A letter to my younger self: Financial lessons I’ve learned along the way

Nov 12

Dear me, many years ago,

Well, it finally happened; I got old. I hit the big 7-0 last week, and it has me thinking about times gone by, about mistakes I’ve made and regrets I hold. Looking back on my life – on our life – I wonder what I could have done differently to protect myself from the financial hardships I’m facing today.

I wish I could go back and talk to you at 20, 30, 40, 50, 60, any of those landmark ages, so you could benefit from the financial lessons I’ve learned over the years, and share that advice with your beloved children. So I’m writing to you now to tell you everything I’d like to be able to tell my younger self.

If I could, I’d ask you to read my words of wisdom carefully; I would beg you to follow my advice to ensure that you don’t fall into the financial traps that have pulled me down.

When you’re 20

Life is pretty great, isn’t it? You’re young, vibrant and healthy, and it feels like everything is an opportunity waiting to happen. Even though you’re still in university, your thoughts are starting to stray beyond the campus. Between studies (and sometimes even during studies!), you’re grabbing coffee with good friends and hitting the pub with classmates. What I wouldn’t give to spend another day in your shoes…

Where you’ll work and who you’ll marry are questions that open the floodgates of your imagination. Times are exciting and the future is wide open. You’re carefree, but you’re also an adult now, with the credit card to prove it. You like the freedom of being able to shop when you want to, and you get a bit of rush out of buying the latest fashions and gadgets. So what if you owe a few hundred dollars on your credit card? You’re confident you can take care of that once you enter the workforce.

My advice to you

Enjoy yourself. But know this: Your 30s will be much better if you spend your 20s a bit more wisely. Over the next few years, that $500 credit card limit you currently have will increase to $10,000. At first, you’ll be happy to get the offer for the increase; trust me, I remember the feeling like it was yesterday. You’ll think you finally “made it” – the bank has put their trust in you, and you have access to plenty of cash. The only problem is that you’ll soon rack up more than $9,000 in credit card debt (never mind the nearly $2,000 you’ll pay in interest each year).

I’ve learned how to reduce my costs and start chipping away at my debt. But if I could teach you something now, to spare us both the headaches later, it would be this: When you’re tempted to buy something you don’t have the cash for, don’t buy it! It may feel like a painless purchase at the time, but whatever you buy winds up on your credit card bill, and you could be paying for it for years later (I’m still kicking myself for all those pricey meals out… What a waste!).

Be wise; get into the habit of budgeting your money now. The sooner you start, the better off you’ll be. You’re still living at home, so there’s no need to go into debt over consumer products. Use this opportunity to budget and save your money. Believe me, those savings could really come in handy someday – perhaps when you’re 70 and wish you could afford that cute little house downtown.

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When you’re 30

Married and with your first child. What a special time in your life. You’ve gone through so many changes in the last few years. Your first job out of college seems like eons ago (finally, all the grunt work is behind you!). You’ve paid your dues and can enjoy a better job title.

I know you’re trying to be responsible about money, and have even started saving a bit for retirement through the company plan (you figure you’ll up your savings when you start earning more). But you’re also tired of renting and are anxious to get settled into a home of your own. And why not? All your friends are buying houses now, even the ones making less money than you. If they can do it, so can you. On top of that, you can’t wait to crank up the music whenever you want, without the neighbours calling to complain. Imagine the freedom!

My advice to you

If you buy a house, make sure you consider all possible expenses. Without a proper budget, I know all too well what will happen. At first, you’ll love your charming home and be overjoyed when you and your young family move in. But you’ll soon discover that you underestimated how much it was actually going to cost. For one thing, you didn’t factor in a contingency plan for the renovations, which will go over-budget. For another, the home’s existing infrastructure will start breaking down. First the furnace will stop working (on the coldest day of winter, of course; it won’t be fun moving in with the parents for a week), then the fence will collapse during the ice storm. And just when you think you’re in the clear, a neighbour will notice some crumbling bricks on your chimney…

Beware the hidden costs of home ownership. They can sneak up on you and force you to jack up your line of credit; if you’re not careful, yours will hit $35,000 before you reach 40. Take the time to factor unexpected expenses into your budget, and if that puts you over the edge, don’t be afraid of holding off on buying a house. I know you don’t want to wait, but it would be very wise to build up a bit of a financial cushion before buying your first house. You don’t want to rely on credit to bail you out.

When you’re 40

So you’re in your house and you have the bigger family to fill it up. Congratulations on your second and third children. Your eldest is smart as a whip, asking questions faster than you can answer them. All three kids are growing up so fast; you wish you could just freeze time and keep them small and young, even just for a couple more years.

You’re focused on making more money so you can build the best life possible for your family. What you haven’t learned yet is that bigger isn’t necessarily better. If I remember correctly, you’re eyeing that bigger house right about now, that brand new one around the corner that just went up for sale. It won’t require any renos and there will be no unexpected repairs (at least not for many years to come). It’s more spacious and much nicer than your current home – the one you once thought of as your dream home! You imagine how much your family will enjoy the state-of-the-art kitchen and the generous backyard. And deep down, you secretly believe your friends and peers will think better of you if you live in such a beautiful house. You don’t have to admit it; I know what you’re thinking.

My advice to you

Stay where you are. You’ll be happier in the long run if you hold on to the house you’re currently living in. If you buy the bigger house, you’ll love it for awhile. But after a couple years, you’ll realize – too late – that it was a mistake. You’ll see your debt increase month after month, and you’ll wonder why the bank ever approved you for that large mortgage.

