After over 40 years of life, I have found a few tips that have served me well. None of these are earth-shattering; some run contrary to financial advisor advice. Almost all of these have to do with delayed gratification and perseverance. All of them have served me well and got me to a place of financial comfort I am fortunate enough to enjoy today.
- Pay off debt, highest interest first—Personally, I can’t stand being in debt or owing anyone. It negatively impacts my ability to sleep. When I was in my 20s, with student debt and signing up for a mortgage I found that it’s a bit unusual to have debt bother someone *that* much. I could barely eat when my wife and I went to dinner to celebrate our new home. My wife and I were just starting out, and our net worth was deep in the negative. I was incredibly fortunate to be able to borrow money from my parents, as I neglected to figure in the ridiculous fees associated with house closings (it was my first after all). I usually think of that as day 1 of paying off debt. I quickly paid off my parents and paid off my bachelor’s student loans. Then I went to grad school and paid those loans off. Paid off vehicles and then focused on the mortgage. I’m happy to say I’m 100% debt-free today; I owe nothing to anyone (except gratitude to family, friends, and coworkers).
- Always pay more than the minimum on a loan, especially a mortgage—my wife and I were fortunate to both be employed and have decent-paying jobs. Due to that, every raise we got, a bulk of the money went toward our mortgage until we paid double the minimum. If you pay more than the minimum, it will take years and thousands of dollars off the life of the loan. Play around with extra payments on amortization schedules and see what it can do for you. Always pay early, often, and more than the minimum.
- Buy cars off of a 1 or 2-year lease—when I was in my mid-20s I went to the car dealership thinking of getting a brand new car for the first time in my life. Unfortunately they didn’t have the color in stock, but they did have one that came off of a 1-year lease. The price difference was over $10k (which was 1/4 the price of the car), and it had less than 20,000 miles on it. Felt like an amazing deal. I’ve done this a few times in my life and haven’t regretted it once.
- If you don’t have cash in the bank to cover it, don’t buy it—this is the earliest financial lesson I remember from my father. He always said ‘if you cant afford it, don’t buy it.’ Which is short, sweet, concise, and to the point. Outside of education and a home, I agree 100%. If you want a new TV and don’t have the cash for it, don’t buy it. Save for it. If you can build that as a basic habit, it will save you.
- Always invest immediately into a 401k to the maximum matching amount from your company—it’s free money they’re giving you, and it’s sacrificing a little now for a lot later when you retire. Compound interest is amazing, and well worth using to your advantage.
- Build a savings of up to 6 months of cash needs—I generally subscribe to the high-level process outlined by Dave Ramsay, though we disagree on some specifics. For example, I believe a person with self-discipline can use a credit card without getting into credit card debt. I’ve used a credit card since age 18 and have carried a balance once in my life (which is when I closed on my first house). Carrying a balance and owing my parents is what snapped me into budget and payoff mode. The priority is to build a reasonable savings, get out of debt, and then invest in indices while all along investing in a 401k. I view 401k as a ‘set it and forget it’; it’s not money that you can use.
- Invest in index funds (i.e., S&P 500 and DJIA)—I like using indices that mirror the DJIA or S&P 500 because they’re easy to track. If you hear the pundits say ‘the market is doing well,’ then you know you’re doing well. Over time the investments grow tremendously as long as you feed them consistently.