I *do* think many people should… Read more »

Don
Don

For some reason the “No kids until you’re financially secure” tip just doesn’t sit well with me. I think the advice is sound, but at the same time, I don’t feel that money should rule that kind of decision.

I think it’s good to try to prepare yourself for children, but I also think that it’s something you cannot fully be ready for.

savvy
savvy

I disagree on the portions about college debt and credit cards. There are people with student loans that have interest rates as low as 2.5%, and then they get the deduction on top of that! Also, credit cards serve some useful purposes – they provide some transaction protection and can be used for credit card arbitrage if one desires.

Aimee
Aimee

Wow! That is truly impressive. I wish that I could go back in time with the knowledge I have now. It’s good to see that people are learning more about money and making great choices about debt!

Great tips too!

Michael
Michael

I’m with Don with the “No kids” rule.

We’re not financially secure yet. We’re *barely* keeping ourselves out of debt, and I’ve got a year and a half left of school.

Still, we decided we wanted a kid, and it’s been great. Things are slightly tighter, but even if it meant we had to get a student loan or whatever, he’s worth it.

We don’t get to spoil him or even get him everything we’d like to, but we sure do have fun with him. 🙂

Serena
Serena

The “no kids” rule looks only at one aspect – money – and ignores others. My son is 19 months old and I’m 29 – so I didn’t have him too early, but still in my 20s. In my case, I wasn’t making as much money as I would have liked when I had him – but my job was very very flexible – which was so fabulous for the first year of his life – After my maternity leave I worked a four day week for six months, and was always able to leave early if he got sick.… Read more »

Kevin
Kevin

For those who can control their spending habits, credits cards can be great. I rarely ever carry cash and I use my debit card only a few times a year – for everything else, I pay with my credit card. The one thing that I do though is immediately log into my online banking and pay off any charges I’ve made on my Visa. I’m essentially using my Visa as a debit card. Some people will say not to pay off your bills until they’re actually due – otherwise the credit card company is making interest off your money. However,… Read more »

ispf
ispf

[…] I found this inspiring post by J.D today on the “get rich slowly” blog. Its a submission from one of his readers who paid off all the debt (including mortgage) while he is still in his 20’s! Can you imagine what that must feel like! Check it out – there are some great tips (and some controvertial ones too 🙂 […]

shawnpetriw
shawnpetriw

Readers here may be interested in a book by Derek Foster “Stop Working: Here’s How You Can – Using the strategy of Canada’s youngest retiree.”

Granted it’s “Canadianized,” but much us useful for other jurisdictions.

He’s been retired for two years now, and recently did a follow up article in “Canadian Moneysaver.”

http://www.retireearlyhomepage.com/stopwork.html

shawnpetriw
shawnpetriw

“Sure, they’re happy with their children, but if they had waited a few more years, would they be less happy?”

Readers here may also be interested in the reality of children and happiness by reading “Stumbling on Happiness” by Daniel Gilbert. It’s an unpopular idea, but the truth is children don’t increase happiness, they DECREASE it! (more money won’t make you more happy, either!)

http://www.randomhouse.com/kvpa/gilbert/

shawnpetriw
shawnpetriw

Here’s a “childeren don’t make you happy” arguement from Time magazine:

http://www.randomhouse.com/kvpa/gilbert/blog/200606heres_to_tofu_baseball_heroin8.html

Michael
Michael

It’s an unpopular idea, but the truth is children don’t increase happiness, they DECREASE it!

You don’t consider that to be a hard and fast truth though, right? Wouldn’t the happiness delta depend on the particular parents and kids, and their relationships?

Our 9 month old is alway doing silly things, giving hugs, and making us laugh. For us, it’s definitely been an happiness increase.

I suppose it’s conceivable that some other set of parents who have a hard time with their kid may be less happy, but I don’t believe less happiness is a guaranteed results of having kids!

Sam
Sam

I disagree on the kids thing. Ultimately, lying on my death-bed, I KNOW I won’t be thinking “Man, I can’t believe I missed that lunch appointment that could have landed me a better job.” I’ll be glad to have all my children around me, and it will be a peace of mind knowing that my hard earned / hard saved money will “live on” as an inheritance to my children and their children.

shawnpetriw
shawnpetriw

“For us, it’s definitely been a happiness increase.”

First, you’ve probably forgotten how hard it’s been to be woken at 3 am night after night to change diapers, feed, etc. That’s the nature of the human brain – we forget the negative.

Also, you’ve got another 17 years to go!! Read the link!

Kidless
Kidless

I think commenter #19 makes a false assumption: that kids are the ONLY thing that can be worthwhile in a person’s life. It isn’t necessarily a choice between having kids or being career-minded. You can build a satisfying life alone, or with a spouse/partner, doing good in the world. It doesn’t take children to contribute to your community. In fact, most of the parents I know are too exhausted to attend local neighborhod activist meetings, pay much attention to politics or world events, or do their part for local economies or environmental issues. I often find it ironic that among… Read more »

Susan
Susan

As far as those studies go, have they controlled for things like income level, debt, and so on? Because I don’t think that people should never have children, obviously. There’s a big difference between “wait” and “don’t”. If you don’t have enough to support two, you won’t have enough to support three or four or five, and that strain may well mean that in the long run you’ll end up divorced and with a lousy relationship with your kids. But you don’t need to have a great career and a million dollars. You need to be able to stably support… Read more »

Jerry
Jerry

Being 24 myself, I have a few comments about this article. I do agree with taking out student loans – I worked 40 hours a week over three jobs while being a full time student to pay for school (I never took out a student loan). As a result, I never spent a single weekend on campus. I have maybe one person I can call a true friend from that time. I can say I have no student loans, but in hindsight with where rates were at, I feel as though it would have been a great burden lifted during… Read more »

Tammy
Tammy

This is one 28 year old that really has learned a great deal about how life and work actually come together to build a financial future. As a mother of 4, I think people should have children when they are able to afford them, enjoy them. I realize that is not always possible but as someone that has raised children when I had enough money and when I didn’t, when I had support and when I did it alone. Children need us to be able to be there emotionally and financially for them. Cultivating friendships, networks during your college years… Read more »

Russell
Russell

As someone whose family had a child probably “before we were ready”, I can say that I never would have gotten serious about securing my financial future without her. She kind of gave me a reality check about the financial decisions I had been making and what was truly important.

Joyce Burns
Joyce Burns

Do not have children, period, or you will no longer have financial freedom. I had children in my late thirties and instead of traveling and looking forward to retirement I am biting my nails about college/grad school. We were financially secure when we had them!!!Now…

Lyndsey
Lyndsey

They really ought to pay for college themselves. Who says you need to?

Brittanie Schmelz
Brittanie Schmelz

I agree with your points , fantastic post.

financial planning calgary
financial planning calgary

I’m planning to become a CPA. Currently, I’m in college (1.5yrs left) and work part-time as an accounts payable. Recently I was asked to come work at a CPA firm as an assistant in financial planning. The pay and hours are really good compared to my current job. However, I’m not sure if learning the new things in the financial planning position will stress me out. It’s all very new to me. Even though I’m not a brainiac, I am a very hard worker. But is that enough? I just don’t want this job to take away too much time… Read more »

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