I just spent the last few hours reviewing our household finances – both short term and long term. As I looked at our mountain of debt and the number of years it will take to get out from underneath it, I couldn’t help but to reflect on all of the financial advice which I now give to others, but didn’t apply to my own life at times.
Hopefully, you will be able to learn from my mistakes and not fall into financial bondage as I have. Here are three pieces of financial advice that I wished I listened to when I was younger:
Financial Advice That Requires Discipline: Live Below Your Means
When I graduated from high school, I was given an older car by a family friend. It was 12 years old, not kept in great shape, had a 6-cylinder engine, and a T-top roof that leaked whenever it rained. There was a bad short in the electrical system, and so neither the horn, the radio, nor the rear defrost worked. The same goes for the heat and air!
I had that car for about a year and then one of my friends bought a newer car for himself and gave me his old one. That one ended up having a lot of problems as well. Then finally, I purchased a used car for about $1,000…dead after 2 months!
Needless to say that I was through with used cars at that point and went out to buy a brand new one! I was only 19 years old at the time with no credit whatsoever – so I had to find a cosigner for my loan. I planned to trade in my old car for a down payment (something that had been worked out with the dealer already), and it completely died on the way to the dealership!
Now this may not sound like a story of complete financial irresponsibility – the car was brand new, but it was only about $13,000 (I didn’t even get power locks or windows) – however, I was not in a position to purchase a new car. I had to completely finance the purchase from the dealer (except for the down payment which I borrowed from my mother), and ended up stretching the loan out for 5 years!
This began a habit of living above my means. I didn’t really spend more than I earned trying to buy luxuries, or “keep up with the Jones” – I actually had a below normal level of expenses, but my income was just that low! What I learned from that experience is that is doesn’t matter how much or how little you make or spend, but the key is to spend less than you earn!
Spend less than you earn and you will avoid so many financial headaches.
Financial Advice That Gives Protection: Build An Emergency Fund
Now, this isn’t one that I completely ignored. Once I realized that I was destroying my finances by spending money that I did not have, I decided to get things in order. I got a part time job and began paying off debt and saving money. At that point I never heard of an emergency fund, I just wanted to have a few dollars in the bank.
Then I figured that I was better off taking all of my money and using it to pay off my debt…which now included a few credit cards! This plan left me with more money with which to fight my debt, but no emergency fund! I’m sure you can guess what happened next…I lost my job!
So there I was unemployed, still in debt, with no money in the bank! I was forced to live off of my credit cards until I found another job. From that point forward, I decided that I always needed to keep an emergency fund no matter what financial state I was in.
Financial Advice For Life: Plan For The Future
I didn’t completely neglect thinking about my future when I was young, but I never put myself in a position to build a foundation either! I never focused on saving for retirement, examining IRA contribution limits, or trying to take advantage of the very high 401k contribution limits (I guess that’s because none of my dead-end jobs even offered retirement plans)!
However, planning for the future involves much more than saving for your golden years. But, because I was always stuck in debt I never sat down and developed any financial plans or goals outside of debt repayment!
I wish that I created a few long term goals when I was younger. They might have provided the motivation that I needed to take control of my finances much earlier in life! My main motivation now is my desire to honor God with my finances, and for us to be able to give more to support the work of His kingdom!
Now, my wife and I talk about our goals often, and hopefully with discipline, hard work, sacrifice, and obedience to God, we’ll be able to see them through.
- What are some pieces of financial advice that you wish you followed much earlier in life?
- What have you learned from some of your biggest mistakes?
- If you have children, at what age will you begin to teach them these things?
Unfortunately I was not raised in a family that was financially responsible so I had to learn lessons the hard way. Eventually I did figure out to stay away from credit cards and their debt. Of course I learned many more through the years but that one seems to be the first, most important one.
Khaleef Crumbley says
I completely understand where you are coming from! Have you had a chance to pass those lessons on to anyone else yet?
At the age of 32 I was unemployed, broke (no savings), and $50,000 in debt.
That was my low point and it took hitting it to wake me up! But it did wake me up and so I am grateful for the experience but I also wish that I had gotten smart sooner or someone had reached out to teach me what I needed to know. As important as that experience was to me, I would glady skip it!
Not soon after my low point, I got a job. A good job with the Federal government, with really excellent pay and benefits.
My debt was a big issue for me so I read all I could find on the matter. This was before the internet and the proliferation of PF blogs so mostly it was books from the library. In the end I made up my own debt-repayment strategy which was to pay the minimum so that I would maximize the money in my budget to build savings.
