Money For Grown Ups

July 10, 2015

In a conversation with another financial planner here at Financial Finesse, the subject of having college–age children elicited laughter as well as groans. Cynthia Meyer and I shared some stories about our past “adventures” in finance and some mistakes we made along the way. She was inspired enough to write this blog post:

“Are there certain organizing principles for how we approach money as adults? As our oldest child heads off to graduate school and living on her own, I have been asking myself what I wish I would have known when I was her age. In my twenties, I had not yet made the connection between my own behavior and my financial wellness. Saddled with many student loans and living from paycheck to paycheck, I had few practical skills.  I really wish my future self had been able to give me guidance like this:

Think as yourself as an investor. Investors save some of their income and invest it so it can grow. Your net worth, what you own minus what you owe, should be growing over time.

That may mean that you have to make some compromises to pay down student loans and live more cheaply so you have money to invest. Spend less than you make every day and save the difference in an emergency fund and your retirement plan at work. There is so much pressure to be an active consumer, trying to persuade you that spending money is the American Dream. Ignore it. Instead, use this Daily Savings Calculator to motivate you to save at least $10 per day.

Whatever you put your attention on grows. Get in the habit of paying attention to your finances. This takes time every single week.  Develop a personal financial wellness practice that includes paying bills, organizing paperwork, planning your spending, tracking expenses on sites like Mint.com, monitoring your credit at CreditKarma.com and re-balancing investments. Put at least an hour of time on your calendar every week to take care of financial business.

Stuff you own and relationships you have require maintenance, which takes a lot more time and money than you initially expect. Put money aside for the true costs of owning your car (repairs, oil changes, tires, insurance, etc, maintaining your home (repairs, décor, pest control,  and even yourself (un-reimbursed medical expenses, dry cleaning, haircuts, gym, etc.). Don’t forget to plan for gifts and travel to maintain relationships with friends and family. If you are considering a major purchase, think about adding 2-5% of the purchase price per year into your budget going forward to make sure you can maintain it.

Prepare for the unexpected. When I was younger, I worked in a field where health insurance was not provided and had sporadic periods of being uninsured. Make sure you have health insurance, no matter what.

If your employer does not provide insurance, do not go without it. In addition to risking a huge expense for an uninsured medical emergency, you will pay a tax penalty. Look for coverage at https://www.healthcare.gov. Check out this post from our blog if you can’t afford health insurance.

Money can contribute to getting to a goal, but it’s not the goal. You focus on building an emergency fund to relieve financial stress and avoid incurring high interest credit card debt, which creates even more stress! You pass on buying the new shoes to have a fabulous vacation experience later in the year. You get the idea.

Of course, even if I had been able to hear from my future self at 26, I don’t know if I would have taken my own advice. However, it’s fun to think of how much less I would have struggled if I had. As they say, youth is often wasted on the young.”