I'm a sucker for "the best money advice you've ever received." There's just something about a lot of good, solid financial wisdom in a small number of words that I love. In fact, I've run several series on the topic including the following:
So when I saw that Money magazine had a series on "the smartest advice I ever got", I knew I had to post on it.
They asked 40 "great minds" for their smartest advice. Here are a few of my favorites. The first is swear off debt:
Borrowing money is like wetting your bed in the middle of the night. At first all you feel is warmth and release. But very, very quickly comes the awful, cold discomfort of reality.
Ha! I LOVE the picture that that paints!
The next is live within your means:
Save your money first and get used to living on what's left over.
The final two are similar. There's you can't fight the market, so join it:
My school experiences taught me to buy index funds. As far as I'm concerned, they're the only starting point for an individual investor. You can't control market risks, but you can control costs.
And the less you pay, the more you keep:
It's hard to be certain of anything in our uncertain financial markets. But I feel very confident about one piece of advice: Minimize your investment expenses. The less you pay in mutual fund fees, brokerage costs, sales fees and taxes, the greater your net return.
So true -- costs matter (and they're fixed.) That's why I like index funds.
What the smartest piece of financial advice you've ever received?
Start saving early - there is huge power in compounding interest, so even if it is just a few dollars, starting early is the key. I was 16 or so when I got the advice. The little bit I started putting away was not only great because of interest, but the discipline I started developing at a young age was invaluable. It made me work harder to get scholarships and save money from my jobs in college, and I was fortunate to not be carrying debt when I graduated. I don't know if I would have cared so much had I not already had a saver's attitude instilled before I went to college. Instead, it was a huge goal of mine to put myself through college without help from mom and dad (though the help would have been minimal at best) and without taking out loans.
Posted by: Jetgirl | July 31, 2008 at 11:28 AM
Studies show that there's not much difference in happiness between someone who spends $50,000 a year and somebody who spends $100,000 a year. But there is a big difference in happiness between somebody who spends $50,000 this year after spending $45,000 last year, compared to someone who spends $50,000 this year after spending $55,000 last year.
So put yourself in a situation where you can afford to "give yourself a raise" every year that at least keeps pace with inflation. This means having a large, positive savings rate from day one, and not putting yourself in a position (i.e. debt) where you must cut your disgressionary spending from one year to the next, ever, in your entire life.
Posted by: Jake | July 31, 2008 at 01:07 PM
Elizabeth Gilbert's quote is the best! Thanks for sharing these.
Posted by: Chase Roper | July 31, 2008 at 01:30 PM
"You can't control market risks, but you can control costs."
WHAT?! You can control market risk... it's called asset allocation. What are they smoking?
Posted by: Andy | July 31, 2008 at 01:32 PM
Even though he rarely talked about money, I learned a lot about money just by watching my father. He always drove decent cars that he bought used and kept forever (I suspect they paid cash for many of these). He never really spent a ton of money on clothes and other material things. I frequently saw him poring over account statements and reviewing their finances. I remember seeing one of his paycheck stubs one time and was impressed by what he was making and yet how simply he lived.
However, I think the best advice about money I've heard is from my wife - she told me once that people rarely regret spending money on experiences, but very often have regret about buying "stuff". I have to say I agree with her when I think back to my free spending ways early in my career and wonder how much my net worth would be if I would have even cut that back by 25 or 50%.
Posted by: Kevin | July 31, 2008 at 02:00 PM
Something I found from unclutterer.com:
"There's wealth in simplicity."
From Tim Ferriss’ book, The 4-Hour Workweek.
"There are tons of things in your home and life that you don’t use, need, or even particularly want. They just come into your life as impulsive flotsam and jetsam and never found a good exit. Whether you’re aware of it or not, this clutter creates indecision and distractions, consuming attention and making unfettered happiness a real chore. It is impossible to realize how distracting all the crap is–whether porcelain dolls, sports cars, or ragged T-shirts–until you get rid of it."
Posted by: RC0 | July 31, 2008 at 05:46 PM
Among the best financial advice I've ever received:
"Buy a car the bank won't own."
That is, only purchase an automobile that you can pay cash for, rather than taking out a loan. If you only have $500, buy a $500 car. Figure when you'll need a replacement and how much it will cost total, then develop a monthly savings plan to reach the total you'll need by that point. Start saving immediately for your next set of wheels. Repeat as necessary.
Best wishes!
Posted by: FS | July 31, 2008 at 09:41 PM
Buy your house on a 15 year note.
I've made a lot of bad decisions financially but this by far is the best one I've made. Your budget will be tight but it's worth it. There are still 9 years to go but ahhhhh I can't wait!!
Posted by: texashaze | July 31, 2008 at 11:20 PM