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:
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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?