Eleven Things I Wish I Understood About Personal Finance Before Starting Out

Not too many years ago, I was a fresh college graduate who was lucky enough to get a job straight out of college during the 2001-2002 economic downturn. I was also primed to make a whole bunch of financial mistakes that, frankly, still negatively affect my life a decade later and will likely have ramifications for the rest of my life.

I wish I could have done things differently, but that’s water under the bridge now. There’s nothing I can do to change the many ways that I messed up back then.

Instead, what I can do is focus on today. I have three children who are growing up faster than I can sometimes believe. I have a surprisingly large audience of readers at this website.

All I can really do is share the things I wish I had understood then.

Sure, my kids will probably shrug off a lot of this stuff, as will you. However, if even one or two of these things had taken root in my life when I was freshly out of college, I would have found myself on a decidedly different path and, for most of my twenties and thirties, a much better path.

Here are eleven things I wish I knew on graduation day.

Other People Don’t Really Care What You Own, Wear, Drive, Etc.

If you even consider for a second what other people will think when you’re choosing what car to buy, what gadget to purchase, what clothes to wear, and so on, you’re wasting that second. They’re not going to notice and they’re not going to care.

The only time other people even notice such things is when they’ve already noticed other things about you, usually your cleanliness/hygiene or your personality. If you stand out with those factors in a positive way, they’ll find good things in other factors about you. If you stand out in a negative way, they’ll nitpick.

Why don’t they notice as much as you think they do? It’s called the spotlight effect. Other people are as worried about themselves as you are, thus they don’t notice other people very much at all.

If you want to actually stand out in a positive way, here are two things you can do.

First, be clean and presentable. Never go out without showering and brushing your hair and teeth and applying some deodorant and wearing clean clothes. You don’t have to wear nice clothes – honestly, most people won’t notice or care – but make sure they’re clean and not completely falling apart.

Second, have a positive and outgoing personality. This is something you can actively work on. My suggestion is to pick up a copy (or an audiobook) of How to Win Friends and Influence People and listen to it during your commute, then put the things suggested in that book into practice.

Notice that neither of those things involve buying gadgets or shiny cars or new clothes. Why? Spending money on stuff doesn’t help you very much at all in terms of building new friendships or professional relationships.

The First Possible Moment Is the Best Possible Moment to Save for Retirement

I was twenty three years old the day I started my first post-graduation job. Let’s say, hypothetically, I was pointed at a retirement age of 68. That gives me 45 years to save, right?

One of the smart things I did at that time was contribute just enough to retirement to get my full employer’s match – but one of the dumb things I did was choose to not contribute more than that. Here’s why.

Let’s say I put away $5,000 during that first year, when I was 23. By the time I am 68, that $5,000 transforms into $105,000. (This – and the other examples – assumes a stock market that returns a steady 7% a year, which is the long term projection going forward.)

Now, let’s say I waited until I was 33 to put that $5,000 away. I mean, I might want to live my twenties out without worrying about retirement. At age 68, that $5,000 has only transformed into $53,000. In fact, I would have to put away $9,700 that year to make it worth $105,000 at my retirement age of 68.

What if I waited until I was 43? I might want to be married and have a house before I start worrying about retirement, right? If I waited that long, at age 68, that $5,000 will have only grown into $27,000. To get $105,000 at retirement age, I would have to sock away $19,000.

It only gets worse going forward.

Every single dime you can afford to put into retirement as soon as you graduate – or even before, if it’s possible – will mean that you have a lot smaller burden going forward. The power of compound interest is incredible, and it’s never more powerful than when you’re young.

The Smaller Your Living Space, The Better

In 2003, Sarah and I shopped around for a place to live. We looked at a bunch of them, ranging from some rather nice places that cost more than $1,000 per month to some very tiny places with a very small rent.

We ended up choosing one of the very small places, mostly due to location (and our inability to come up with a big deposit), and it was one of the few financially smart moves we made during that time.

This seems obvious, right? If you rent a smaller place, the rent will be lower, thus you’ll have more money in your checking account and less money in the hands of the property owners.

That’s just the first piece of the equation, though.

