Over the years I’ve done a few things right and lot more that’s wrong. Here are a few of each with relation to personal finance:
1) Checking Only
For several years of my early adult life my finances were extremely simple – my girlfriend (now wife) and I only possessed a single checking account with a debit card. We were poor students, so we did not have much anyway, but any income we earned went straight to the checking account. Most of our purchases went onto the debit card, and we spent zero time keeping track of exactly how much cash was currently in the account. Sounds like a recipe for disaster, right?
Thankfully, it wasn’t. Despite our low incomes, we were naturally thrifty enough not to ever bounce a check or create any overdraft. I feel like we dodged a bullet!
Unfortunately, we gave up several years of potential interest by failing to have some type of savings account.
2) Waiting to Start a Retirement Fund
I was 27 years old when I opened a Roth IRA (I’m now 28). While it could have been much worse (I could have waited until I was 45!), I still wish I had started saving for retirement sooner. In my early 20s I was far too poor to maximize my contributions, any little bit would have helped. By waiting until I was 27, I gave up several years of compounded interest.
3) Excessive Spending – Computers
I’ve always been a sucker for new toys, especially computers. I did not own my first computer until 2000, but ever since, I’ve been hooked. In those years I tended to purchase a new computer every year or so. No matter how new a computer I had, after about six months I’d start getting an itch, and ogling at sites such as Newegg and Zipzoomfly would ensue. Soon thereafter, a new processor or hard drive (or both) would be on my doorstep, and I’d find some way to justify it to myself.
Computers are still a hobby for me, but my viewpoint has changed. I no longer care about the “high end” hardware, and refuse to spend more than $100 on a processor. My wife and I have a few computers between us, and the average age is roughly 3.7 years old. A couple of them are prehistoric computers that I refuse to let die. Six or seven years ago I would have been mortified to say such a thing.
Thankfully I’ve never had that kind of itch about more expensive toys, such as new cars! Yikes!
1) No Student Loans
How can I say this without smiling? I am now at the end of my doctoral degree, and I have made it ALL the way through my education without borrowing a single dollar in student loans!
How did I manage to do so? As an undergraduate, I opted to attend a decent state school instead of a more prestigious (and expensive!) private college. Secondly, I maintained scholarships that covered my tuition. Third, I worked in the college bookstore, which provided me with a $400 credit each semester that (usually) covered all of my textbook purchases. My meager salary went toward meals and housing.
As a graduate student, I’ve been lucky enough to have a teaching assistantship that has covered ALL of my tuition, plus provide me with a stipend. Finishing my formal education without a mountain of student loan debt is in itself a dream come true.
On the other hand, if I could do it again, I would take out as much money in subsidized, deferred-payment loans as I could. Why? Because I would stick it all in a CD, earn interest on it, and pay it all back as soon as I graduated. Suckers.
2) Only One Vehicle
My wife and I used to own two cars. While it was convenient, it also meant that we spent more on repairs, on insurance, and at the gas pump. In 2005 we decided to downsize to one car and buy a couple of good bicycles. It was a hard adjustment – we even spent two weeks pretending that we only had one car before we actually downsized, just to make sure that we wouldn’t kill each other.
The end result? We got used to it quickly, and the bikes have paid for themselves several times over in reduced fuel expenses. Plus, we get more exercise.
Our plan probably won’t work forever. If we have kids, we’ll more than likely have to buy another one. In the meantime, I must admit that it’s quite satisfying to zoom down the bike path past a line of stopped traffic during rush hour.
3) Taking an Interest in Money
This is critical – my life changed forever when I consciously decided to take an active interest in my finances. I even remember the day it happened. On October 8, 2006 I received an e-mail from a friend informing me about E-Loan’s 5.5% APY savings account. I almost disregarded it, but something made me surf to the website. I did a quick calculation to see how much money I would earn per month if the contents of my checking account were in the savings account. I was dumbfounded and furious (at myself). How could I have waited this long to open a decent savings account?
From that point, my interest grew (pun intended). Of course, the E-Loan rate has dropped, but I’ve since opened several other accounts in order to “chase” the highest rate. I also opened an account at Vanguard, starting a Roth IRA plus some non-IRA mutual funds.
Then came the realization that I could earn money from credit card rewards, so I tossed my well-worn debit card into the sock drawer and applied for several credit cards, creating a usage plan for maximum rewards.
I even started this website. Naturally I hope it is useful to you, dear reader, but it certainly helps me maintain my interest in money.
How about you? What are some of your financial successes or blunders?