Managing a family with 3 school age kids, a full-time professional job, 25+ rental units, an investment portfolio made up of mutual funds, stocks, private equity investments and fixed income, and enough time to watch NFL games leave very little time for reflection about my personal financial past.
But for all you great readers out there, I have done exactly that.
I sat down on a recent flight to think about how I got to my current financial situation and reflected on things that went well and things that could have been done better.
No one is perfect and I wasn’t too. They say it is best to learn from your mistakes but better to be able to learn from someone else’s mistakes.
For the followers of this blog, you know I was a big saver in my youth and that saving habit continued with me decades later to this day.
I was also diligent about investing that savings. Savings alone won’t do the trick for a bright and financially plentiful life.
That savings must be put to work to allow for the power of compounding to take effect. That is how I saved my way to a 7 figure retirement account balance in my 30s.
While I am happy with where my financial situation stands today, it doesn’t hurt to analyze the things I believe I’ve done right and the things I should have done (or done better) with the hopes that some of you can get some value from them.
The list below is what I would have told myself in my early 20s given my experience and what I know now.
Some call it wisdom but, to me, it’s just having more life experiences and being able to see how I turned out, as well as, other people I’ve observed.
Things I would tell someone now in their early 20s in order to achieve financial success:
Live At Home
What is the number 1 expense for someone starting out? It is housing expense. If you can eliminate or reduce that expense, you will be significantly better off than the rest of your peers.
According to the Bureau of Labor Statistics, a single person spends slightly over 64% of his income on housing, transportation, and food.
The breakdown is: 36.5% is spent on housing, 14.8% is spent on transportation, and 12.8% is spent on food.
There are also ancillary benefits to living at home such as savings on food, laundry, and other living expenses.
The savings from just living at home for three years can lead to millions of dollars in savings upon retirement when invested in the S&P 500 index fund (assuming future performance is similar to historical performance in which the S&P 500 index continues to return 10% annually).
The savings of living at home for 3 years can help fund your entire retirement.
How powerful is that!
Save And Invest Early
If you can’t spend the first few years living at home with your parents due to the location of your job or you just don’t have the option for whatever reason, the next best thing to do is to try to save as much as possible by finding roommates and minimizing your living cost as much as possible.
Also, save as much as possible by being frugal. It is okay in your 20s to be frugal. No one is expecting you to be a high roller. You are just starting in your work life.
Using public transportation to get from one point to another is a smart financial move. Not to mention, it is better for the environment as well. Getting a BMW at the age of 22 is just not necessary and, quite frankly, not a very smart financial move.
Once again, because I was able to save and invest my money very early on, I was able to save my way to a 7 figure retirement balance in my 30s.
Saving and investing early works. It is only math why it can lead to a large balance later in life and the math proves itself out.
Don’t wait, open that 401(k) account and start contributing to it now!
Create Side Income
Now that I’ve gotten older, it is harder and harder for me to get a comparable job in terms of pay, flexibility, and culture to what I have now.
That is the corporate trap of working for a company. The older you get, the more dependent you are on your employer to maintain your lifestyle.
If my company lays me off, it would be very hard for me to find a job that I would want to do. The search might take a year or more.
And I would have to prove myself all over again in my 40s as opposed to the flexibility I have at work today.
Imagine if I am wholly dependent on my corporate job for my livelihood, to make my mortgage payments, and to maintain my current lifestyle.
I would be super stressed out whenever my company doesn’t do well, loses a big client, or if there is even a whisper of cost cutting.
Who wants to have all that control turned over to your employer?
On the first day of work, start planning a side income. Diversify away from just your corporate income or day job.
Just as financial professionals recommend diversification in your investment portfolio, you should also apply that concept to your income stream.
Creating an online business or investing in real estate are two great ways of creating cash flow streams in the future. This will enable you over the years to depend less and less on your employer in order to maintain your lifestyle.
Buy Real Estate
As mentioned above, you need to start a side income. I am a big fan of real estate and have invested in rental properties as part of my own diversification of my income stream.
I believe that real estate should be the cornerstone of your investment portfolio.
Real estate allows for leverage. I believe strongly that this presents a great opportunity to be able to use someone else’s money to help fund your own rental real estate portfolio.
That is why I have continued to add to my rental portfolio over the past 15 years.
Not only do you get rental cash flow, but you also have a built-in inflation hedge.
Your rental income should go up over time in line with inflation. The real estate value should do the same.
Over time, your real estate portfolio can result in you being a mini-mogul.
Be Open To Your Partner About Your Financial Goal
Have open discussions with your partner about your financial goals.
Everyone has to choose the best time to have that discussion but it should be done if you are getting serious with your partner.
It is important that if your partner will one day be your spouse, you two should get on the same page.
I know it is hard sometimes to have those discussions. In fact, I’ve written a whole post about why it is beneficial to have a financial discussion with your spouse, open up about your own financial situation, and have a real discussion about your financial position.
The earlier you can have the discussion, the earlier you can plan for a better financial life together.
Live In Moderation
I am not a big fan of being extremely frugal. Frugality is good, extreme frugality is overdoing it.
I just think you have to be smart with where you spend your money and I came up with the ideal budget to achieve financial freedom.
There will be sacrifices that would need to be made. When you are starting out, you simply don’t have the money to be able to have it all.