I’ll tell you now what I wish I’d known at your age: Being approved doesn’t necessarily mean you can afford the payments. Having the means to pay for a mortgage is a very different thing from getting approved for a mortgage. You need to calculate your numbers before making any big moves.

Right now, you have some debt but it’s manageable. If you buy the brand new home, all your equity will slowly trickle out of your hands. By your late 40s, the kids will be grown and off at university. The backyard will be empty, as will those extra playrooms you wanted so badly. And you’ll feel like your finances are running on empty, too.

Don’t give in to societal pressures and misguided expectations. The extra space in the new house would be nice, but you don’t really need it. And your true friends won’t care what size your house is. So look for happiness in your current home; you’ll thank me later.

More than that, your kids will thank you. By making smart financial choices, you’ll not only help yourself and your household, but you’ll set a valuable example for your children. Teach them the right lessons while they’re young – when they’re still eager to learn and have every opportunity to get it right from the beginning. Lip service will only get you so far; it’s important that you show your kids how to budget properly by doing so yourself.

When you’re 50

Happy 50th! What a milestone. You’re highly valued at work and are at the pinnacle of your professional career. You’re earning more than ever before, and although bringing in the dough is keeping you pretty busy, you’re still fit and strong enough to handle it – for now. (The truth is, you’re starting to notice that you’re slowing down a bit these days.)

In the back of your mind, thoughts of retirement are creeping in more steadily. But it’s scary to think about, and you’re easily distracted by the hustle and bustle at work. (Or maybe you’re using work as a way of putting off dealing with your fear of retirement… Just putting it out there.). I know what you’re thinking: You’ll increase your retirement contributions as soon as you get some downtime. Never mind that you haven’t increased them since you were 35.

My advice to you

That fatigue that’s starting to set in? It won’t get any better as you age; you need to take steps now to properly prepare for retirement. Otherwise you’ll find yourself approaching 60, far more tired than you’re feeling now, but with too little savings to stop working any time soon.

The problem won’t be the returns; your investments will do well. It will be that you never made a point of increasing the contributions to your retirement savings; you just kept putting it off. Busy days led to busy weeks, which led to busy months and years, followed by a busy decade. And let’s be honest: You never really wanted to think about retirement, did you?

It’s not too late. Harness your thoughts about retirement right now. Take some time to determine how much you’ll need when you retire, and how much you have to set aside now to make that happen. You’d be shocked by how much you can truly save over the next decade.

When you’re 60

Retirement is only a few years away, and I know that brings up mixed feelings for you. Even though you’re no spring chicken, you’re sure you can stick it out for a few years beyond 65 (isn’t everyone saying that 65 is the new 45?). But you don’t know how realistic that is, and you feel overwhelmed when your financial advisor tells you your retirement savings aren’t enough to live on. And I know all too well how disappointed you are that the line of credit on that house you bought at 40 got so out of control; you’re embarrassed by the small a percentage of your home you actually own. It feels like the cards are stacked against you, and you don’t know what to do.

As if that weren’t enough, you’re concerned about your children. They’re adults now, in their 20s and 30s. Unfortunately, a couple of them seem to be following in your financial footsteps. They rely too much on credit, whether it’s from the bank or from dear ol’ dad. I know you feel torn; you want them to stand on their own two feet, but you feel terrible when they shamefully approach you to bail them out from their credit card debt. Every time they come knocking on your door, you cave under the guilt and pressure, and bail them out (even though your retirement plan can’t afford the hit!).

My advice to you

I’m 70 years old. I’m semi-retired, and it isn’t rosy. There are no thriving vineyards outside my living room window, no leisurely walks along the beach. I’m still in that same too-big house, still struggling to pay off the mortgage.

At work, I felt I couldn’t keep up with the pace of the young upstarts around me, and I had to make room for the next generation. I still have a part-time position with the company, and I’m grateful for that (when I’m not too tired to appreciate it), but it’s hard on me; I used to be the person running the show, making things happen, and now I feel sidelined.

I wish I could have left on my own terms. I wish I could have had a big send off, leaving work at the height of success so I could enjoy a decadent retirement. But that didn’t happen. Instead, I faded into the background, not capable to perform the way I used to, and unable to retire completely because of my finances.

I look at the younger generation, so full of potential, and I hope they won’t make the same mistakes I did. I hope they make the effort to budget wisely and spend within their means, so they don’t end up like me. And I wish I’d set a better financial example for my kids, and given them the gift of tough love so they’d be better able to support themselves without relying on credit. It worries me to think they’ll wind up in the same boat I’m currently in, but without their dad to bail them out.

So I leave you with this, my final piece of advice to you, before you catch up to my 70 years: Know that a good income doesn’t always lead to a good outcome. Don’t buy more than you need, and don’t get sucked in by status symbols. Keep track of your expenses, always allow for a contingency plan, and don’t delay in setting aside money for your retirement; you owe it to yourself and your family.

No matter how old you are, it’s never too late; start budgeting now and learn to live within your means. It will only serve you well. This is the secret to financial success.


About The Author

Hi, I'm Avraham (pronounced Av-Rum.) I'm a reformed spender, financial coach, and the founder of Avraham Byers Financial (I'm better with money than coming up with company names.) In a funny and non-preachy way, I teach people how to take control of their finances without giving up their smoked butterscotch lattes.
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