It’s really great how things come full circle sometimes.
Tomorrow, I’ll be speaking to an undergraduate class at UCSD (my alma mater). Dr. David Barner was kind enough to invite me to speak to his class about early financial planning.
So, I thought I’d write up this post specifically for those of you attending or any young student who may need these insights. May these ideas inspire you, prompt you to action, and lead to a fruitful and fulfilling financial future.
Here are 8 things about money that I wish I knew in college.
1. Start Saving Early
Like many college students, I thought retirement was ages away. But one thing I learned early on was the power of compound interest. It’s not just about how much you save, but WHEN you start saving.
The earlier you save, the more time you have to earn interest upon interest. This is the easiest way to make money and the more time you have, the easier it is to do this. Imagine this…
Sara and Joe are best friends from college, both majoring in software engineering. After graduation, they both land good jobs with the same salary. They’re also given the same advice: save $300 each month for their retirement.
Sara, eager to secure her future, starts investing her $300 per month right away in a mutual fund that has an average annual return of 7%. She does this faithfully for ten years, from age 22 to 32, contributing a total of $36,000. Then, life gets busy. She gets married, has kids, and decides to stop contributing to her fund, but leaves her investment to grow.
Joe, on the other hand, thinks his twenties are for fun, not worrying about retirement. He decides to start saving when he’s more ‘settled.’ At 32, the same age Sara stops investing, Joe starts putting $300 into his mutual fund every month, continuing until he’s 62. He contributes for 30 years, totaling $108,000.
Fast forward to retirement. Sara, who only invested for 10 years, will have around $502,000 in her account, thanks to compound interest. Joe, who invested three times as much money over 30 years, will have approximately $372,000.
This scenario demonstrates the power of compound interest and time. Even though Sara invested less money overall and stopped contributing earlier, she ends up with more money at retirement because she started saving and investing earlier. Joe, despite saving more money over a longer period, ends up with less because he started later.
Remember, it’s not just about how much you save; it’s about how early you start saving. The earlier you start, the more time your money has to grow, and the greater the impact of compound interest. That’s a lesson both Sara and Joe will never forget!
** Here’s a strategy I share all the time for young people just beginning their career – The Basics of Saving with a Twist
2. Understand Credit
It’s easy to fall into the trap of thinking credit cards are free money. It couldn’t be further from the truth despite what our society tells us implicitly.
Getting your first credit card can feel like you’re invincible! But that invincibility can quickly turn into a mountain of debt. It’s essential to understand that credit is not free money; it’s borrowed money that you have to repay with interest.
And if you’re not paying off your credit cards each month, you’re paying the bank a ton of interest which can compound against you.
Always pay your credit card bills on time and in full. If not, the interest will accumulate, and it can quickly spiral out of control. A good credit score can help you in the long run, from getting a better rate on loans to even affecting your job and rental prospects.
Learn about credit early and leverage technology apps like Credit Karma to help you track your score over time. It’s never too early to build a strong credit score.
Once you have established healthy credit, know that you can actually turn the tables on the banks and allow them to pay YOU for holding credit cards and no cost to you (eg. travel hacking, travel rewards, credit churning).
3. Don’t Ignore Student Loans
Many of us graduate with student loan debt. It’s easy to ignore it, thinking, “I’ll deal with it when I start making real money.” or “The interest rate is so low, it doesn’t really matter.”
But this approach can lead to substantial financial pain down the line. Make a plan to pay off your student loans as soon as possible, even if it means making sacrifices.
Did you know that student debt cannot be erased even after declaring bankruptcy?
The sooner you can free yourself from the weight of student loan debt, the sooner you can start directing that money toward saving, investing, and living the life you want.
There are creative ways to pay off this debt quicker, faster, and more efficiently in the form of grants, consolidation, and of course applying extra principal payments to your balance.
4. Budgeting is Your Friend
In college, I thought budgeting was restrictive. It felt like putting a leash on my fun. But what I didn’t realize was that budgeting doesn’t limit your freedom; it enhances it.
