A few hints from my own financial journey. It seems like everyone is coming up with their five things or six things or ten things. Sometimes, as in the case of Warren Buffet, they are from experience. Sometimes they are habits others are developing.
I'm now 63 years old, and, while I'm not nearly Warren Buffet, perhaps that makes my hints easier to believe for a typical person. So here they are, sort of in order, but not numbered because the number is irrelevant.
- Believe that you can and learn all you can. In my case, I spent most of my career in accounting and corporate financial planning. That means tracking revenues and expenses, forecasting future revenue and expenses, developing future customer acquisition models and later directing and training others to do the same. My career spanned large and small organizations, for profits and non-profits. I found that if I kept a positive attitude and continued learning, that led to the next step. For example, I didn't take the Certified Management Accountant exam until I was in my early 30s, the same with my MBA program. Both of those led to promotions as well as additional credibility as I looked for other jobs.
- Invest what you can as early as you can. I began my investing at age 18, almost inadvertently, but I started. One mistake I made is that my emergency fund was very small because like a lot of young people, I was so excited about having a full time job, I spent more than I should have, BUT I always maxed out my fully matched 401(k). So, that came off the top.
- Have a plan. OK. This might be implied in some of the other tips, but if you don't have a plan, you'll never know if you have enough or if you need to adjust your plan. If you change your goals (such a buying a house or upgrading houses, retiring early, deciding to add expensive hobbies or travel to your goals), you won't know how to decided if you need to invest more or more aggressively or work longer, even if just part time.
- Closely connected to #2 is know things like the rule of 72. The reason is that it is amazing how fast your money multiplies when it is invested aggressively. (Always take into account your individual needs when determining investment allocation.) The increase is exponential over time. Investing at 10 percent is far better even than investing at 8%. The rule of 72 says that if you divide 72 by your expected return that will approximate how long it will take your money to double. So, at 10%, you money will double in about 7.2 years. If you begin at age 22. Money you invest and hold for 40 years will double almost six times. So, $4,000 becomes $8,000, $8,000 beccomes $16,000, $16,000 becomes $32,000 and so on until you have $256,000 at about age 64 (these numbers are only approximate and not guaranteed). Yes, that's only the $4,000 you invested as a 22 year old. Think of all of the money you invest after that. One of my mistakes is that I was afraid when I was young. I did not invest aggressively enough early enough. Of course, you will want to diversify your portfolio well ahead of retirement, so this example is a bit optimistic, but it still gives an example for those who think they don't have enough to invest or that they'll just wait a bit before investing.
- Overplan. This assumes you have a plan. One good thing is that I've always been a planner. I can't say that I had a locked in perfect financial plan by the time I was 22, but I continued to refine my plan throughout my life. In addition, I tried not to be optimistic. Don't skip on your investing. If you think you will need a million dollars at retirement, shoot for $1.2 million. I hit my approximate retirement date in 2009 when my daughter graduated high school. A lot happened then, and while the crash of 2008-09 put off my retirement a bit, I wasn't devastated because I had overplanned. You can't anticipate every eventuality, but you can plan to cover at least the vast majority of set backs. I was also able to endure a cancer diagnosis and treatment that lasted the bulk of 2020 and the beginning of 2021.
- Don't suspend contributions/investments or withdraw from retirement accounts. Of course, there are exceptions to every tip or recommendation, but almost everything in your life can be adjusted in the short run. This is especially true if you develop even a modest emergency fund. Some people say three to six months of emergency fund at that's wise, but many people struggle to get there. However, you should still have enough set aside for something like a new furnace, large car repair (think new motor), and a couple of months or more of essential expenses (such as rent/mortgage, food, transportation). If you do that, then there is almost nothing to interrupt your plan. In a nutshell, be consistent with all investing and saving, not just for retirement.
- Be frugal. Yes. This is relative, but if you look at many people, even very wealthy people, they don't show off and they don't buy a lot of unnecessary stuff or even trips. Sure. If they are really wealthy, then they can do all of that, but while you are building wealth, that isn't the time to be spending a ton. There are plenty of things you can do that are not expensive. My wife and I were probably too frugal when we were younger, but since it paid off, we can't complain too much. The other benefit of being frugal is that it can increase your creativity at finding fun things to do that don't require money or at least not much money. I once put up the folding card table in the living room with a red and white plaid table cloth, put on some Italian music, cooked a nice Italian meal from scratch (no, I did not make the pasta from scratch), and we had a wonderful evening and danced to the music after dinner. Yes. I still had to clean up afterwards, but it was well worth it, and my wife appreciated the thought, the work and attention to detail.
Sometimes getting ahead seems impossible, but I've met enough people over my lifetime, both young and old, who have made great progress in their financial goals. Perhaps they haven't followed all of my tips, but I'd guess the most people follow most of them. While not essential, I have also invested in real estate once I got to a certain point. There are several plusses and minusses about real estate, but that's for another post. I would encourage everyone to at least consider real estate in some form as an additional option. See the link below for ways "regular" people can invest in real estate without having to buy property.
