A.K.A. Tips I Would Give to Myself If I Was Starting Over 25 Years Ago
Do you ever wish you could go back and have another shot at something? I don’t want to live with a lot of regret (and I don’t), but I’ve often thought about things I would do differently if I was just starting out in my career and starting to invest. I’ve compiled a list of 16 tips I would give to myself if I went back in time in my DeLorean with Doc Brown. Consider it a way to learn from someone who has been down the road already. Learn from my successes and mistakes.
Fortunately I did some of these things and they were successes. And some of the other tips I might not have initially done, but I’ve made some changes and realized how much better it would have been if I had known this 20 years ago.
1. Set a Budget and Live By It
Budgets are never fun to talk about and they always seem to have a negative connotation. But, before you can start investing, you really need to know how much you are spending and a breakdown of what categories the expenses are in. Most all of us know what we get paid, which is only half the battle. It will take a bit of effort to figure out your expenses, but you will be glad you did. I track mine with Quicken, but Mint is also a great resource to use for this.
After college, I started tracking my expenses and found that I was spending as much on music as I was on rent. I officially had a problem, but unless I was tracking it, I would never had known where to focus my cost saving efforts. Fortunately I got that under control and was able to get into a saving pattern.
2. Live Below your Means and Strive to save 10-20% of your Income
Once you have your budget in place and know where you are spending your money, be sure to budget for your saving/investing. If you get in the habit of setting aside a good portion of your income when you are young, you will get used to it and it won’t be a big deal and it will just be a natural habit. And to really grow your investments you’re going to want to set aside 10-20% of what you make. Be sure not to wait until the end of the month to see if you have money to invest. There is an adage that says you should always pay yourself first and I think it’s definitely true.
Ten or twenty percent may sound like a lot and it is, but even if you have to start at 3% or 5% you will get used to the habit and can increase more each year.
3. Always Pay Your Bills on Time
This may sound obvious, but paying your bills on time is one of the easiest things you can and should do. It may not necessarily help your credit score, but it can certainly hurt your score if you are a frequent late or non-payer. If you are old enough to have that cell phone or credit card, you have to be old enough to have the responsibility that comes with it. Consistently paying your bills on time is a great way to learn responsibility and consequences, but just know that the consequences are not just late fee penalties, but the credit agencies will be “keeping score” on you and establishing your track record.
But why should you care about your credit score? Your credit score will either help or haunt you when you renew your car insurance, try to get a loan for a car or house, and it can even be checked by a future employer. If this sounds a little invasive or overreaching, that’s tough, because that’s the way the system is set up. Even if you choose to live your life debt free, you’ll still have need for a good credit score.
4. When you make more money, save more money
As you progress in your career and hopefully make more money, you will be able to increase your savings to the 10% or 20% level and then keep increasing from there. A great chance to do this is to increase your savings each time you get a salary increase.
A good challenge would be to increase your savings by 1% each year and see if you can really tell the difference in the amount you have left to spend. I’ll be you won’t even notice, but what you will notice is your savings and investment balances growing and growing.
5. Invest Early and Often
Time is the key to getting compound interest to propel your savings into the stratosphere. Even if you can only start saving $50 or $100/month, if you are consistent and let it accumulate for decades, you will be able to amass a nice savings. Even if you make investing mistakes or if the market goes down (which it will from time to time), as long as you have time to let your investments grow, you will still be able to meet your goals.
6. Always seek out the lowest fee funds/accounts
Whether you want to invest in mutual funds, stocks, or bonds or a combination of all of them, the fees that the firm/brokerage charges you can have a large impact over the long term. If you invest in a mutual fund that has an expense ratio of 1.0%, that expense is coming off of the gains that the fund makes, so if the fund makes 10% return, you really have to subtract 1% from that number. If mutual funds (more specifically index funds) fit within your investment mix, they can be had for expense ratios in the range of 0.05 to 0.15% which is 10-20 times lower than the higher rate mentioned above. Check out your fund expense ratios (in your 401(k) or other funds) and save some money.
7. Buy and Hold instead of Chasing the Next “HOT” Investment
Unless you have chosen stock picking as your full time job, you don’t likely have time to properly research, analyze and pick all the best stocks. If you were that person, you wouldn’t likely be reading this post anyway. But for the rest of us regular folks, I hate to burst your bubble, but you’re not likely to be able to beat the professionals at this. If you want to be in stocks, leave it to them and forgo the regular buying and selling because the odds are stacked against you to make money over the long term doing so many trades. Stocks as a whole can be a great investments, so focus on a diversified approach that gets you into several stocks rather than just a few. And after you buy them, hang on to them until you reach your desired goal or need to sell to rebalance your portfolio.
8. Put your Investments on Autopilot
Our lives get busy with all manner of priorities and activities. The more things that can be automated and happen without added input from us, the better off we will be. Auto bill paying has made our lives so much easier so we don’t have to remember to always send a particular check on the 1st of the month. I have several utility charges that also bill directly from my checking or my credit card account so I can set it and forget it. The same should be with your investments. Set your 401(k) amount that comes out of your check automatically and then set up your other investments to do the same. If you have to rely on your memory to always remember to invest each month, you are unfortunately setting yourself up for failure. Simplify your life and watch your balances grow.
