When I entered the real world, there were no personal finance or investing related blogs. This forced me to rely on limited advice I received from others or I had to figure things out on my own. Some things worked, and some things just blew up in my face.
In reality, the only worthwhile financial advice available was through a decent financial planner / real-life broker who would actually return your call (depending upon the size of your account), reading the major personal finance magazines (i.e. Kiplingers, SmartMoney, etc), or having a mentor of some type.
Being a relatively quiet and cynical person, starting a blog is not a seemingly natural act for me. However, one of the reasons I wanted to start a blog is so others could benefit from my mistakes.
To start at the beginning, I think the best way for potential readers to get a good feel for where I’m coming from and expedite the learning curve would be to learn from the successes (and failures) I learned along the way.
Find a successful investor to serve as a mentor. I was fortunate to have a friend of the family who was a successful investor. I mowed his lawn in trade for teaching me basic investing skills at the age of 17. I began investing my own funds at 22, and now “work” as an independent investor/trader. Seems I’m not the only one who subscribes to this theory! Google’s CEO, Eric Schmidt, gives a brief 40 second interview with CNN Money in their The Best Advice I Ever Got series.
Learn from your mistakes and/or the mistakes of others. I grew up with spendthrift parents, and to this day, they never cease to amaze me with the antics they stumble into. Their home should have a corporate VISA and Wells Fargo imprinted over the garage thanks to the quantity of home equity loans they’ve taken out over the years.
Buy a home in your 20s. This approach isn’t a realistic possibility for some due to extraordinarily high prices in some major metro areas, but the vast majority of people can afford to buy a home if they put some serious effort into saving for a down payment and searching for a home to fit their budget.
Get a roommate to pay half your bills. Having a roommate (a spouse, significant other or a friend) may not be a desirable choice for everyone, but having someone to cut your living expenses in half is a big plus. This allows extra cash to build an emergency fund, short term savings goals, or boosting your retirement contributions.
Live below your means. Just because you make the cash to live the high life, doesn’t mean you have too. One theme I found useful was to ignore any salary raises I got for an upcoming year, and allocate that raise into a savings account, investment account, or boost my retirement savings.
Avoid credit card debt like the plague. No way am I paying 10% or more in an interest bearing account to some corporate suit so I can buy an electronic gadget before I have the cash. I avoid mindless self indulgences and wait until I have the cash.
Buy a car and keep it until the wheels fall off. Okay, that’s just an expression, but it supports the theory that continually maintaining a car payment is a poor personal finance decision unless you have money to burn.
Avoid the marriage trap. Now before I’m burned at the stake, I mean that one should be 100% certain they’ve found “the one” before making the big plunge into married life. If your marriage ends prematurely, your financial future can take a serious hit before you even get started, or take an even larger hit after you have built up a suitable retirement plan.
Stay as healthy as possible. I know that healthy means different things to different people, but your health is your number one asset. Maintaining a weekly exercise regiment fights a multitude of illnesses that can strike in later life, so think of your health as an investment in your future.
Monitor your credit report. It’s the least sexy of the entire list, but being a young adult and continually abusing your credit score means you’re begging for trouble in later life. Your ability to function in a nation of consumers will revolve around your ability to use credit, and the expense at which credit is given to you.
Get Financially Literate. Not every wealthy individual has an MBA. In fact, many of the wealthiest individuals do not even have a college degree. Have you ever heard of Bill Gates? Knowledge is power, and it is important to become knowledgeable with regards to money and finance. You do not have to attend a college or university to acquire this knowledge. Read everything you can get your hands on like books, magazines, and newsletters. Pick the brain of every successful person you know. Put life’s lessons to work for you. Things you have already experienced can be useful in making smart investment and business decisions.
Grow Your Money. Save for investing. If you save one hundred dollars per month for a year, you will have $1200. If you invest $100 per month, you could end up with $1300 or more at the end of twelve months. That’s an important difference. Think of growing your money as an obligation. Contribute weekly, biweekly, or monthly as if it were a debt. After all, it is no less important to pay yourself than your car payment.
Learn to Accept Risk. The cliché is “no pain, no gain” and if you are going to become wealthy, you must learn to take risks and live with the occasional pain of losing. Steve Jobs, Apple’s founder, lost a quarter billion dollars in one year. When opportunity knocks, you cannot be found cowering behind the door. Many of the world’s wealthiest individuals are entrepreneurs. Entrepreneurs routinely take risks. Of course, you have to understand the risk versus the reward. Each opportunity must be analyzed and the risks and rewards carefully considered. Most of us can rely on our life experiences for direction and guidance. We have all learned there is no free lunch (I hope).
Don’t Spend More than You Earn. I know this seems painfully obvious, but as a practical matter, if you have debt, you have it because you are spending more than you earn. Take a moment and get your head around this concept. You have an auto loan because you did not have the money to purchase it outright. The same is true for yourmortgage, your college debt, and so forth. I am not suggesting that you forego a home, a car, or an education, but I hope your takeaway is that debt is often a red flag, a signal that you are not living within your means.
If You Don’t Have it You Can’t Spend It. You can avoid the temptation of overspending by automating your savings and investment. If you have a 401k plan at work, contribute, at minimum, the amount your employer will match. You can also earmark money taken from your paycheck or checking account for deposit into a savings account. If the money is not in your hand, you are less likely to spend it.
Diversify Your Income. It is a common perception to view your earnings as fixed—an amount that needs to be allocated to various obligations like housing, utilities and other recurring obligations. This is a mistake. Alter your paradigm and think of ways to increase your income. If “fixed” is the way you view your income, that is the way it will be. You know that it is imprudent to put all your money into a single investment. All the best financial advisors encourage diversification of investment. Diversifying your income stream is equally important. Consider how you spend your leisure time. Is it possible to use that time to pursue a part-time job, create a passive income, or start a small business? Diversifying your income will help you build your wealth and in today’s uncertain economy is a big plus for your financial peace of mind.
Studying about cash is one of the best investment strategies you can create in yourself. Expanding your earnings resources is not only intelligent, it seems to be the way to endure these days