That is why I preach living at home for the first few years. You can reduce or eliminate your biggest expenses.
That is why I am not a big fan of buying or leasing a car also. You can take public transportation or, once in a while, splurge on Uber or Lyft. There are many options now to get around, you don’t need your own car.
But at the same time, saving on those big items might allow you to spend on one or two items that might be important to you and have a big impact on the enjoyment of your life.
If traveling is what you like to do then go ahead, and book that trip.
If you are a foodie and enjoy the occasional nice meal, go ahead and book that reservation in the Michelin-starred restaurant.
Are you a golfing enthusiast? If yes, spend that money on your golf clubs and green fees.
The key here is to be smart about where you spend the money, prioritize one or two items, and spend your money only on those items.
I believe you can continue to save and invest over the long run (for decades) only if you live in moderation. Living a completely Spartan lifestyle might turn you off very early on.
Additionally, you want to enjoy life as well.
Be Aware Of All Job Opportunities
Even when you are working at a job you enjoy, always be aware of what other opportunities are out there.
You should never stop talking to people in the industry, headhunters, and former colleagues for industry insight.
One of the things I wish I did a better job of is continuously being aware of the job opportunities out there in the marketplace.
Being aware is not the same as looking to leave. But knowing what else is out there can benefit you in a few ways.
One, it provides you with market information and compensation. This can help with your own negotiation with your employer over compensation and growth.
Secondly, understanding the current jobs out there and what employers look for can help you keep track of what skills are important for you to build upon.
Lastly, while you are not actively looking, you might still come across a job that can be better for you or be the next level for you. Then you should interview and go for it.
The reality is that when you are looking to make a move to another firm, there is hardly the perfect job for you at the perfect time.
You should continuously keep your ear on the ground and your eyes open.
Focus On Making Work and Industry Connections
When starting out, it is important that you develop a good reputation and relationships with your manager.
But as you progress with your career and as you move up, it becomes more and more important to make and maintain work and industry connections.
Those work and industry connections can result in you moving up quicker in your organization, provide you with opportunities elsewhere, and also can serve as a foundation for you to build your own business.
Therefore, while it is important to do well at your workplace, don’t forget to carve out time to build and maintain work and industry relationships.
“Boring” Investments Might Be The Best
I’ve made several financial mistakes. Some of those financial mistakes have been costly tuition payments.
I’ve invested in high-flying internet stocks in the late 1990s, young Chinese publicly listed companies that went nowhere, written options that went to zero, and venture capital investments with high risk and no reward.
The biggest and most consistent returns, while being the least stressful I have so far across all my investments are investing in the S&P 500 index and real estate.
Those investments might be perceived to be boring but they have been the best for me.
Real estate and the S&P 500 allow me a few things: (1) it allows me the ability to put a large amount of money to work and (2) I can hold on to them for a very long period.
A lot of people look for get rich type investment schemes. While some of them might work out well (such as investing in Bitcoin when it was at $100), they also present a lot of people with financial heartache (such as buying Bitcoin when it was at $70,000).
My investment track record has not been good when I have deviated from those “boring” investments. That is why I continue to stick to those investments now!
Don’t Worry About The Crowd
Don’t worry about the crowd when it comes to personal finance.
The average person has $70,784 in household income and $79,000 in net worth in the United States. Both those numbers are medians meaning half of the people fall below and half above.
If that is what you want, then feel free to follow the crowd.
If you want to be in a better personal financial position, then don’t worry about what the crowd thinks or how they work.
When I was starting out, I lived at home. I didn’t get my first car until 5 years into my work life. And that car was a second-hand sedan I purchased for $5,000.
I used my young age as a cover in order to pull those off. I didn’t care how other people looked at me because, over the long term, those were the best financial choices for me.
Now at my age, I believe I have made the right moves. I didn’t worry about the crowd back then and, now, even though I am financially better off, I still don’t worry about the crowd.
At the end of the day, I am not looking to be part of the crowd. I look to lead them when it comes to my personal financial situation.
To The Audience: Are there other pieces of advice you would give to someone starting out? What were some of the best advice you have followed early in life? What conventional wisdom/advice didn’t work out so well for you?
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Many people work hard to better their physical and mental health. What about their financial health?
I started this blog back in 2019 to help people better their financial health as well.
My financial journey began with tens of thousands in student loan debt. Over the span of 20 years, I am close to achieving financial independence.
I truly believe anyone can get to strong financial health. Hopefully, this blog can help you on your financial journey to greater wealth and financial independence.
You can read more about me here.
Thank you for visiting. Come again soon!
Great content for the 20 somethings looking to grow wealth from the get-go! I always like to tell my clients to have 2 wealth plans… the slow and steady (boring) guaranteed plan – PLUS – an accelerator plan (exciting) that involves a side hustle, real estate, or passion project.
I agree, don’t pay attention to what the crowd is doing. Pay attention to your own potential and maximize it as best you can.
Michael – with the two wealth plans, do you try to guide your clients to shoot for one and have the other one as back up?
Boring index funds and real estate is the way to go. RE has a learning curve, but boy howdy, can you make some dough over time.
Fortunately, I was able to figure out index funds and real estate is the way to go. Unfortunately, I didn’t do it earlier.