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April 17th is my birthday! I’ve been fortunate to spend 39 years on this Earth, with 17 of those years working as a financial advisor. In that time, I’ve met with thousands of people regarding their personal finances. By interacting with so many families, discussing money and goals, I’ve amassed a wealth of helpful insights.
In honor of my 39 years, I’ve compiled a list of 39 personal finance lessons. Many of these thoughts have provided helpful perspective for my clients. They are timeless principles, which should be as relevant many decades in the future as they are today. My hope in sharing this list is that you will find a few nuggets of wisdom to apply to your own financial life.
1. College is an investment, not a time to find yourself: Failure to recognize this truth may saddle you (or your kids) with an insurmountable level of debt. In truth, college is not necessary for many high school graduates. It’s an expensive place to hang out for four years while you figure out what you want to do with life. However, if you do decide to go to university, make sure to attend an institution that you can afford and earn a degree that will allow you to pay off any debt and maintain a lifestyle you want. If you won’t be on better financial footing after university, then it may be financially prudent to forgo that experience.
2. Your income is your greatest asset. Choose your career wisely: You should find a career that is practical, plays to your natural abilities, and is something you find bearable. Contrary to the “advice” of many billionaires and commencement speakers, pursuing your passion is generally not practical. Your passions are best pursued as hobbies and not as a means of supporting your family. You don’t need to love your job. You just need to not hate it. This doesn’t seem glamorous, but being realistic about what you can stomach doing every day for four decades that will also afford you the ability to live a comfortable life, is a sensible approach.
3. You will not get rich quickly: We’ve all heard stories of some young kids who made a lot of money early in their careers or people who won the lottery. These stories are few and far between because they are not the norm. This is what makes them so memorable. For most people, financial success takes decades of hard work, saving, and investing. It’s a grind and not glamorous. Many of the wealthy people we read about or see on TV spent decades toiling at their craft before they achieved monetary success. If you want to reach a high level of wealth, you will also need to put in the time and effort. There are no shortcuts.
4. Get your big spending decisions correct: Student loans, purchasing a home, buying or leasing an automobile, taking out credit card debt, are all big decisions. Buying an occasional latte or splurging an extra $2 for guacamole on your sandwich are not. If you get your big spending decisions correct, you will likely not overextend yourself. The little things are far less impactful.
5. Your home will achieve poor returns relative to stocks, but it is still a good investment for most families: My thoughts on home ownership have evolved over time. Much data supports the fact that one’s house is a low returning investment after factoring in all associated expenses. In fact, it will likely barely outpace inflation. However, a home is a form of forced savings. Few homeowners will risk losing their house by becoming delinquent on their mortgage. If you live in a home for several decades, and the value appreciates a little bit every year, you will likely be left with a significant asset to sell, which will help fund your retirement. For most people, the annualized returns relative to the market are irrelevant.
6. Renting is a wonderful option: There are many cute phrases that dismiss renting as a form of housing. These include “renting is throwing away money” or “why would you pay your landlord’s mortgage instead of your own.” They are easy to remember and are meant to underscore the merits of buying over renting. Sure, there may be downsides, but renting is actually a sensible solution for many. It allows you to outsource the financial burden and headaches of homeownership to a landlord, plus maintains the optionality to move at any time.
7. Cash is king: The foundation of any prudent financial plan is to have at least three to six months’ worth of expense money sitting in cash. Adequate cash reserves should allow you to sail through challenging times, like job loss or experiencing a significant decrease in income, relatively unscathed.
8. Debt is bad: Many advisors will point out that borrowing money has both positives and negatives. They are right. In the right set of circumstances, leverage may be quite helpful. However, the people who are in the best shape financially are generally folks who are not indebted to anybody. Strive to eliminate all your debt.
9. Pay yourself first: Before helping family, friends, or spending on discretionary items, be sure to set aside money for your own future. If you are not taking care of yourself, you may need to depend on the generosity of others, and that is a very precarious situation in which to be.
10. Your time horizon is the cornerstone of investing: Time horizon dictates how much risk can prudently be taken within your portfolio. It is also the main determinant of developing an appropriate asset allocation. Investing without having a clear understanding of when you need to use the money is imprudent.
11. Your emotions and behavior are one of the biggest risks to your portfolio: War, inflation, and a recession are all risks to one’s portfolio. However, the risk that trumps them all is your own behavior. Investors tend to make drastic decisions when they are feeling scared, greedy, or impatient. These impulsive moves rarely, if ever, work out. When it comes to emotions, the best approach is to keep them in check. This can be done by automating as much of your investment process as possible. As Warren Buffett once said, “Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”
12. Automate your investing with dollar-cost averaging: Dollar-cost averaging is the process of routinely adding money to investments at regular intervals. Every human is emotionally charged. Some people get emotional about politics, others about certain industries or a company’s business practices. Emotional decisions have no place in the world of successful investing. Automate your investing by adding money to your portfolio at regular intervals. It’s a seamless way to build wealth over time.