With my debt repayment plan on auto-pilot, I no longer had to think about and could concentrate on the more positive aspects of my financial future as opposed to the things I had done wrong in the past.
What I learned from my hardships was the importance of having a plan to save. For me, nothing provides more financial peace of mind than money in the back. With money in the bank and a plan to save, you can stop living paycheck to paycheck and stop living with the constant fear of some unexpected expense knowcking you for yet another loop!
Khaleef Crumbley says
I think I would have loved to skip my experience as well…and just learned my lessons from reading a book! ;-)
I am glad that you decided to build up your savings and just take a little longer to pay off your debt! If I would have stuck with that plan, then my financial situation may be completely different right now.
Kim at MMI says
I wish that I would have heeded the advice of my parents when they told me to think twice about mixing friendships and finance. I do think that there are some situations when it makes sense to lend money to a friend or family member in need; however, it is important to make sure that a short-term act of kindness doesn’t negatively impact a long-term relationship.
Khaleef Crumbley says
That is another huge lesson! Proverbs 19:17 says, “One who is gracious to a poor man lends to the Lord, and He will repay him for his good deed.” My wife and I have decided that if we are ever tempted to loan a friend or relative money, we will count it (in our minds and hearts) as a gift. That way, if we are not paid back, it doesn’t ruin the relationship – at least on our end.
There is one piece of financial advice I wish I’d ignored when I first started my career. Many financial planners advise you to invest just enough in your 401(k) to get the company match and then max out an IRA. Investing enough in the 401(k), up to 6% of my salary, was easy. However, I never got around to opening that IRA. So, I spent the additional money. Looking back, I wish I’d invested at least 10 – 15% of my salary in my 401(k). I grossly overestimated my initiative.
Khaleef Crumbley says
I think that if you are not satisfied with the options in your 401k, then this is very sound advice. However, if you don’t open the account, then you are better off putting more into the 401k and just dealing with the options.
How long did it take you before you opened the IRA?
My folks never spoke about money. My mom’s thinking was “you’ll figure it out.” That method doesn’t work well.
Our kids have been taught, by words and example. Bit by bit as they are able. The same way we’d teach them how to clean, cook, or do laundry. They’ve seen our books and understand the value of allocation. They know if they want anything “extra” they’ll have to get work. Necessities are covered.
As soon as they understand it costs something to buy a treat at the grocery store, they’re old enough to learn the basics. Once they’re able to do extra chores (besides keeping their room tidy) and get paid for a job done well, they can learn about saving for something bigger. (A jar in their room with a picture of the item taped to it helps.) If they spend the money on candy, it’s not in the jar anymore. They realize they’ve made a conscious choice to take the immediate over the long term.
I think if we continue to give our kids an unrealistic view of the real world we keep them suckling babies, always dependant. They have no resources when they are on their own. Life is tough. If we teach them the value of work, saving, delayed gratification, planning, they will be able to weather real life much better.
Khaleef Crumbley says
I am so glad that you take the time to teach your children about personal finance. You make a really great point about their ability to understand basic financial concepts at a very young age!
Thank you for sharing your experiences.
To : Olivia…I don’t have a sister but I somehow feel we were raised in the same home. Sounds like you are doing a terrific job!
Thank you both JMD and Khaleef for the encouragment
Although both DH and I never had any debt beyond moderate car payments and mortgages, neither one of us grew up in families that were taught principles such as those like Dave Ramsey does.
If I knew then what I know now, I would have been more willing to put more into retirement, take on second part-time jobs for emergency funds/non-retirement investing, and perhaps not even gone to college and pursued my dream of becoming a published author.
I also never would have bought the condo that I did while single.
DH would have invested more aggressively, and both of us would have much more wealth than we do now. And what we have is not shabby, believe me. Not complaining, just saying that there is always room for improvement.
Khaleef Crumbley says
You are absolutely correct! There is always room for improvement and always something that we can learn by looking back.
Very helpful piece of advise, thanks for sharing! For young adults I think the point you made about living within your means (and less) is so important. Society teaches kids at a young age to have the latest and greatest of everything, and its up to the parents to teach them to live within what one can afford (with certain splurges here and there). A piece of advice I wish I would’ve followed earlier in life, would be to pay off credit card balances asap and not let them stack up….because I was caught on that debt for many years and spent so much money on interests! And YES I definitely learned from that mistake!
Derrik Hubbard, CFP says
I’ve found the biggest challenge in my life is making the time to pass on the right principles to my kids as they are growing up. I know how I want them to end up, but I rarely make the time to really invest in their learning each week.
If I can pass on just one, it would be the trade off between their time and effort and the money and rewards that come from them.