9. Take some Risks
If you put all your investments in the safest options (CD’s, money market, etc.), you are going to be just treading water financially speaking. In order to keep up with inflation and grow your balances, you will need to get a higher return on your investments than what CD’s and money markets can offer. That return will have to come with some risk. Granted there are ways to minimize risk by diversifying into various markets, investment types and so forth, but you just don’t want to have all your eggs in one basket. There are millions of variations of investments that could be put together to get you into a diversified portfolio that will expose you to some risk, but since you are diversifying, the risk will be minimized (or controlled) to a level that your can be comfortable with.
10. Splurge Every So Often
Saving money is great, but you can go too far if that is all you focus on. If you are only saving and accumulating money you’re going to burn out and get frustrated because you’ll never get to enjoy and experience something good that you saved up to buy. Life is more than just saving for retirement or accumulating net worth to achieve financial freedom. If you have a hobby or passion that you like, splurge every now and then on something that you enjoy doing or on an experience you enjoy that will be a lasting memory for you and your family. That’s money well spent.
11. Don’t Check Your Balance Every Day or Week
This is a long race; longer than a marathon. Saving for anything takes time, and saving for retirement or building your net worth can take decades. There will be bad days and good days with your investments, but you’re in this for the long haul. Don’t try to time your moves into and out of your investments. We talked about putting them on autopilot so let that happen. Then once a year (maybe twice) you should review all your investment holdings and get an idea of where you stand. This would also be a good time to rebalance or change investments if that was necessary.
12. Make Sure You and Your Potential Spouse Have a Compatible Money Philosophy
Money differences derail and upset more relationships than it should. The saying goes that love is blind and I tend to agree, because there are a lot of things that get overlooked in relationships when two people are in love. I’m not trying to break up relationships here, but at least if finances is a matter that you two disagree drastically on, it’s better to find out before you tie the knot. Whether you have joint accounts or not, the financial responsibilities in a relationship are intertwined. If one spouse is a good saving and one is a good spender, this could be a problem. Talk it out and really get down to the nitty gritty about how each of you views, spends, and wants to save your money.
13. Learn a skill to save money
There are specialists in your life that you will need to use for various tasks and services that may be beyond your expertise or just too hard to learn. But there are also plenty of opportunities to learn a skill that you can do for your own family/home that can save you money. If you are remodeling a home, maybe you can learn to install bathroom fixtures, learn basic electrical skills, learn how to install tile or wood flooring, learn to paint a room, etc. Maybe you enjoy being outside and don’t mind mowing your own lawn or doing your own landscaping. If you are great with numbers, perhaps you can purchase a tax preparation program and prepare your own taxes. There are many more options, but consider something that you can learn and do for yourself. The savings will compound nicely over time.
14. Travel extensively
This tip doesn’t necessarily have anything to do with saving money (except that you should save some to do it), but rather a life skill/experience that everyone should be able to have. Traveling within the US is good, but going to another country (even one where you don’t speak the language) is an eye opening experience. America, or any other country for that matter, doesn’t have all the right answers to every issue, so it is great to see and experience other cultures to see how the rest of the world works. It’s a big planet we live on and it can change how you see and do things if you are willing to go outside the borders of your state/country to see and do some amazing things with some great people that you will inevitably meet.
15. Give Generously
This is also not an item about saving money but it will help you get perspective. There are countless ways to give outside of yourself. You are but one of many people in your town/state/country/world and often by the virtue of what country you are born into, you have more privileges than other people. Money and savings are great, but helping other people is awesome too. Being greedy and self-centered with your money is a great way to find yourself bitter and alone. Singular focus on just saving and stashing/hoarding money is also likely to lead you to burnout and you will no doubt be disappointed, because you will never have enough money (in your opinion). Get used to letting some of it go to great charities and causes and you won’t regret it.
16. Shape your work around your life (not the other way around)
Maybe I saved the best for last. The tendency of most people is to look for a job in a chosen field and then shape their life around how that job goes and what the demands of the job call for. A radical difference would be to determine what type of life you want (family time, vacation, working hours, commuting time, on-call status, insurance benefits, family leave benefits, etc.) and seek out a job that can provide you with the most of your wish list as possible. For example, on-call jobs may pay a bit more, but if your lifestyle that you seek is not conducive to interruptions and you get family stress from it, perhaps it’s not the right job for you. Or, if your spouse gets 4 weeks of vacation and you only get 2 that might cause some problems when you want to pack up the family and take a great vacation.
Fortunately, just because you are in a job, doesn’t mean you can’t change your situation. A first step would be to try and get your current job/employer to accommodate the request(s) you have. If you seek a flexible work arrangement to be able to attend your child’s activities, it’s a discussion you could have with your manager. If there is no movement or options for change, then there is the next step of finding another job. It’s not the easiest thing to do but it can be better than being stressed all the time and causing family strain. High pay or status aren’t all there is to life; a happy family and healthy time spent away from the office are extremely rewarding as well.