Since I entered the workforce after graduating from Iowa State University in late 2010, I have been giving advice to others on how to put their money to good use. There are few things I enjoy more than having a conversation with a couple about such a complex subject. Along the way, I’ve pushed myself to learn more about specific financial planning strategies to be of greater value to my clients. Most recently, I’ve spent my study time learning about human behaviors and psychology.
These readings have not only taught me about how I can be a better advisor to my clients, but also how I can manage my own finances better. Just because I can put together a detailed financial plan doesn’t mean I’m not subject to the same deceptive behaviors as you.
I’ve learned a lot about money and human tendencies over the past decade, both from my clients and from my own journey. Here are my key takeaways as I’ve started my career:
Life is going to change quickly, regardless of how good of a plan you have. An article by FiveThirtyEight says the average American will move 11.4 times in their lifetime. I’m 31 and have lived in 11 different homes or apartments. That number is soon to increase to 12. This has taught me to get rid of old belongings, as I don’t want to move them around anymore. Since a mortgage or rent payment makes up such a large portion of my budget, I have to remain flexible with how I spend my money.
A large cash reserve has wonderful benefits. There is an opportunity cost to not having your excess cash invested. But there is also a major advantage to having cash on hand. Due to prudent savings, I was able to take a chance on myself and start my own business. This wouldn’t have been possible if I didn’t have the liquidity to pay my bills while I went without a salary.
Starting to invest early is easier said than done. Since I started reading personal finance books in college, I knew that I needed to start investing as soon as possible. Compound interest is a powerful thing and every year counts. I started out by automating $50 per month into my Roth IRA from summer jobs earnings. As I entered the workforce full time, I steadily increased my contributions and I can see my efforts paying off already. There were plenty of ways I could’ve spent the money instead of investing, but I’m glad I took the path I did.
A natural lean towards frugality has set my foundation for a healthy financial future. But spending money makes me happy too. I’ve come to realize that my hobbies are expensive: golf and travel. To balance out the cost, I cut back on areas that I don’t care so much about: new cars and a new wardrobe. We never know what the future will bring us, which is why I take the approach to spend money on things I love today, while keeping an eye on securing the future.
Automating my investments has been a boon to my net worth. I do not believe that the markets can be beat in the long run. What I do believe in is getting out of my own way. By setting up a diversified portfolio and automatic contributions, I can continue to invest without the risk of my natural human behaviors getting involved.
I never imagined I’d be where I am today. More change is on the horizon: in May I will be getting married and can’t even begin to predict what the future may hold. I will continue to do my best to enjoy today and limit the mistakes I make in the years to come.