Financial Advice I Wish I Knew in My 20s
My little brother just graduated from college this year, and started his first full-time job a couple of weeks ago. Like what I assume any good older brother ought to do, I’ve been dispensing all manners of both solicited and unsolicited financial advice based on a combination of lessons I’ve learned and mistakes I’ve made in the 12 years since my own graduation.
While I was at it, I figured I should probably organize this information in a coherent way, so perhaps others would find it helpful too. At the end of the day, time and discipline are far more important ingredients in the recipe than your starting salary or where your diploma comes from.
Because I think financial literacy is one of the most potent “life hacks” that exist. It’s knowledge that has perhaps as profound an impact on the path you take through life as your actual education. Provided you start early enough, it’s the only thing that empowers nearly everyone to become a millionaire within his or her lifetime.
In fact, given his education and job prospects, there’s no reason my brother can’t be 100% financially independent by his early- to mid-thirties, leaving the remaining 40+ years of his life to do whatever the hell he wants without ever having to worry about money. A major motivation behind this advice is to instill the wisdom to not squander this incredible advantage.
Quick Disclaimer Since We’re Talking about Money: While I think the advice here is generally applicable to every situation, I won’t pretend that the specific goals here are feasible for everyone. At the end of the day, this was written for the benefit of my brother, and is provided on an as-is basis with no promises or guarantees. You are solely responsible for your choice to act on any information here and I cannot be held liable for any losses or damages as a result of following this advice. Basically, as with everything you read on the Internet, do your own research and exercise common sense.
Also, for the sake of privacy and good sense, all numbers here are used for demonstration only and have no bearing on actual figures.
What Will This Cover?
We’ll go into a variety of what I consider to be the most essential topics around personal finance. This section will also serve as a table of contents so you can get an idea of what to expect with each post.
- No One Gets Rich Easily — playing the long game, different views on wealth, and how I got here
- Don’t Spend It All in One Place — saving money and how to do it better
- Have Enough for Emergencies — what you should have in your rainy day fund
- Avoid Debt Like the Plague — credit cards, auto loans, student debt, and how to deal with them
- Buy Wisely — how to avoid buying stuff you don’t need and how to buy well when you do
- Invest Early and Often — how compound interest will make you a millionaire, investing safely, and how to get started
- Think Twice Before Buying a House — why houses usually don’t make great investments, and how to decide when to buy
- Understand Taxes — how taxes on income and investments work
- And Minimize Them—how deductions work, and how to minimize your tax bill while maxing your savings
- Make Banks & Credit Cards Work for You— what to look for in each type of account and where to get it
- Know Your Cashflow — keeping track of everything and tools to make it easier
- Conclusion —acknowledgements, further reading, and wrapping it all up
Intro: No One Gets Rich Easily
Spoiler alert: I can tell you how to get rich, but it’s not gonna be easy.
If you came here looking for stock tips or speculative cryptocurrency strategies “guaranteed” to make you rich in five years…sorry, this isn’t it. There’s enough snake oil on the internet that does exactly that and more. Most of it comes from people who make their money peddling this so-called advice instead of from their actual investments, so make of that what you will.
Short of the infinitesimal chance of winning the lottery (which is far less likely than getting struck by lightning — twice), a few common paths towards attaining what is colloquially referred to as “fuck-you money” are:
- Build a successful business or product that will either generate sustained passive income or get acquired for a bunch of money
- Become some sort of celebrity with reach and influence (ranging from popular YouTubers to Tom Cruise)
- Live below your means, save regularly, invest wisely, and wait
All of these require some amount of hard work and patience, but only one of them can be reliably achieved without a considerable element of risk, luck, or talent.
What Exactly Does “Rich” Mean to You, Anyway?
Imagine two different scenarios, 15 years from today:
- You’ve just arrived at the office after waking up to a 7am alarm and sitting in traffic for nearly an hour. On the bright side, you got to show off the Porsche 911 you just started leasing last week to the oohs and aahs of your jealous coworkers. You’re pretty sure your boss is dumber than you are and doesn’t appreciate your true potential, but there’s no way you can think about leaving now because you just closed on a luxury condo. You don’t actually have that much in the bank, but who cares? You work hard to make money so you can spend it! Anyone who sees your $500 designer shoes and Rolex watch will realize how successful and discerning you are.
