Often, life’s lessons are learned through trial and error. When I was nine years old, I learned that I needed to wear a helmet doing tricks on my BMX bike. Unfortunately, I learned this when I had 47 stitches in my head after attempting an “Evil Knievel” long-distance jump and vaulting head-over-heels on the landing. Other lessons are learned through observation. I enjoy sharing with others what I’ve learned through experience. Here are five things I wish I’d known when I was younger about money and finance.
1. Pay yourself first (save, regardless). I started making money with a paper route when I was 11. I didn’t make the big dollars I expected; but I had a good understanding of saving a portion of my earnings. Honestly though, I was just saving up for some big ticket item in the future. If I’d known at that age to look at that as “Forever Savings,” my bank account totals would have a few more zeros at the ends. Start a Forever Savings account, and save a portion of your income – no matter what.
2. Don’t ever open a credit card. When I was growing up, many people told me that I’d need a credit card to establish a good credit report. Having a credit card, especially as a young student/adult, opens the door to making purchases you can’t afford. Once you start, it’s a very slippery slope; the more money you make, the more credit you are offered. With the lowest interest rates at 9-15%, if you don’t pay the balance, every month, you end up paying double or more for the original purchase.
3. If you can’t buy it with cash (almost always), don’t buy it. The only purchase that could economically make sense to finance would be a house. Usually, a house appreciates in value and even after the interest expense, you’re often unable to recoup your money and the interest spent. Try to buy everything else, even a car, with cash. If you can’t afford to do that, finance it for a max of two years. If you can’t afford the payment on a two-year contract, downgrade the quality of the vehicle.
4. Utilize a 15-year mortgage. Utilizing a 15-year mortgage instead of a 30-year mortgage can save you tens, if not hundreds of thousands of dollars over the next 30 years. This is a secret that no banker wants you to know. The only winner in a 30-year mortgage is the bank! A homeowner pays roughly 2.5 times the purchase price if they let the contract run to fruition.
5. Live a life of balance. After you get your savings habits and 15-year mortgage in place, do not be consumed by pinching pennies and hording your wealth. I’ve seen many people in their 40s and 50s, squirreling away all of their money while missing out on life experiences or not spending time with loved ones for the sake of saving for retirement. What’s left if it is all lost at the hands of an ill-timed accident or an awful bout with cancer that limited the ability to enjoy your wealth during peak time with family? It is a fine line; but when walked correctly, a truly abundant life is very attainable.
Of course, hindsight is always 20/20; however, there is value in learning from the experience and wisdom of others. We can’t go backward, but we can apply the lessons going forward. Perhaps you can put one of these ideas into practice right now.
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