A budget is just a spending plan for your money. It helps you understand where your money is going, so you can make conscious decisions about your spending. It can be as simple as tracking your income and expenses in a notebook or using a budgeting app (eg. Mint.com).
Being intentional about your money not only allows you to get more joy out of the things you love, but it also gives you a guide rail from which to live. And, when you combine this with investing, it becomes the key to unlocking your early retirement.
As you begin to build a lifestyle that has automatic savings/investing built-in, you can eventually ease off the need to “budget”.
That said, it’s always a good idea to track your financial metrics as best you can. Learn how to calculate your monthly cash flow and net worth.
5. Learn to Invest
I was in college before I really understood what a stock even was. In college, investing seemed like a foreign concept, something only rich people did. But investing is crucial for building wealth and achieving financial independence.
Start by learning the basics of investing: stocks, bonds, mutual funds, and ETFs. Then, open a brokerage account and start investing. Even if it’s just a small amount, the key is to start early and keep learning.
Also, take the time to learn the different risk factors of each type of investment.
If you choose to invest in the stock market, it’s infinitely easier to beat the market by simply dollar cost averaging into a broad index fund slowly and methodically over time (eg. VTSAX).
If you still want to “play the market” that’s fine too, but only use a small portion of your funds as this type of “investing” is more volatile and many times just ends up gambling.
6. Emergency Fund is a Must
One thing I learned from Dad early on was the importance of having an emergency fund. When I was facing a layoff just a year and a half into my first job, I felt okay because I had saved up over half of my salary from the prior year.
This gave me the confidence to take the risk of starting up my own company which was one of the best decisions I’ve ever made.
An emergency fund is a safety net that can cover 3-6 months of living expenses, or more if you like to be conservative.
Start by setting aside a small amount from each paycheck into a separate account that is completely liquid.
It might seem unnecessary when things are going well, but when life throws a curveball, you’ll be glad you have it.
7. Money Can’t Buy Happiness, But It Can Buy Freedom
In my early 20s, I equated money with material possessions – a fancy car, nice clothes, and the latest gadgets. While I did indulge a bit in some of these things, I never lost sight of my main financial freedom goals.
I quickly realized that money’s real value lies in the freedom it provides.
Being financially independent means you have the freedom to pursue your passions, take risks, and live life on your terms.
So, I believe it’s important to live a balanced life and practice relative frugality.
All that means is if you’re able to increase your income, your expenses can go up relative to your income. That way you always ensure you’re saving/investing and continuing to invest in your financial freedom.
Money is just a tool. Use it wisely and you can find happiness on the journey to financial freedom AND once you reach it and beyond.
8. Continuous Learning is Key
Financial literacy is not a one-and-done deal; it’s a lifelong journey. The economy changes, new investment opportunities arise, and personal circumstances evolve. It’s important to stay informed and adapt your financial strategies accordingly.
Remember, you don’t have to know everything. But a little bit of knowledge can go a long way. Read books, listen to podcasts, attend webinars, or even hire a financial coach. There’s always something new to learn about managing money.
And keep in mind no one will ever have as much vested interest in your financial well-being as you should. Consider building a team as you begin your career or business, but never give away your power as CEO of your own finances.
In conclusion, your 20s are a time of exploration and growth. And it’s also the perfect time to build solid financial habits. The goal is not to be perfect but to continue to grow your investments so they can begin to take care of you sooner than later.
The sooner you start, the better off you’ll be. So take these lessons to heart, and here’s to your financial success!
Readers, what other things are important to know at this age?
- 8 Things About Money that I Wish I Knew In College - May 17, 2023
- It Pays to Pay Attention: How Diligence Can Save and Earn You Money - April 24, 2023
- 10 Ways to Use AI for Your Next Side Hustle - April 10, 2023
All these tips and strategies towards reaching financial independence are amazing! Especially the phrase “money can’t buy happiness, but it can buy freedom” really resonates and is a philosophy that I strongly stand by.
The advice here is super helpful, especially since there was so much I didn’t know about the area. After hearing you talk in the zoom call I was pretty convinced I should start doing what I can in terms of investing.
