More to Come
SINCE ENTERING the workforce in late 2010, I’ve 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, as well as about human behavior and psychology.
These readings have not only taught me how I can better help my clients, but also how I can better manage my own finances. Just because I can put together a detailed financial plan doesn’t mean I’m not subject to the same behavioral mistakes.
Indeed, 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 five key takeaways from the start of my career:
- Life is going to change quickly, regardless of how good your plan is. An article by FiveThirtyEight.com says Americans will move an average 11.4 times in their lifetime. I’m 31 and I’ve already 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, so I don’t have to move them. The frequent moves have also been a reminder that mortgage or rent take up a large portion of my budget—and I need to remain flexible in how I spend my other money.
- A large cash reserve has wonderful benefits. Yes, there’s an opportunity cost to not investing your excess cash. But there is also a major advantage to having cash on hand. Thanks to my savings, I was able to start my own business. That 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. After reading personal finance books in college, I knew I needed to start investing as soon as possible. Compound interest is a powerful thing and every year counts. I began by automatically adding $50 a month to my Roth IRA using my earnings from summer jobs. When I entered the workforce fulltime, I steadily increased my contributions. I can already see my efforts are paying off. There were plenty of ways I could’ve spent the money, instead of investing, but I’m glad I took the path I did.
- My natural frugality has set a 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, which is why I 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 don’t believe the markets can be beaten over the long run. What I do believe in: getting out of my own way. By setting up a diversified portfolio and automating my contributions, I can invest with less interference from my potentially damaging human behavior.
I never imagined I’d be where I am today. More change is on the horizon: In May, I’ll be getting married. I can’t begin to predict what the future may hold—but I’m making sure I’m prepared.
Ross Menke is a Certified Financial Planner. He strives to provide clear and concise advice, so his clients can achieve their life goals. Ross’s previous articles include Pass It On, A Great Gift and Bad Timing. Follow Ross on Twitter @RossVMenke.
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