I was asked the other day what life advice I could give a twenty (20) year old.
…..Boy, where do you start ??.....
Obviously this is not a short simple answer, so I have decided to create a four (4) part blog regarding the four (4) areas of health in our life that every young adult needs to know. It is primarily the decisions one makes in their twenties that dictates the life they will have in their middle aged and senior years. Tune in each week for the next part.
1. Physical Health
2. Financial Health
3. Relational Health
4. Spiritual Health
Part II: Financial Health
The decisions you make regarding handling money in your twenties will determine whether or not you are wealthy in your 30’s and 40’s. This is not advice, it is cold hard fact. You will not get rich by getting an education, you will not get rich betting on the stock market, and you will not get rich by landing that great job. You get rich by managing the income you have and that starts in your twenties. If you wait until later in life to start proper handling of your money, it may be too late, and in addition, you will have to pay off the debts of your earlier years before you could even attempt to make positive gains.
The way to financial health and riches is to avoid debt and control spending. This unfortunately is contrary to the way most young adults think. It is also contrary to their inability to delay their wants. For instance, you get your first real paying job and the next thing you do is go and buy a car. So, you no sooner do you get an income and you are already in debt. Furthermore, the debt is not for anything that you really needed, it was for something you wanted! It was also for something that will devalue over time, so you can’t even claim you were investing! Try this instead, buy a cheap used clunker that you can pay cash for. Then take the $300 or so a month that you would have used for a new car payment and put it into a savings account. Then in a few years, you will have the money to purchase the new car you want in cash and still be debt free. (PS: you also get a much, much, much, better deal on the car when you pay cash and don’t lose money in interest).
Q: I need something that is reliable, I can’t afford to keep fixing a car?
A: You are making an excuse. I have owned many a clunker and none cost me as much as a regular car payment to keep running. Plus the insurance and taxes were lower.
Q: Don’t I deserve a new car?
A: No you don’t!! Quit being a spoiled brat. You deserve what you can afford.
Q: I am only in my twenties once, shouldn’t I enjoy these years instead of living so frugal?
A: …Oh, you want to have fun and blow your money… …I didn’t realize that… …!
By all means, spend your money, have fun, buy cool things, and prove to the world what scientists have known for years. …That the human brain doesn’t fully develop until age 28.
In a nutshell, if you ever want to be as financially strong as you possibly can, then learn to only purchase things that do not require you to go into debt. If you haven’t earned enough for it, then do without.
Rule #1: Do not go into debt for anything, anyone, or any reason.
Rule #2: Buy a car you can pay cash for and start saving for the next.
Rule #3: Do not put anything on a credit card that you can’t pay off that month.
Rule #4: Forget student loans. Work part time and go to a community college. Then try to earn scholarships for the remaining 2 years of college. Go to an in-state school you can afford. Trust me, I know many people that paid for their own school without student loans.
Rule #5: When it comes time to buy a house. You may take out a loan for this, as long as it is no more than twenty (20) years.
Let me finish up with a story of a young couple I know of. Jan and David married young and decided during college that they wanted to be debt free when they got out. So they both worked throughout their college years and drove piece of crap clunkers that did little more than get them from A to B. They found a little old lady who rented them a room above her garage for next to nothing. They also spent no money at all except to eat. Well, at around 22 they both graduated college and got good paying jobs. But unlike all their friends, they chose to continue lining in the garage and driving their clunkers. Furthermore, they continued to not spend money on anything except the basics of life and put the rest into savings. This went on until they were about 26 years old. Now came the time to do something with all that money they were “hoarding”. The two of them went out and bought 2 cars and a house in cash!! That’s right, at age 26, they owned both of their cars and their home outright!! So now, they were not saddled with debt and had a great deal of disposable income to spend having fun and playing while their friends struggle with their mounting debt.
To paraphrase Financial Expert Dave Ramsey, “live frugal now like no one else, so later you can live financially free like no one else.”
(FitMart is a licensed Engineer. He has also been a financial counselor, tax preparer, held a series 6 and 63 securities license, certified procurement officer, and business owner.)