Thank you so much for sharing your passion to spread financial literacy! I learned a lot in your talk, and I feel less overwhelmed in my understanding of what options and tools I can use to get started in becoming financially independent!
The advice on this blog is very doable advice, and I like that there weren’t any jargons or confusing explanations for people who are just getting started on their own financial journey!
I’m glad you learned a lot. Thanks for your question during the Q&A. 🙂
thank you very helpful information
Thank you so much for your time and advice!
Thanks! Very Helpful!
Very insightful post, and great speech! I learned so much, thank you!
Thank you for the advice! This is really helpful! I wish I was able to learn more about the financial pain of student loans.
I do appreciate you sharing this information with us. Finances are something I have been intimidated by.
I really appreciated you sharing this information with us!
I was just was thinking of how I was going to diversify my financial portfolio! Perfect timing!
I absolutely loved reading your blog, especially since I’m about to be done with college, it helps to start thinking and planning about finances sooner rather than later!
I really loved point number 7 that talked about money not buying happiness, but instead buys freedom. This is such a different perspective than what I am used to. I’ve had the misconception that it was a bad thing to care about money and how much I could potentially make because it won’t lead to ultimate happiness, but it is true that I would have more freedom, which results in a better quality of life.
I often hear my peers talking about investing and achieving financial independence but never really understood it when they tried explaining briefly. Reading your article cleared a lot of things up for me like the emergency fund scenario explanation! I never got to learn this kind of thing anywhere else despite how important it seems to adult life; I appreciate you taking time to teach us about it!
Thank you for all of this great information, I really appreciate you taking your time to talk to us today! It was so enlightening/beginner-friendly. Looking forward to learning more from you! 🙂
I really appreciate this blog post as I’m about to finish college, it helps to start thinking about topics that you mentioned earlier rather than later. I’ve always heard ‘start saving early’ but never really understood why or what difference it would make if i just saved more when I’m making more later on in life, however the Sara and Joe scenario you mentioned really changed the way I’ve been thinking/feeling towards saving!!
Super informative post. Thanks so much for sharing!
Helpful insights! Financial literacy is something many college students lack the knowledge of, so learning more about it sets the path to success and financial independence!
Very interesting and helpful! Thank you for the advice!!
Such an awesome read!! Everything felt very meaningful and straightforward. I’m very much looking forward to taking this in right now and my years following graduation!!
thank you for the great financial advice
Thank you for the helpful advice!
Great insight! Thank you for taking your time to write this blog and explain all this incredible info for us.
Solid advice! Since you mentioned the importance of learning these skills, maybe you can provide links or names of resources where we can learn them, or even just provide specific examples (eg. how to budget as a college student). Great tips though!
thank you for the great advice!
This was really helpful to read!
Thank you for providing us with tips about money! I am a single mother of 2 and this is definitely going to be tips I will follow. Thank you!
Love love love this! This is incredible! Thank you so much!
“Money does not buy happiness, but it does buy freedom” I love this. This is a good/different perspective that I think I & many others need to hear.
I understand why you’re supposed to save, but how can you save money for retirement in your college years if the vast majority of your money goes to necessities and your discretionary spending is very limited?
Excellent question. It really comes down to focusing on what’s most important to you. Cut out the unnecessary things you don’t need initially. And when you start to build your income you can always add them back in later. It’s really surprising just how adaptable we are as humans. Challenge your definition of “necessities”.
this is great advice, thanks!
thank you for the great advice!
This is such a great advice! It’s definitely very important to become financially responsible as early as we can, I see myself implementing some of these !
This is really helpful since I have been trying to be careful with my new credit cards!
what degree did you get at UCSD?
I got a BA in economics.
Truely eye opening! I can’t wait to get into the stock market. there is a lot of great financial opportunities in that
Definitely going to take these advices! Thank you so much!
Thank you for taking the time to write up this blog post for our class! I liked the section on emergency funds as I never knew how much exactly is enough for emergencies. I’ve had a credit card since I was 18 because I was told early on that building my credit is super important for my future. I’d be interested to hear more, however, on what you call “travel hacking” using credit cards. I know that some credit cards give you rewards, but never got around to exploring what exactly are the rewards offered. Excited to learn from you today!