- You wake up at 9:30 on a Monday to the sound of birds chirping and make yourself a gourmet breakfast at home. You decide to go for a bike ride by the beach to get some exercise. You spend the rest of the morning learning Japanese — you’ve always wanted to experience Japan longer than a 2-week vacation will allow, so you’ve planned to spend the next month and a half there while working on your passion project. None of your neighbors understand what you do for work or how you always manage to be home in the middle of the day. He doesn’t look rich, they think, with his used Honda and modest house, but they don’t realize you’ve got over 25x your yearly expenses saved and invested, and don’t ever need to work again.
If the first scenario appeals to you, power to you. I pass no judgment and wish you the best of luck in achieving what seems to be today’s most common interpretation of “The American Dream.” Much of the advice here is still useful and relevant to ensure you can continue your ostentatious lifestyle well into your retirement years, since you’ll be too old to work and social security ain’t gonna pay for that Bentley.
If instead you find the second scenario preferable, you’re in good company. Take this advice to heart and stay the course for 10, 15, or even 25 years, and enjoy your early escape from the rat race. Personally, I find this freedom to be the ultimate luxury and a much more compelling definition of wealth.
Why Listen to My Advice?
I’m just an ordinary guy who, like most people, assumed that scenario #1 was as good as it gets and that having a job would always be necessary to support that goal. I was fortunate to have found a good job out of college that paid well, and I certainly had my share of excesses to show for it. By the time I was 28 years old, I owned two luxury cars, a motorcycle, and a house that was 2 bedrooms larger than a single guy needed with the furniture to fill them. I didn’t live beyond my means, but I wasted a lot of money.
As time wore on, my job increasingly became a source of frustration. I arrived at home each day too drained to do anything but be mindlessly entertained. I spent less time with friends. The thrill of buying new things waned with every purchase. Eventually, even though I had reached every metric of success that had been laid out to me growing up, I realized I was less happy than when I was a broke college student who had practically nothing.
Fast forward a few years, I moved and changed careers. I accepted a pretty big pay cut in the process, but it quickly became apparent that the extra money I had been making wasn’t having a meaningful impact on the quality of my life or my happiness.
Crucially, I also took half a year off between jobs, which gave me an early glimpse into what life was like outside of the grind of a regular work schedule. Those six months turned out to be one of the most productive periods of my adult life. I worked on a variety of coding and design projects, started exercising regularly, and learned stuff that would have taken 5–10 times as long if I could only do so on nights and weekends. I balanced it out with a month of traveling abroad, spending quality time with family, and plenty of leisurely afternoons reading in the park. I didn’t fully realize it at the time, but it planted the first seeds for attaining the financial freedom to make this lifestyle possible.
Like most people, I had assumed that the “independently wealthy” was a class of people who were either born into money or simply enjoyed a terrific stroke of luck. I never expected it could be me. Despite my spending, I had always saved consistently, but reaching a level of net worth that would make work optional seemed completely out of reach.
Eventually, however, I discovered the concept of financial independence (FI), and the surprisingly achievable goal of early retirement. I learned about investing. I gained an understanding of taxes and realized the missed opportunities I had to minimize them. I read about the 4% safe withdrawal rate and the number I had to reach in order to retire. And I realized it was all perfectly achievable in half the time that society tells us to expect.
Since this epiphany, attaining financial independence has become a bit of an obsession. I made a budget of how much my expenses should be and committed to saving the rest. I shunned mindless consumerism and stopped buying stuff I didn’t need. I trained my savings muscle and now stash away over 50% of my after-tax income without feeling the least bit deprived.
I can say with absolute conviction that this knowledge and awareness has changed my life for the better. I wish I had discovered it a decade ago, but I suppose some things only experience can teach. I’m excited to share with you what I’ve learned.
- Part 1: Calibrating Your Mindset (you are here)
- Part 2: Saving & Spending
- Part 3: Investments
- Part 4: Taxes
- Part 5: Optimizing