13. Diversification is the only free lunch in investing: There is a tendency for investors to find, and pile into, the hot investment du jour. This is great while things are going well, but all companies, sectors, industries, and countries go through cycles. When things go south, having an overly concentrated position in any one area of the market can be devastating. The best way to protect your portfolio from this risk of over-concentration in one market segment is to have a policy of diversifying across many asset classes.
14. Conservative bonds have a place in everyone’s portfolio: Most investors have a lower risk tolerance than they believe. Therefore, high quality fixed income serves a crucial purpose in all investors’ portfolios. They provide the psychological benefit of minimizing volatility during turbulent markets. They serve as a cushion that allows investors to withdraw funds from assets that didn’t plummet in value during a market correction. Lastly, there are rebalancing opportunities when stocks fall in price and the highest-rated bonds appreciate.
15. High returns mean taking a high level of risk: Investors tend to search for the silver bullet of high returns with no risk. This panacea does not exist. In order to achieve high expected returns, you need to take a higher level of risk. The nature of the risk may come in many forms, including leverage, volatility, illiquidity, or poor credit. Go into every investment with eyes wide open.
16. If something seems too good to be true, it probably is: There is no shortage of charlatans in the investment community trying to take your money. They usually do this with superior sales skills and promises they will not be able to keep. If something seems too good to be true, then trust your gut and avoid it!
17. Boring over exciting is usually the right approach: Investors often confuse an exciting idea with a good investment opportunity. Excitement may be generated from the latest fad or an “exclusive” strategy that promises to trounce the performance of the S&P 500. These “opportunities” are being sold on the hype and not on their fundamentals. If you want to avoid being lured into one of these situations, then pursue an approach of sticking with plain vanilla, boring investments.
18. You won’t be successful day trading: Day trading is gambling. Few people possess the prophetic abilities necessary to determine where the market will trade in the short-term. You are not one of these people. Wall Street strategists, hedge fund managers, financial advisors, and retail investors are all equally clueless. Any strategy that depends on speculating on short-term market moves is a good way to lose money.
19. More money will not make you happy: I work with many very wealthy families. One thing I have learned, is what was famously said by The Notorious B.I.G.: “Mo Money Mo Problems.” If you were unhappy before you had money, then accumulating more wealth will not make you a happier or more content person. In fact, it will likely lead to a whole new set of issues. Money can only paper over what’s broken inside. It can’t fix it.
20. Mixing politics and your portfolio is a recipe for disaster: We are in a presidential election year, which means tensions are running high. Even the utterance of a particular candidate’s name is enough to enrage folks who are politically charged. I’ve personally witnessed friends and acquaintances make rash decisions based on the outcome of presidential elections. Politics may be fun to chat about with friends or co-workers. However, it has no place in your portfolio. The markets don’t care who is in the Oval Office. Failure to embrace this reality will cost you a lot of money.
21. If you make money, you will need to pay taxes: There are many legal ways to minimize one’s tax bill. This includes contributing to retirement accounts, using tax efficient investments, using losses to offset gains, and others. Despite many creative strategies to lower one’s tax bill, you will never be able to avoid them completely. There is no way around the fact that if you make money, you will also need to pay Uncle Sam his share. Don’t lose sleep over this. It’s a fact of life.
22. Don’t let the tax tail wag the investment dog: Refusing to act until you’re in an optimal tax situation is a mistake. Some sophisticated investors often stall on making decisions because of the tax ramifications. There is no question that taxes are an integral part of any financial plan. However, investors should not become paralyzed because they may need to pay taxes. As I tell these clients, “Don’t let the tax tail wag the investment dog.” This is an example of focusing on the minutiae instead of the big picture.
23. Simplicity > Complexity: There is a tendency for investors to make their lives more complicated. This includes having funds scattered at various institutions in search of the “best” opportunities. A better approach is to keep your investments streamlined. Keeping your money consolidated in only a few financial institutions will allow you to be organized and avoid major mistakes. As Leonardo Da Vinci said, “simplicity is the ultimate sophistication.”
24. Process > Product: It is highly unlikely that any single product will change the trajectory of your financial life. Instead, it’s far more productive to focus on your process for building wealth. This process includes spending less than you make, investing those savings in stocks and bonds, and sticking with this strategy over the long-term.
25. High savings rate > Trying to achieve high returns: Future returns are impossible to predict. Investors can exert far more control over their financial lives by how they choose to allocate their cash flow. Deciding to maintain a high savings rate is one of the best tools any investor can make to secure their financial future. More savings means more funds for short-term expenses, more money invested for the future, and more cash on hand in case of an unexpected expense.
26. Lifestyle decisions > Investment returns: Many of the best financial decisions are actually lifestyle decisions. Who you decide to marry, the career you choose, and where you decide to live, are all far more impactful to your nest egg than having outsized returns.
27. There are no guarantees: No investment or financial product is a sure thing. Even insurance solutions, which claim to offer “guarantees”, are only as good as the financial stability of the insurance company and its financial assumptions. It’s far better to think in terms of probability. If you focus on how likely something is to work out, you can balance your various investments and help manage risk more accurately.
