Best Financial Lessons I've Learned
I was fortunate to grow up with parents that explained finances to me early. It was this foundation that helped peak my interest in financial fitness, money management and investments. It probably also caused me to think about money a little too much, but that's a tale for a different day. Along the way, I've learned some simple lessons and adopted some financial habits that have served me well. I'm sharing them here in hopes that these lessons may help someone else!
1. Pay yourself first. When I first started practicing law, my mentor told me that it was important to always pay myself before I paid anyone else. What he meant was that I should take a portion of each check and set that aside in my savings account and leave it there. It's often difficult for people to put themselves first in many aspects of life, but don't forget to put yourself first in this category.
2. Don't be afraid of financing...if you're diligent. There is a stigma associated with financing that I think is unfair. In many cases, there is just no other way to pay for something that you need other than financing. When I bought my house I was hesitant to furnish the home because after the down payment, closing costs and other expenses, I was afraid to dip further into my liquid funds to buy furniture. My mom introduced me to zero percent interest same-as-cash transactions that many furniture stores offer to qualified buyers. You literally pay a set amount monthly, and if it's paid off within the allotted time period (usually 12-18 months), you are not charged 1 cent in interest. This was a life saver to me when I bought my home, and later still when I had to figure out how to re-furnish the home after an unexpected flood destroyed many of my belongings. The key is not missing a payment and paying in full (or a little more) each statement period. If you can be diligent, there is nothing scary about financing when the deal is a good one.
3. Always have enough liquid cash to buy 4 new tires. I'm obsessed with having a certain amount of liquid funds available at any given time. My rule of thumb? At least have enough in your liquid accounts to buy 4 new tires if you need them on a whim. This personal metric has come in handy on more than one occasion when I blew a tire and was able to drop hundreds of dollars on new tires without batting an eye.
4. It's never too early to plan for your future. The best relationship I've ever been in (other than with my husband) is with my wealth adviser. I was introduced to him from a family member and fellow attorney right after I started practicing. Faced with the reality that I was going to be making more money than I really knew what to do with, it was important to get hooked up with someone who could offer sage advice and help me begin planning for the future. He set me up with an investment plan that is appropriate for my age and risk profile. I was 24 at the time and I have to tell you, I wish I would have met him sooner, because there is something to be said about knowing that you are set up for what's to come....and speaking of...
5. Invest in your company's 401k plan. If your company is offering a match of your personal contributions, it's criminal to NOT invest in this plan. It's basically free money, people! Also, make sure to contribute at the very least up to the percentage that your company will match. To contribute any less is like leaving free money on the table...
6. Live below your means. It's easy to want to keep up with the Joneses when you are young and have limited responsibilities. But it's important to keep things in perspective. When I applied for home financing, the bank informed me that I could buy a house $100,000 over my initial budget. It's tempting to get caught up in that number, but you have to understand how banks justify that figure. What the bank is saying is that based upon your income level and financial liabilities, you can afford a house that costs X. What they don't factor in is the Y and Z of it all (e.g. furnishing a house, utilities, other bills). So what that means is you can afford the house and nothing else. Hello, house poor! The same concept goes for cars, clothes, accessories. Just because you can afford to buy it it doesn't mean you should ...
7. Maintain an "oh S$%#" fund. I can't say enough about this concept. Life happens. Set yourself up so that if you need access to a large amount of liquid funds, you have it. I maintain an account that I never touch unless some series of unfortunate events occurs (like busted non-insured pipes and flood waters).
8. It's ok to splurge. If you are savvy with your finances, you will at some point have some room to breathe. Sometimes (but not all the time), it's ok to reward yourself for your hard work. Life is short and Louis Vuitton always has new merchandise! Walk in there like the boss you are and treat yo-self!!!
9. Always be generous. For a God-fearing girl like myself, I make it a habit to tithe to my church regularly. I also make sure to support charities whose work speaks to my own core values. At the end of the day, you are blessed to earn even 1 dollar. If you can use those blessings to be a blessing to someone else, you should. After all, you can't take your money to the grave with you, so you might as well do something good with it while you are here.
Photo Credit: Fabian Blank Photography