Financial Lessons I Would Teach My Younger Self
A quote often repeated is "With Age Comes Wisdom". However, many people don't know that is actually a shortened version of the quote by Oscar Wilde. In its entirety, "With age comes wisdom, but sometimes age comes alone." Now it takes on a whole new meaning, don't you think?
Either way it made me reflect on the now popular trend of sending letters, lessons and wisdom back in time to our younger selves.
I've learned a lot over the past 35 years being involved in finance and there are bits of wisdom I would like to share with my younger self, or more importantly my younger clients who can actually take advantage of this sage advice.
A distinct advantage a young investor has is time. Time to save, time to wait out a downturn in the markets and time to allow money to accumulate. It's like raking leaves—little by little a few small ones grow into a huge pile to jump in.
SO here are the gems:
Save early and save often:
We all have learned by now that saving early gives you the benefit of compound interest, but here is a REAL example that proves the point. Amy (age 25) starts investing $3,600/yr for 15 years at 8% growth and then stops. At age 40 she has $104,500 and at age 70 she has $1,050,000! John doesn't start to invest until he is 40 yrs old and invests the same $3600/yr but does so for 30 years at 8%. At Age 40 he has $0 because he is just getting started and at age 70 he has accumulated $450,000. A nice nest egg but clearly less than half of what Amy has and he had to invest more to get there. ENOUGH SAID!
Invest for your future but don't forget to live for today:
While saving for the future IS important so is enjoying life today. Remember to take some time, as funny as it sounds, to unplug and recharge. We all need time away from work or the day-to-day to relax, explore and smell the flowers. Enjoy whatever your passion is whether it's travel, golf or photography. Allot some time and money to pursue those passions and truly enjoy them. It will pay “dividends” to your overall wellbeing.
Don't leave money on the table—401k matches:
If you are fortunate enough to have a 401k at work and to have your employer match your contributions then take full advantage of that. All too often I have seen people not contribute which means they are losing out on reduced taxable income that year, loss of tax-deferred growth and most importantly "free money". You only get the current year's match each year—it doesn't come around again!
Diversification doesn't mean have multiple advisors:
Choose a financial advisor like you choose your doctor. Pick one who has the education and experience you desire as well as one you can communicate with easily and that you trust. Then listen to her, work with her as a team to bring about great results. Don't try to listen to more than one or play them off each other. You wouldn't do that with your doctor, unless you need a second opinion, which brings me back to work with someone you trust.
Keep track of things:
Keep good records. Save important records like tax returns, cost basis of investments, insurance policies, powers of attorney, healthcare directives, etc. electronically. It not only saves space; it also allows you to call up the info quicker and from multiple devices wherever you are.
Don't look a gift horse in the mouth:
If you are the beneficiary of an inheritance don't treat it as if you just won the lottery. Treat the money with the respect it deserves. It usually comes with some emotional attachment from a lost loved one who worked hard for it, loved you and wants to see you do something worthwhile with it. By all means, use it to help you achieve your goals but don't go on a spending spree.
Take what you hear with a grain of salt:
Not all the news we are exposed to every second of every day is helpful or even true. Know who to trust and rely on. The media's job is to hook you to keep their advertiser's happy. Not every financial or political event or tweet is noteworthy. It's a lot like the weather: while it’s good to know what's going on, not every forecast of rain turns into a CAT 4 hurricane.
Work with those you trust---it's a relationship business:
I can't stress this enough. You should enjoy working with and chatting with your advisor. Develop that type of relationship with him/her and you will value it more.
Make a decision:
This has become one of the mantras for life. We all have to make many choices in life, so educate yourself about it, talk it over with those you trust but do something! Don't create a web of indecision so tightly woven you can't make up your mind. Few choices in life can't be undone. If your decision doesn't play out the way you hoped, then change and follow a different path -- but do something!
Don't waste time trying to create a story around why something is the way it is---just ask. When you open a dialogue you learn something, you get to the answer quicker and you can put your valuable resource of time to better use. And remember what' the worst that can happen—the answer is no. Well, you aren't any worse off than before you asked and it might just direct you down the right path.
Written by Lori Johndrow
Lori is a 35-year veteran in the financial services industry. She is both a Retirement Income Certified Professional ® and Accredited Investment Fiduciary ®. Both areas lend themselves to helping her aid people in creating lasting wealth.