Boys, you’ve just entered your teens … but 21 is just around the corner. Learn from my mistakes to set yourself on an early path to financial freedom.
DON’T use credit cards to finance vacations “while I’m still young.”
Relax. The travel window isn’t about to close for you any time soon. Sure, my cross-continent trips with friends were fun at the time, but the multi-thousand dollar credit card debt to follow was miserable. No one sets out in life to pay Visa and MasterCard thousands of dollars in interest, but that’s exactly what you’re choosing to do when you rack up 5-figure credit card debt on a small salary. Renowned financial consultant Dave Ramsey calls this kind of behavior stupid tax.
DO save a little money each month.
Whether it’s $250 or $25/month, the decision to save consistently over time will literally pay dividends down the road. A quote attributed to Albert Einstein says “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” Choose to be an interest earner, not a slave. Tax-free interest savings plans like Roth IRAs (USA) or TFSAs (Canada) make the effect of interest earnings even more amazing.
DON’T borrow money to buy a vehicle.
Little did I know that when I borrowed $12,500 to buy a 3-year-old car, it would ultimately cost me thousands more in repairs and take me several years to pay off completely. Always remember: buying a car is the single largest purchase of a depreciating asset that most people will ever make. Instead of thinking about features, think about limiting the financial damage by spending within your means for a vehicle that’s reliable.
DO purchase real estate as soon as possible.
Just as car debt is financially damaging, the decision to buy your first piece of real estate will prove to be one of the most important financial moves of your life. Among a host of other benefits, mortgage payments are a form of forced savings that will only give you better options and opportunities as the years go by. Don’t try to tell yourself that you’ll rent on the cheap and put a ton of money into savings and investments. You won’t.
Quick story on this point. As I mentioned, I borrowed a large sum of money at 21 years of age to buy a used vehicle. Around the same time and at the same age, my friend Brent bought a home for $29,000. Yes, it was a small home in a bad area and a depressed market. But predictably, his house appreciated well in the few years that followed. I believe he sold his home for about $90,000 about three years later and rolled that equity into a larger $150,000 home in a nicer area of town.
So, consider our two trajectories during this approximate five year window. I probably paid close to $20,000 in car payments, interest, and repairs, and was left with little to show for it. In contrast, Brent likely put about $5,000 down on his home and paid up to $2,500/year in mortgage payments, for a total of $17,500 in on his house before selling.
Although my numbers can’t be precise, our decisions created these divergent results:
- Me: loss of $20,000 + “gain” of an unreliable vehicle
- Brent: gain of $70,000 + growing equity and appreciation in a $150,000 property
If the numbers aren’t making it clear, just go with this: Don’t borrow money to buy things with engines. Buy real estate instead.
DON’T automatically accept the first job offer that comes your way.
Filled with idealism and sentiment for my would-be employer, I accepted a teaching position almost immediately after graduating from university with a bachelor’s degree. Yes, I built meaningful friendships and gained valuable experience during the six years that followed, but the starting salary of $24,000 (before taxes and deductions) with limited opportunity for advancement was a bad return on a 4-year university program. After making poor money decisions in other areas, earning less than $450/week was simply not enough income to create any kind of financial momentum.
DO be selective and explore all of your income options.
In some respects, you may never again have as much vocational freedom as you will in your twenties, something perhaps more true in the gig economy of today than it’s ever been true in human history. Find work that is spiritually satisfying, intellectually challenging, and complements your set of abilities and interests. And yes, find work that compensates you appropriately and offers avenues for advancement. Whether you find this in corporate America or as an entrepreneur, seize the opportunity to avoid the prospect of a financial flatline.
DON’T consume much entertainment.
Going to movies, watching professional sports, and playing video games were all fun distractions, but they add nothing of value to your life and leave no lasting legacy. I’ll never get back the hours I spent wandering around Blockbuster Video stores looking for movies to rent — never mind the hours I spent actually watching the movies! Instead, focus on leisure activities that grow your skill set, leave lasting impact, and develop your leadership.
DO create content consistently.
Consistent content creation over time has a way of building permanent momentum, income, and opportunities. Every successful artist and creator from the blogosphere, Twitter, Medium, Youtube, or Instagram once began with zero followers and subscribers. Even the simple decision to write an article like this one once a week from the age of 21 would have set me on a completely different trajectory, and it’s certain that my writing style would have developed far more by following this simple habit.
Consistent content creation will make you more reflective, develop your mind, build your creativity, broaden your horizons, expand your networks, and create opportunities that you never thought possible. Be a constant creator. Whether it’s through writing, music, photography, or how-to videos on YouTube, create and contribute things of beauty and utility as a way of life.
In Summary
Your early twenties. Those years are such a fantastic opportunity to work hard and save cash for things like cars, weddings, and homes — not necessities, by any means, but building blocks for a functioning life that will become more significant in the years and decades ahead. Treated with care, these years can set you on a course that will have you thanking yourself for decades.
So boys, learn from my errors. Observe the stupid taxes I paid. And make smarter decisions than I did. You’ll thank yourself for the rest of your life!