For another, a smaller living space gives you more options in terms of location. It is much easier to find a tiny apartment close to your job, for example, or close to public transportation. If you’re restricting yourself only to larger places, those options are closed off to you.

The big reason, though, is that the smaller your space, the fewer possessions you can accumulate. You don’t have the space to buy a lot of stuff, so you’re not going to buy a lot of stuff. Space becomes a major part of your purchasing decisions.

This ties into the next point…

The Less Stuff You Have, The Better

During the summer of 1998, I moved into an apartment with several friends out of my dorm room. All of my possessions fit into a backpack and two plastic tubs.

A year later, I moved to another apartment with a different friend. Again, I managed to fit all of my possessions into two plastic tubs and a backpack.

Both of those times, I was able to completely move within an hour or two, fitting all of my possessions into the trunk and backseat of a friends’ car. I was perfectly happy with what I owned at that time.

Flash forward to 2007. When we moved that time, it required a moving truck rental and was a multi-day process. It was far more expensive in terms of money, time, and energy.

Even worse, the sheer quantity of stuff made the move intimidating. It was that resistance to the task of moving that convinced us to stay put for at least a year longer than we probably should have. This enabled the landlord to be rather pushy with the policies and threaten to raise our rent at least once because the sheer quantity of our stuff left us resistant to moving.

In fact, for a short while, we had to utilize a storage locker for our extra stuff, adding to our expense.

If I were back in my college days – where I could fit all of my stuff into a couple of boxes – I could have easily moved across the country. I could have shipped the two tubs via UPS, jumped on a plane, and been settled in a completely different area in a day or two. If the rent or living situation became difficult, I could easily move, too.

There’s one more huge factor here that I haven’t mentioned – all of that stuff costs money. When you acquire a possession, you’ve usually spent some money on that possession, money that will be very hard to recover because most items lose some of their value the moment you open them.

Even more than that, the more possessions you have, the less time you can spend using each one. It’s not a big deal to spend $50 on something that you use over and over again, but if you have lots of items, you’re either not using a lot of them at all or not using any of them very much. In either case, you’re wasting money.

The solution is simple: just avoid buying stuff whenever you can. Minimize your possessions. Focus on experiences instead. You’ll be glad you did.

In Cities, Public Transportation Means Not Having to Buy a Car

My first post-graduation apartment featured a public transportation stop right outside of my front door. I literally had to walk about twenty five steps from my apartment door to be sitting at a bus stop.

Unsurprisingly, I didn’t own a car then. Unfortunately, after we moved, I found myself quite far from public transportation, making it unreasonable to rely on it for transportation.

Thus, our new apartment had an additional expense. It required us to buy a car, one that we didn’t need before. This meant car payments. This meant fuel costs. This meant more insurance.

One of the advantages of not having many possessions is that you have much more flexibility in terms of where you live. This means you have a much better chance of finding a place near public transportation, which means that you don’t have to incur the cost of owning a car.

Yes, eventually, you’ll probably want one. However, the longer you can go without owning one, the longer you have to devote that saved money into saving up to buy a car with cash (avoiding that debt) or paying down your student loans rapidly.

Making Meals in Your Own Kitchen Is One of the Smartest Things You Can Do

Obviously, cooking your own meals is a real money saver. Even when you compare a full meal from the dollar menu to the home-cooked version, making meals at home is usually cheaper. If you compare almost any non-dollar-menu restaurant, you’ll find that cooking at home just blows all of it out of the water.

The reason people don’t cook at home is convenience and the perception that food eaten at a restaurant is tastier.

However, there’s a real trick here – experience. The more experienced you are in the kitchen, the easier it becomes to prepare something really tasty and get it on the table reasonably quickly.

Ten years ago, I made a disaster out of frying an egg. Today, I can make a pretty good eggs Benedict in about ten minutes. Ten years ago, I messed up almost everything I touched. Today, I can make pretty much anything in any cookbook.

All you have to do is go into the kitchen and start trying to make things. Sure, your first few attempts are going to be bad, but you learn from them and you get better and better. You begin to identify visually when you should pull the eggs off of the heat. You begin to know intuitively how long a grilled cheese sandwich should stay on one side before flipping it. You start to know just how to season chili without even consulting a recipe and knowing how it will affect the flavor if you alter different ingredients.

