What I Wish I Knew About Money As A Young Adult

Have you ever considered what you would say if you could write a letter to your younger self? Something that you would tell that self that would make your life better later on. Join me as I write to my younger self about money and finances. If you are younger now, consider what you might gain from the lessons I learned on my life journey.

Dear younger Tom,

Now that you are out of college and starting your first full-time professional job, I wanted to give you some pointers about finances that will help you become financially successful and independent throughout your life.

Image over the shoulder of a man starting to write on an empty pad of paper on his lap courtesy Peter Olexa on UnsplashUse Credit Wisely

I know that you’ve mostly been paying for things with cash or a check from the checking account you opened in high-school. You’ve learned that you can only pay for things if you have the money in the account. Since you recently obtained your first credit card, you should continue to use cash for most of your expenses. Only use that card for something if it is more expensive or not convenient to carry a wad of bills around. But when you use it, only spend what you have in the checking account to cover. If you don’t have the money to pay it off when the bill comes, don’t buy it. It is a convenience, not another source of money.

You are going to want a good credit score. Go ahead and put the telephone bill on the card each month rather than writing a check. The regular use will improve your score. You may want to get a second card just as a backup since you might find a place that won’t take that new Sears-owned card. Oh, and don’t give out your social security number. Lots of places will ask for it, but you don’t have to give it to them. You’ll thank me later!

Don’t Go For The Latest And Greatest

You’ve done a good job keeping that older college car running when your co-workers were all buying new cars and financing them. But you shouldn’t finance something that is going to go down in value as soon as you buy it. Save money and buy a newer car only when you have saved up enough to pay cash for it.

Minimize Education Expenses

You did a great job of minimizing your education expenses. You were able to do your undergrad degree really inexpensively by living at home, driving dad’s car when he didn’t need it, and going to the state school as an in-state student. Well done! You did get a single college loan from a private company, but paid it off as soon as you could. I’m also pleased that you got your master’s degree from another state school. You had several options, but you chose the one that gave you a teaching assistantship that paid your tuition and fees and gave you spending money for books and toward living expenses.

You’re not going to believe what college costs in the future! People these days go into so much debt to go to school. The smart ones start at community colleges and then transfer for their final years much like you started at a small private school and finished at a less expensive state school.

Save Money For The Short-term And For The Long-term

Now that you are in the work world, I’m proud of you because you put together an expense and donation budget. You even figured out that you can live on less than what you make. You took the extra and built up your savings account. You are an engineer, so I am sure you’ll stick to your budget. Plus, isn’t it so satisfying to have the money to write checks to charities each month? Your dad taught you well to be generous with what you have.

Once you get enough in the savings account to live on for six months, don’t just put more in, but look for an investment advisor (or learn about self-investing) and start investing in the stock market. Don’t just pick the same advisor that your co-worker used, but interview several and work with someone you feel good about. Even better is to learn about investing for yourself and do your own investing. Learn about a fellow named Warren Buffet. He has a lot of good advice in this area. You might also want to look at a company called Microsoft. The founder is an interesting fellow with grand ambitions (hint, hint).

Plan For The Expected And The Unexpected

Another thing you should do for retirement is to take advantage of “free money” that your company provides by putting money from the paycheck into your 401(k) plan. The company will match a portion of what you put in. That’s free money they are willing to give you if you participate.

You should also consider having insurance. You were pretty smart because you took advantage of an opportunity to get a $10,000 life insurance policy pretty cheaply. It was to pay for your funeral if you died because you didn’t have any assets yet. Other friends who were married likely would need it more to make up for lost income if they died unexpectedly, as they start their families.

While you will make some mistakes (like not participating in a 401(k) right away) which cost you some major bucks later on, as long as you learn from them, it is a win for you. I’m doing pretty well these days thanks to those decisions you made back then. Keep up the good work.

Your older and wiser self

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