Timeless Personal Finance Wisdom (or, “The Money Lessons I Wish I Learned Sooner”)

Photo by NeONBRAND

Thinking back on my high school days, there was only one class where I remember what was taught. In this class, we learned practical skills like how to create a budget, balance a checkbook, and invest in the stock market. Balancing a checkbook has since become an old fashioned activity but that Intro to Business class fueled my interest in the power of personal finance. I consider it one of life’s essential skills — right up there with reading, writing, and how to drive a manual transmission.

These are the money lessons I wish I learned sooner.

💸 Consider tracking your spending for a few months. I once did it for an entire year and learned a ton. Most importantly, it forced me to understand the full picture of my personal finances. I witnessed (sometimes painfully) where money was going, how much to save, and what was left over for fun stuff. 

💸 Even if you don’t track your income/spending, take the time to determine which spending categories are most important. Happily spend money on the things you care about and ruthlessly cut spending in the areas that don’t matter. For example, I gladly spend money on travel and eating out for lunch — both things I love to do. But I am extremely frugal when it comes to furniture and brand name clothing  — because I don’t value them. What’s your list? 

💸 Cutting costs is important but you will eventually reach a point of diminishing returns. If expenses are cut ad infinitum, you’ll run out of costs to cut. Don’t overlook the value in growing your income and future earning potential. Invest in your education, negotiate a higher salary, or start a side hustle (or all three). Cutting costs has a limit, but increasing income has no ceiling.

💸 Build up an emergency fund to cover 6 months of living expenses. Keep it in a low risk, liquid account that you can easily access when an emergency arises. Hopefully it’s never needed but it will ease your mind knowing it’s there — just in case.   

💸 Time plays a tremendous part in the success of retirement savings. Start saving for retirement beginning with your first job after school. It doesn’t matter if you’re only able to sock away $5 per month, save anything. Retirement might be 40 years away but it’s critical to get in the savings habit. The amount saved each month can be ramped up as your earnings grow.

💸 Don’t drive yourself crazy trying to build the perfect retirement portfolio. Most 401ks have an overwhelming choice of mutual funds, ETFs, or stocks at your fingertips. Don’t fiddle with the investment choices every month — it’s a waste of time and you’ll most likely end up doing more harm than good. I use a “target retirement fund” that automatically adjusts as I get older. This lets me set it and (almost) forget it, so I can review my account every 6 months instead of every 6 days.

💸 Remove the thinking from your savings, spending, and investing by automating as much as possible. I feed all my money to a single checking account and schedule monthly transfers to my savings and investment accounts. Everything continually grows over time, slow and steady, without the need for one-off decisions or manually moving money. It defaults my behavior to saving and investing, freeing up time to do more interesting things than constantly worrying about whether my checking account needs more money.

💸 Don’t try to time the market. You might get lucky, but you won’t realistically be good at it. The vast majority of financial professionals who dedicate their entire lives to this endeavor cannot consistently beat the market. What makes you different than them? The S&P 500 has outperformed most actively managed funds for the past 10 years running. 

💸 Low fees are your best friend and index funds usually have the lowest fees. The lion’s share of my investments are in an S&P 500 index fund that has a .04% expense ratio (I pay 40 cents annually for every $1,000 invested). Investment fees, even if they appear small, can wreak havoc on an otherwise sound investment strategy. Jack Bogle, inventor of the index fund and founder of Vanguard, said it best. “Where returns are concerned, time is your friend. But where costs are concerned, time is your enemy.” 

💸 With that said, it can still be fun to play Wolf of Wall Street and invest in individual stocks and invest more aggressively. Jack Bogle calls this his “Funny Money” account and I follow his recommendations: “Life is short. If you want to enjoy the fun, enjoy! But not with one penny more than 5 percent of your investment assets. That can be your Funny Money account. But at least 95 percent of your investments should be in your Serious Money account.“ 

💸 Contrary to what you read, building wealth is boring. It’s not about a million dollar idea, a million dollar stock pick, or a million dollar lotto ticket. Save consistently, invest consistently, and reap the rewards of compound interest

Recommended Reading

The below books have helped me tremendously during my lifelong personal finance journey. 

📚 I Will Teach You to Be Rich by Ramit Sethi – a must read for any recent college grad (and everyone else, really). A lot of the above advice is from Ramit’s book. 

📚 The Little Book of Common Sense Investing by Jack Bogle – my specific investing strategy is heavily guided by this book. 

📚 Berkshire Hathaway annual reports by Warren Buffet – I never thought I’d spend my free time reading corporate annual reports but these are a master class in making complex financial topics seem simple. 

📚 The Choose Yourself Guide to Wealth by James Altucher – a unique book on finances and life that inspires you to think outside of the box. 

📚 What I Learned Losing a Million Dollars by Jim Paul & Brendan Moynihan – tells the story of Paul’s disastrous fall from investing grace and delves into the psychological aspect of investing. 

📚 Where Are the Customers’ Yachts? by Fred Schwed – originally published in 1940, this book hilariously pulls back the curtain on Wall Street and the lessons still hold true today. 

📚 Enough: True Measures of Money, Business and Life by Jack Bogle – when talking about finances it’s easy to lose track of what really matters (hint: it’s not money). This book focuses on the important things in life through a financial lens. 

Bonus Advice!

In writing this post, I was wondering how other people think about their personal finances and what lessons they’ve learned. To answer that question, I asked a few trusted friends “If you could pass along only one piece of financial advice, what would it be?”

Judging by their replies, I regret not asking the question sooner. 

💡 “Figure out how much risk you are willing to accept, which will most likely change as one gets older. Then get advice and information from lots of sources (e.g. books, financial experts, friends). This will help you make good decisions that align with your goals.”
-My Dad

💡 “Live below your means.”
-Aunt Joyce

💡 Make building your credit your priority. If you don’t have credit or it’s poor, go to your local credit union and ask if they offer “secured loans”. These are small loans taken against the balance of a savings account. This is the fastest, safest way to build credit, especially for people who don’t have a lot of income or have issues controlling credit card spending. If you do want to go the credit card route, many companies offer student cards with low limits.”
Johanna Silfa 

I’d love to hear your answer to the same question: If you could pass along only one piece of financial advice, what would it be?

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  1. When you mention, how to time the market. It seems you’re going down the route of suggesting an alternative to timing the market such as dollar cost averaging but then say purchase S&P 500. You don’t mention alternatives to timing the market.

  2. The ship hasn’t sailed and it’s not too late to start again. If you’ve ever made, let’s say unwise, financial decisions in your youth or even in middle age, wipe the slate clean and begin anew. A less than ideal retirement portfolio is better than no retirement portfolio at all. All the ideas here will still apply with some adjustment to reducing spending and your risk profile. Great reminders!

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