5 Things I Wish I Knew About Money When I Was 20
I’ve been 30 going on 31 for a while now, so I felt it fitting to write the ever-so-popular “X Things I Wish I Knew About Y When I Was Z” post. I think my list will be a bit different than most because I already had a pretty good understanding of how debt and compound interest worked, even in college. I knew I should spend less than I earned and I knew I had to invest as early and as much as possible if I wanted to retire rich. The things I wish I knew way back when are a bit more nuanced. Without further ado…
5 Things I Wish I Knew About Money When I Was 20
- How you invest doesn’t matter so much. Pick a strategy and stick with it – What’s this? A personal finance blogger telling you it doesn’t matter how you invest? Of course that’s not literally true, but what is true is that how you invest, beyond the very basics, is far less important than how much you save. Whole-market indexing? Low-cost active funds? Small/value tilting? The impact these strategies will make in your long-term wealth, on average, are trivial compared to the impact you can make just by saving more money. Save enough, and it doesn’t much matter how you invest so long as you don’t make obviously stupid decisions.
- Good enough is good enough – I’ve tweaked my Roth IRA allocation quite a bit, just recently taking the time to simplify it a bit. Has each iteration improved my portfolio at all? I’d like to think so, but there’s really no reason to know for sure except in hindsight, and therein lies the problem: it’s impossible to optimize a portfolio ahead of time. I happen to enjoy nerding out about mutual funds and thinking about investing, it’s fun to me, but I can’t honestly say it’s done much to improve my returns. I may or may not end up out-performing the basic three-fund portfolio or run-of-the-mill target retirment fund. Since there’s no way to know in advance which portfolio will out-perform in the future, you will probably be just as well off not trying. I enjoy tinkering with my portfolio, so there’s no harm. But if you don’t enjoy finance, you absolutely should not feel any need to tinker. In fact, you should embrace the fact that it probably won’t do any good, anyway. Then go have a beer.
- Hard work won’t get you ahead, but smart work will – Raise your hand if you’ve always been told that if you work hard, you can be and do anything you want? It’s a lie. Hard work is important, but not as important as smart work. If you’re working at the wrong thing, you aren’t going to get great results no matter how hard you work. Your average janitor probably works just as hard as your average CEO, after all. Find the 20% of what you do that really, truly impacts your results and concentrate on that. Put another way, figure out exactly one thing that works for you and do it over and over and over again. That is the foundation of practically all successful businesses. Multi-tasking is for suckers and diversification is for investments, not your career. Be the best at what YOU do by continually enhancing your strengths, not shoring up your weaknesses.
- You’ll get more mileage out of increasing your income than decreasing your spending – Saving money is great, but it will only go so far. I fall squarely into “focus on the big wins, then get on with your life” camp. Sure, you should refinance your mortgage if it will save you $200 per month and yes, you should absolutely research big purchases such as cars, expensive electronics, etc. It’s time well spent if it can save you hundreds if not thousands of dollars at a time. But making your own laundry detergent? Switching to a cheaper brand of coffee? How much is that really going to save you per year? Not enough compared to the time and discipline required, I tell you. Not by a long shot.
- Having too much stuff can drag you down – The #1 problem with owning a condo is there’s nowhere to put all the crap I own, and I don’t even have that much crap! I’ve given a lot of my old stuff to charity over the last few years, and it’s liberating. I don’t use the vast majority of it, anyway, and having expensive things, far from improving the quality of my life, just causes me to worry about somehow breaking it. Do I take the iPad on the trip or not? What if I break it? Nevermind the fact that I never really wanted an iPad to begin with and rarely use it. It’s there, it’s expensive, and now I find myself worrying about it for some reason. I’m not arguing you shouldn’t spend money on possessions that truly enhance your life somehow: you should certainly spend money on things important to you! I’m just saying you might find most of the things you thought would improve your life really just get in the way at some point. I know I did.
What are some things you wish you’d known about money when you were younger? Leave your favorite tip in the comments!