28. Ignore market pundits: There are massive businesses dedicated to selling fear, greed, and “predicting” short-term moves in the market. These are called financial news networks. No market prognosticator, no matter how smart they are, should cause you to overhaul your investment strategy. Remember, things are never as bad as the talking heads on TV (or social media) are claiming. Furthermore, whenever you hear a prediction, keep in mind the wise words from Yogi Berra: "It is difficult to make predictions, especially about the future."
29. Don’t take investment advice from friends: Some of the worst financial mistakes people make are based on advice from friends. It’s far better to hire an experienced investment professional, who can help you navigate the investment landscape, avoid social pressures, and minimize the many potential financial pitfalls that others make.
30. Don’t try to keep up with the Joneses: This mindset will put you on the hedonistic treadmill of always wanting more. You will spend yourself into oblivion and never actually be content. Run your own race and don’t get caught up on what others are doing.
31. There is no perfect portfolio: There’s an infinite amount of literature on portfolio construction. Two investors with the same risk profile, goals, and time horizon may have different portfolios suggested to them by various investment firms. All those portfolios may be reasonable. In fact, the more one reads, learns, and researches, the more one concludes that there is no one correct way to invest. As long as you embrace timeless investing principles, like the items I outlined above, including diversification and utilizing plain vanilla investments, you should be fine.
32. You will not be able to accurately time the market: Some investors are hesitant to implement a strategy due to finding an optimal time to invest in the market. It’s human nature to want the best deal. However, waiting for a stock to trade at some arbitrary price often leaves the investor waiting indefinitely. If you have a prudent strategy, then hoping for the market to trade at certain levels is ill-advised. Moving forward immediately with your strategy is generally the right decision. When in doubt, keep in mind that the optimal time to invest is today!
33. Don’t put off saving until attaining an ideal career or life situation: Time in the market is one of the most important factors in building wealth. Sometimes, young people tell me that they’re going to hold off on saving for retirement until they are in a better life situation or they have more money. This could be the wrong mindset. When you are young, with fewer responsibilities and financial commitments, is generally the best time to save, even if it’s a modest amount. Furthermore, starting to save early in your career allows those dollars to benefit from decades of compound interest.
34. If you don’t take risks, you won’t grow: This is true regarding your portfolio, business, and life in general. Investors need to gain exposure to assets with risk, like stocks, to outpace inflation. If you want to make more money and become a thought leader in your field, you need to take career risks, as well. Taking calculated risks makes life much richer.
35. Bad things happen. Plan for this inevitability: No one is immune to hard times. Unexpected death, disability, automobile accidents, theft, fires, and long-term care needs all happen regularly. Get the proper risk management in place (usually insurance) to protect your family for when these circumstances arise in your life. Also, make sure you have an estate plan in place. This type of planning will help your family through a tough situation by making it much more manageable.
36. Once you win the game, stop playing: The stock market can be an addicting place, especially if you’ve accumulated a substantial level of wealth over your investing career. It’s important to understand that the main purpose of investing is for one to be able to achieve their financial goals. Once the investor reaches that magic number, there is no reason to continue to put that money at risk. Granted, if there are multigenerational goals that are for decades in the future, then that capital should be invested accordingly. However, the monies that have already been accumulated to fund an investor’s lifestyle could be moved out of stocks so investors can avoid stressing over market gyrations.
37. Live your bucket list today: People shouldn’t wait until retirement to check things off their bucket list. No one knows when they will die or become too sick to do certain activities. Don't save activities for retirement, rather, do things while you can! Additionally, if you do have some items you'd like to tackle in retirement, put a date on when you want to accomplish these activities. Goals with no timeline are easier to procrastinate indefinitely.
38. Retirement is an outdated concept: The concept of no longer working by your mid-60’s is archaic. Few people have enough hobbies to keep them engaged every day, all day, for a few decades in retirement. This lack of structure, social engagement, and intellectual stimulation leads people to mentally and physically deteriorate or obsess and worry about silly things. The truth is work is healthy. If you don’t need to work for the money, it’s worth finding some type of work to keep you mentally and physically healthy.
39. Workout and eat well: This may not seem like a personal finance lesson, but it is. Similar to saving and investing for your financial future, you should also eat well and work out for your physical future. Granted, there are many diseases that don’t discriminate between healthy and unhealthy people. However, there are plenty of self-imposed illnesses that directly correspond to your choices around food and exercise. Poor health decisions can compound and lead to very expensive health costs down the road plus they may rob you of the ability to enjoy your golden years most effectively. It’s crucial to make the right choices regarding your financial and physical well-being today!
Oscar Wilde famously said, “With age comes wisdom.” I’ve found the wisdom comes from taking life experiences and new ideas and implementing them into your own life to become a better version of yourself. They key is being more intentional with your money, time, and how you live your life. Making small, incremental changes with your finances can reap big rewards. Hopefully some of these money lessons will help you on your own financial journey.
I can’t wait to see what new insights I will learn and implement in my own life over the next 39 years!
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. ParkBridge Wealth Management is not affiliated with Kestra IS or Kestra AS. Investor Disclosures: https://www.kestrafinancial.com/disclosures.
