The best thing about being 40 is surviving your 20s and 30s. And at 40, I’m considered an old-timer in the personal finance blogging community. Reflecting back on the past twenty years, I realized that I’ve learned a thing or two that I wish (oh, how I wish) I knew when I was 20. Here they are, in no particular order:
- School loans are like a bad date, easy to get, but hard to get rid of: At 40, I still have more than $20,000 in school loans. Education is important, but I spent far more money during school than I needed to spend.
- Compounding, like the 1970s Big Red Machine, is pure magic: Assuming you retire at 65 and earn a 10% return on your investments, $1 invested when you’re twenty will be worth 2.5 times more than $1 invested when you’re thirty, 6.5 times more than $1 invested when you’re forty, and 18 times more than $1 invested when you’re fifty.
- New cars, once bought, aren’t: I wish I could have back all the money we’ve spent on cars, particularly new cars. The cost just isn’t worth the financial freedom you have to sacrifice.
- Great fortunes are made from small investments: It’s amazing to me how small monthly investments, given enough time, can grow into substantial wealth.
- Investing, like children, shouldn’t wait until you can afford it: If you can read this blog, than it’s not too early to start investing. This makes me wish I had started investing in high school. Fifty dollars invested per month in high school earning 10% would be worth about $212,000 at retirement.
- Financial shortcuts increase the time it takes to reach your goals: Ignore all the silly personal finance books that promise great wealth in a short time with no risk. Investing isn’t hard, but these promises are designed to sell books, not create lasting wealth.
- My wife is more frugal than I: If I had recognized this 20 years ago, I would have listened to her and not frittered away so much money on stupid stuff. Sorry, Mrs. Dough.
- Unlike everything else in life, with investing, you don’t get what you pay for: My first few mutual funds were load funds with high expense ratios. I was so keen on picking the best performing funds that I completely lost sight of one of the most important factors when picking a fund–cost.
- Consumer debt is like swimming with an anchor: We’ve now shunned consumer debt, but it took us far too long to learn this lesson.
- Too much stuff robs you of happiness and wealth: I look around our house at all the stuff we’ve accumulated in 20 years and all I see is lost investing opportunities and clutter.
I wonder what I’ll know at 60 that I’ll wish I knew at 40?
Published or updated May 23, 2011.