It just takes practice. It’s not particularly hard. It just takes a willingness to try and then try again.

Once you have that, it becomes easier to cook at home most of the time. The only time we ever eat out any more is when we are traveling, whether it’s a day trip to another town or a longer vacation, or when we have guests who want to eat out.

This ends up providing a much lower monthly food bill for you while also making you far less afraid and far more adaptable in the kitchen.

Before long, you’ll move into a “meal plan”-centric grocery shopping system, which will save you even more money (and time, too).

The Best Thing You Can Do for Career Security Is Build More Income Streams

This is something you can start before you even leave school, but it’s something everyone should engage in as soon as they graduate. You need to build more income streams than just your primary job.

What do I mean by “income streams”? I mean any activity you spend time on that will eventually generate income for you.

Making Youtube videos is an income stream. Writing a blog is an income stream. Doing freelance work in your field in your spare time is an income stream. Reselling collectibles is an income stream. Teaching a class is an income stream. Those are just a few examples of the thousands of possibilities out there.

The key is that you turn your spare time into something that can earn money for you, whether now or later. Even better, you work on building two or three avenues for income.

If you love your career and want to advance in it, start a blog related to your career. Record Youtube videos related to your career. Write ebooks for the Kindle Store related to your career. Then pop on Twitter, get involved in the conversation, and promote it a little bit. Not only will this earn income, it helps build your professional standing.

If you have dreams that are far away from your career, do things related to those dreams. Do freelance work related to that passion, or do online creative work related to it. It can often lead to more opportunities in those other areas.

Most of these things cost very little money to start – they just require time and willingness to work.

Shopping at Goodwill, Aldi, Etc. First Saves a Ton of Money

You might not be used to shopping at secondhand stores and at discount grocers. It’s time to get used to it.

The trick with shopping at discount stores is to recognize that quite a few of the things they have on their shelves are exactly the same as you would find at other stores. The only difference is that their prices are lower.

For example, the exact same loaf of bread at our local discount store (Fareway) is about $1 per loaf cheaper than at the most popular store (Hy-Vee). A very similar loaf is about $1.50 cheaper at Aldi than Hy-Vee.

This type of comparison is true for almost every food item you can name. A discount grocer will have the same thing at a lower price than the popular well-advertised grocer in the area.

For other items, like clothing, start your shopping at secondhand shops and, in the spring and summer, at yard sales and garage sales. You can often find new and nearly-new items of all kinds, from blenders to dishes and from shirts to irons, at Goodwill or another secondhand shop.

If you don’t find what you want, that’s perfectly okay. Shop elsewhere. Just make your first stop at a discount grocer or a secondhand shop and see what they have that matches your needs.

Renters Insurance Will Likely Save Your Cookie at Least Once

If you’re freshly out of college, chances are you’re renting your place of residence. Whether it’s an apartment or a house, you’re most likely just a person living in a residence that someone else owns where you simply pay them for the privilege of staying there for a while.

Not owning the house doesn’t free you from costs in a disaster, though. If the building burns down, you lose all of your possessions. If there’s a robbery, you lose your possessions. If there’s a flood, you lose your possessions.

If you have anything of value in your apartment or rented home, you really need renters insurance. There’s a good chance that renters insurance will save your cookie at some point, because there’s a pretty good chance that at least one of these disasters will happen.

For me, the disaster happened in about 2005 when there was a sewage backup into our apartment. Yep, raw sewage. It happened while I was at work and it ruined several pieces of furniture and many, many books.

I didn’t have renters insurance. All of that stuff went in the trash and I got no compensation. The landlord gave me a month’s rent for free (basically to be nice), but when I contacted a lawyer, the lawyer basically said I wouldn’t have much of a case.

If I had simply had renters insurance, all of that lost stuff would have been compensated (minus the deductible). It was a dumb mistake to let my insurance lapse, one that I regret.

There Are More Free Things To Do Than You Can Possibly Imagine

There are times when it seems like everything fun to do costs money. All of the interesting clubs and restaurants and activities all come with a fee attached – and it’s often a hefty fee.