Sorry we didn’t have time to get into this yesterday. However, check out sites like the Points Guys to get started.
Thank you, this was really helpful and interesting to read!
Thank you for the advice! This is really helpful. I’m wondering if you have any specific advice for materials to begin learning about investments.
I think it’s also important to know at this age that although life in San Diego is expensive, there are a lot of much cheaper alternatives to the usual places you buy things! Grocery Outlet is much cheaper than Ralph’s. Buying furniture off of Craigslist or Facebook is infinitely cheaper (or sometimes free) compared to buying it new. Thrift stores and clothing exchanges are ways to very cheaply update your wardrobe.
One of the best books on investing is by JL Collins – The Simple Path to Wealth
It articulates the idea of making investing simple and efficient.
A great list of advice! I can see myself doing most of them. Love it!
Great content! Money is scary, feels so overwhelming and complex at this stage of life but it’s also the best time to work on our relationship with it to ensure future financial wellness
I’m wondering what advice you would give / first steps to take for those living paycheck to paycheck. The cost of living vs. the rate of pay seems like a fire wall to keep money from going into a savings. What’s a good strategy for San Diego residence?
I like the idea of taking on roommates while income is limited. And even when it goes up, I’d consider waiting a little longer to use that excess money to invest or save.
If you like the idea of investing in real estate, there’s a concept called House Hacking where you purchase a residence and rent the extra rooms to other people. This allows you to minimize your living cost while building equity (ownership) in the property.
I loved it! Thank you for the wonderful advice!
This is very comforting to read, especially a a graduating student! Thank you!
Thank you! This was very informative and great advice 🙂
This was really helpful to read!
Finances were always shown to me as a subject that should never be brought up, and I have struggled with it since. More articles like this should definitely be posted, bringing financial fears to light and how to tackle them early on. Thank you for the read!
Thank you for all of these wonderful insights!
Thank you for this! It’s a real helpful guide/insight for those of us who might come from backgrounds in which topics like finances were taboo or never really discussed!
I was super fortunate that I was given the advice to invest early and also obtain a life insurance plan as young as possible. All these small decisions will pay off and time has truly flown by! I hope to be like Sara some day <3
Thanks for the advice! I’ve thought about saving for a while now but never committed to it. I’d love to start investing as early as I can.
The point about saving and investing early especially stood out. I love the example given between Sara and Joe, as it really illustrates the impact of investing early on.
Cheers!! Thank you for the insight 🙂
This was really interesting! I haven’t had a lot of guidance when it comes to managing my finances so this was really informative read.
This is amazing advice, in the past I have found myself unaware of how to handle credit and without a proper emergency fund. After reading this, I now know that these are vital to having a healthy relationship with money and being prepared for what might happen in the future. This is really great insight, I am looking forward to becoming free.
This topic should be discussed more, to better encourage people to face their financial fear instead of running from it. A little bit of saving and/or investing can go a really long way, and once you get used to budgeting the desire to spend fades when you realize what you can and cannot live without. Thanks for the incredible insight.
The examples comparing the two college students’ saving funds were definitely clear examples of why it is important to save early. I learned a lot about the basics of saving and finances.
Finances are a subject that many college students avoid due to anxiety and how easily it can overwhelm you. Thanks for sharing!
This article was definitely made some interesting and important points about early investment. Like the article said, learning about finances as a college student can be confusing but I learned a lot about the important basics.
This was super helpful! Thinking about finances sometimes overwhelms me, so I appreciate how you broke it down into easy-to-understand sections 🙂
This was a really interesting and insightful read. I’ve never had anyone to reach out to or guide me about these matters. The first bullet point is what really caught most of my attention because i didn’t realize how impactful saving early was.
Honestly I am glad we are learning about the importance’s of finance. I never really knew how to save or invest or what would be the best course of action. After reading this post I am excited to hear about what we can do to become “free.”
This is such great advise! These are definitely important points. Being in my low 20’s and in college, most of the financial world is a blur to me so, luckily, I have family to help guide me. However, I need to start learning about finances myself to be completely independent in the future.