With age comes experience, with experience comes wisdom, and with wisdom comes the right to tell others what to do. All kidding aside, I’m sure everyone can think of a few things they would do differently if given a second chance. In terms of money and finance, here are a few things that I would tell my younger, inexperienced self.
Learn About Personal Finance
I actually think this is one of the more important first steps in taking control of your finances. I wish I had learned about some basic finance in my early 20’s rather than in my mid 30’s. I think it would have been beneficial to learn a bit about retirement accounts, IRAs, and the basics of investing. For me, all I really knew about were checking and savings accounts. Seriously, this was literally the extent of my financial knowledge when I graduated from college.
Save More, Save Early
This is probably something that everyone would tell his/her younger self. The fact that I started seriously saving/investing just two years ago (at age 36) means I missed out on almost 15 years of compounding since graduating from college. Even something as small as $100 a month can add up to a lot of savings over time. For example, let’s say Alternate Random Guy started investing $100 a month from age 22 to 36, then decides to stop the monthly contributions but continues to invest the balance until 65. We’ll compare him to Other Random Guy who starts investing the same $100 a month at 36 and continues until age 65. We’ll assume an annual return of 7% for both of them. Here’s what we would get:
Alternate Random Guy contributes less total principal but ends up with $90,981 more at retirement. Other Random Guy contributes more principal for a longer period of time but ends up with less at retirement. Heck, if Alternate Random Guy cuts his monthly contributions to only seven years instead of 14, in the end, he still comes out ahead.
Don’t Get That Credit Card in College
This probably is not that much of an issue now because of the Credit CARD Act of 2009. But when I started college (fall of 1996) they were handing out new credit cards like candy. No verifiable independent income? No problem. Oh, and here’s a free T-shirt just for signing up! The main idea of getting a credit card at such a young age was that it would be a way to “build your credit”. But giving a credit card to a recent high school graduate with the financial literacy of a preschooler was probably not the best idea. Getting that credit card did allow me to build credit, but not the good kind. Not to mention the extra money paid in interest. While I didn’t carry around too much credit card debt (about $6,000 compared with the a near $16,000 owed by the average American household), I did carry it around for a long time. I’m actually only recently credit card debt free and back to an “excellent” credit score.
Don’t Buy a New Car
My first car ever was a 1993 Toyota Corolla, which my parents got for me when I was in high school. It was a great, dependable car. Sure, it didn’t have power windows, door locks, or even a clock, but it got me from Point A to Point B and had great gas mileage. It got me through college in one piece, and it got me to and from my first job after college. In 2002, I bought a new Subaru Impreza WRX. I had just switched jobs and went from $25,000 to $39,000 in income. Naturally, I thought I was “making bank” and could afford a new car. I sold my old Corolla for $2,000 and used that toward the down payment. I financed the remainder of the purchase with a four-year loan that was co-signed by my parents. I don’t recall the exact loan amount or interest rate, but I think it was about $22,000. Referring to this graph, we’ll use 7% as the interest rate. Here is how that loan would break down:
That’s a sizeable chunk of money to have to pay each month. I calculated my estimated monthly net income in 2002 after paying federal taxes using this online calculator. I used the standard deduction and exemption as a single filer. Also, I don’t remember if I contributed to a 401k, so for this calculation I assumed that I did not. And I didn’t include state taxes. I came up with a monthly net income of about $2,850. Taking the car payment into account, I would have been left with about $2,300. This would need to cover rent, utilities, bills, food, living expenses, and new car ownership expenses (gas, insurance, maintenance). Not to mention that I haven’t included state taxes in the calculation. Needless to say, I was stretched thin and essentially living paycheck to paycheck. I actually was very good about making my car payments, but sometimes that came at the expense of making on-time credit card payments. I’m still driving the WRX, so at least I’ve gotten a lot of value in the purchase. And, in a bizarre case of serendipitous coincidence, the clock in my WRX went out a few years ago. But in hindsight, I would tell Alternate Guy to just keep driving the Corolla and to use the extra $500 a month in cash flow for other purposes, such as paying down credit card debt, saving, or investing. If I really wanted an ’02 WRX (which I really, really did), I would save money and pay cash for a used one a few years later. For instance, given the average rate of car value depreciation, I could have potentially bought a used ’02 WRX at 50% of original value in 2006 (the year I started medical school). So, given an original MSRP of $25,000 for a new car, that could give you $12,500 for a used one just four years later. I could have put that extra $500 in cash flow a month into a “car fund” and have enough saved to buy cash in 25 months. If that were the case, I would have ended up saving about $12,800 by buying used in cash instead of buying new with a loan.
Don’t Become a Doctor
This one is a bit tough as I met Some Random Gal in medical school. It also put me in a position to have a dual physician income household. But if I were to be completely honest, if given a mulligan, I would not become a doctor. For me, being a doctor has turned out to be just a job. It’s no longer a “calling” or even a career for me. It’s a means to an end. And while you do get a six-figure salary once you are an attending physician (i.e. real doctor), you are also likely to have a six-figure student loan debt as well. For me at least, I don’t think the time and money commitment is worth it.
Random Guy’s Final Thoughts
Looking back, I would say that I didn’t make any financially catastrophic mistakes. However, there are a few things that I would do differently. And while I can’t travel back in time to undo these actions and disrupt the space-time continuum (at least not yet), I can share what I learned from these experiences with you guys.