So the very cool guys at Empty Bucket asked if, as a recent 35 year old, I could speak to the younger members of society on some thoughts around financial decisions and any advice I may have. Well firstly, my life has changed drastically from the age of 25 to 35. We (yes, I was married at the age of 23 and yes I very much married up), started out in a simple duplex home in a new suburb, starting our careers and looking back living relatively simple lives. We lived what can only be described as the DINKY (Double Income No Kids Yet) lives – good times. Well now we have moved homes to accomodate the 3 little people running around our home and through it all been required to at several times make differing financial and life decisions. Looking back there are few I am pretty proud of, some I would like to definitely forget and finally some which I just plain missed. Some of our better decisions (happy feelings, proud to share):
Buy real assets
As early as you can start to buy assets. When Taz and I got engaged we bought our first home. It was a small (actually it was a VERY small) home, in a new area and at the time more money than we had ever spent. We had very little money but we made it a priority to pay off the house. Long story short but that first home doubled in value over the next 5 years and allowed us to buy our first family home in the Burbs. For you 25 somethings, new cars, new clothes, cool experiences are not assets. Houses (especially ones you can rent out), shares, Investments are real assets They grow in value and give you an income. Start as early as you can…..you won’t regret it.
Discipline in giving
Early on we realised that if we did not prioiritise giving when we were earning little we would not prioritise it when we got older. We set a basic percentage on what we felt we should give and as our income has grown we have continued to give at this same percentage. Once you start giving you become less obsessed with the money, you open the gates for receiving and well, you will just plain be happier (just ask Bill Gates). If you start being disciplined giving while you earning a little income it is a lot easier to give when you earn the big bucks.
Didn’t overspend on cars/flashy items
My beautiful wife still drives the first car we bought for her and I am now the proud owner of a second hand daddy mobile (oh how I miss my Audi ). Don’t get me wrong, I love cars but while we have house debt and budgets to manage we feel that buying expensive cars is not our priority. Cars loose value, are expensive to run but unfortunately a necessity for us as a family. Think through the real cost of the car, or the new clothes, and as far as possible try to buy in cash….nothing worse paying off something that is not worth what you owe.
Made memories in line with what we value
SO we sound like real cheap skates but in fact we, and continue to, save for things that we really value as a family. These include special holidays around South Africa, a tandem which saw my wife and I complete several Argus’s (sadly now sold) on and oh yes – we managed to squeeze in a trip to Paris last year for our 10year wedding anniversary (major brownie points).
No short term debt
Taryn and I have been ruthless in not taking out short term debt. It is expensive, it is generally used to buy things that loose value (clothes, cars and even food) and it generally just leads to more and more debt at a later stage.. My favourite saying of debt is that ’ it is taking from tomorrow to pay for something I want today.’ SO next time you are convinced that you just NEED to have that new pair of Jeans on higher purchase realise that you are giving up the ability and right to future cash flows to pay for that item now. Rather save for the item and you may just find you don’t NEED it as much as you thought. Budgets really help here…tell your money where you want it to go, not the other way round.
So unfortunately we have also managed to make some pretty poor decisions. In no particular order here we go (shudder as I think about them):
Be WARE of Unlisted investments
In my haste to grow our assets as a family I invested quite a large share of our wealth in unlisted shares and ironically with one entity (typical flaw of too many eggs in one basket ). Unlisted investments are investments into a company not listed on a stock exchange (created for property or business ideas) that in general you do not control or have much say in. So when you are not in control of the investment be careful as typically these investments are difficult to get your money out of and if things go wrong, as a shareholder, you generally are the last in line to receive cash out. These losses can cost you not only financially but also emotionally. Not to say that there is no place for unlisted investments but generally I would recommend you get some good advice before going head long in, generally not more than 10% of your assets and please, not all your eggs in one basket.
This is one of those funny stories we will tell our kids about. Long story made short but on one our of trips around South Africa my trusty Mazda broke down outside Harrismith. Not saying that Harrysmith is ugly but we were just not willing to spend the better part of Christmas and New Year waiting for our car to be fixed so in a moment of rash decision I sold the car and bought another on the spot. We left Harrismith in Harry our new Mazda which was defined a champagne colour but puppy poo may have been a better colour description. Ultimately I ended up selling a year later for 40% less than what I bought for. It is funny now but beware the rash decision that puts you in debt.
Invested more in the beginning (surplus cash)
As much as we invested in real assets upfront I wish I had done so more! I know you have heard it before but honestly the earlier you start saving more than 12 to 15% of your salary the better chances you have of retiring well. I know it feels YEARS away but the power of starting saving early can not be over emphasized. I deal daily with families who have not saved enough and ultimately end up having to either work way beyond when they thought or rely on others to help them in their older years. I would recommend reading ‘The slight EDGE’ which talks to the power of making small but consistent good decisions in the right direction which WILL lead you to the place where you need to be.
Invest in the right thing
SO I have advised you to start investing early on but you also need to do it in the right investment structure and also in the correct assets. I am not going to go into the nitty gritty here but go see an Independent financial advisor about investing for the future. Consider the use of Retirement annuities for your long term savings which have several tax benefits and make sure you have a well constructed underying portfolio of assets. Remember, you have time on your side so make you moneywork for you!
Maybe it is a by product of being an accountant but as much as I 100% advocate having insurance for various life events I sometimes feel that younger people can often be grossly under insured and ironically at the same time many overinsured. Remember, insurance is not there to make you money, it is just there to protect a risk. For example, when we first got married we didn’t have any little people relying on us to be around so had one of us so the need for large amounts of life insurance did not exist. Taryn did not rely on my income at the time so we could have better spent premiums on life insurance into monthly investments. Now however that lifeinsurance is imperative.
Have a long term vision not just for the short term.
As with life you need to have a long term perspective on your finances and careers. I think in the beginning we did not always think through the scenarios and implications of what our life decisions were making and only feel the ramifications of those decisions 10 years on. This went down to careerchoices (good and bad), investment decisions (good and bad), daily schoices. If you can begin to have long term perspective on the decisions you make today and try think through where they may lead you may make better decisions than some that we did..
My last thought to you is enjoy this season of your life. It is a unique season with many opportunities that you may never have time again to enjoy, learnings that you may not have the chance to embrace again and passion that is often unfortunately lost with age. Oh, and if you go out after 9pm, remember me, it’s a school night and I need to go to bed.
Cover image from 401 Calculator