The problem is that, when you’re new to an area (as you often are when you’re freshly out of college), the multitude of activities available in that area aren’t clear to you. The first ones you hear about are the ones that are well-advertised because they pay for marketing … and, eventually, the customers pay, too.

In truth, there are very few areas in the country that do not feature a multitude of free things to do – more than you’ll ever have time to enjoy. Within a ten mile radius of my home, there are countless bike trails, sports clubs of all kinds, state parks, book clubs, concerts, community organizations of all kinds… I can’t even hope to list all of the stuff. All of it is free.

When I first moved here, I wasn’t aware of any of it. I was basically convinced you had to drive to Des Moines for entertainment. Now? I have more stuff to do within walking distance without paying a dime than I have time to explore it.

How did I find all of this stuff? I just used a number of useful resources.

For starters, I studied my city’s website – and the websites of surrounding communities. They provided me lists of community organizations, a calendar of upcoming events, and lots of other pointers.

I also checked out my city’s parks and recreation department – and the parks and rec departments of surrounding cities. They manage many sports leagues, recreational facilities, classes, and many other things that are either free or available for a really low cost.

After that, I hit the library. I snagged one of their brochures and checked out their bulletin boards. It turns out that there are a number of book clubs in our area, as well as free concerts and presentations on tons of different topics. The library also offers up mountains of free books, DVDs, CDs, and a surprising amount of other equipment, too. All free.

I also checked out the bulletin boards at city hall and at the post office, where people post information about all kinds of community events and new clubs and other things going on.

I also hit Meetup.com and see what I can find within a certain radius of my home. I’ve found three different groups that I now participate in thanks to Meetup.

These steps will uncover more free (and very low cost) things to do near you than you’ll ever have time to explore. You can sift through these choices and discard most of them and still have more options than you can ever explore.

There’s no reason to shell out cash just to have fun, no matter what your definition of “fun” is.

Carrying a Credit Card Balance Doubles the Cost of Whatever You Buy (or More!)

You may have signed up for it when you were in college, like I did. I signed up for my first card in order to get a free t-shirt, for example. That first credit card seems full of opportunity. It likely has a credit limit of $500 or $1,000 on it – you can buy all kinds of stuff!

Here’s the thing they don’t really tell you. If you buy something on a credit card and then just make the minimum payments thereafter, you’re at least doubling the cost of that purchase – and possibly tripling it or more.

Let’s say you get a $1,000 credit limit and charge it up to the max buying video games or clothes or whatever it is you like. After that, you’re faced with a credit card bill that’s difficult to pay off. You can only afford to swing the minimum payment each month after covering rent and your electric bill and so on.

Let’s assume that your credit card calculates minimum payments in the typical way – your interest for that month plus 1% of the balance with a minimum monthly payment of, say, $15.

If that credit card has a 20% interest rate – and that’s actually a good rate if you’re getting your first card in college – you’ll be making payments for 117 months and you’ll be paying a total of $1,056.70 in interest. In other words, you’ll have to pay back more than double the amount you borrowed. Your $100 dress actually cost you more than $200. Your $50 video game now costs you more than $100.

Now, let’s say it has a 32.99% rate – the rate my first credit card had. In that case, you’ll be making payments for 140 months – that’s more than ten years – and your total interest will be $1,980.68. You’ll have to pay back just a hair shy of triple what you borrowed. Your $100 dress costs you $300. Your $50 video game costs you $150.

That’s why credit cards are incredibly painful. The only situation in which credit cards can be a good thing is if you’re in a situation where you can pay off the balance in full each month. If that sounds impossible to you, then you shouldn’t have a credit card. It will cost you far more money and likely produce far more negative impact on your credit score than you’ll ever want.

Final Thoughts

I spent my money in countless foolish ways when I was first starting out. I don’t even want to calculate the money I lost to that first car, those poor grocery buying habits, those first stupid credit cards, and many other dumb moves that I could have easily avoided without giving up much of anything enjoyable in my life.

All I can do now is hand those mistakes – and what I learned from them – over to those who are just now entering that stage in life, so that they can perhaps make better choices and not find themselves in their late twenties and early thirties standing at the edge of a financial cliff.