Do you have a negative net worth? You’re not alone!
As a personal finance blogger, I spend a lot of time talking to people about saving, investing and paying off their debt. While this experience has been rewarding, one thing has become very clear; young people just don’t receive enough education in how to handle their money. What little knowledge they do have about personal finances comes from mimicking what others have done or what they’ve observed from other people close to them.
It’s no wonder why most young people getting started on their own almost immediately bury themselves in unnecessary debt.
This is exactly what happened to my wife and me soon after we graduated from college. Even though we had a decent household income ($80,000 or so at the time), we were actually spending more money than we were making and we had very little to show for it (other than a leased Toyota 4Runner).
To say we didn’t have a penny to our name was actually an overstatement! We literally had a negative net worth. In other words, even though we worked hard and had decent jobs we owed more money in credit cards, student loans, car loans, personal loans and motorcycle loans than what all that what all of our material possessions were worth.
Once we finally came to this realization there were feelings of embarrassment, guilt and frustration. Sure we were having a lot of fun, but at what expense? How were we ever going to buy a house or save for retirement if we couldn’t even keep our heads above water as DINKS (dual income no kids)?
Influence of Others:
As young adults, people often feel the need or desire to emulate the living standards of their parents or other adults they know. We forget that it has taken our parents many years of hard work and sacrifice to enjoy the lifestyle they now do.
Unfortunately, cheap credit and “affordable” monthly payments allow us to project an image of financial success when in reality some of us are in worse shape than we would be if we’d just
lived as a hermit in our parent’s basement.
Instead of investing our money and buying things that appreciate in value (build equity), we spend the majority of our money on consumer items that lose almost all their value as soon as we purchase them; things like clothes, electronics, eating out, vacations, etc. These things provide instant gratification, but once they’ve been bought the money is gone.
If I could go back in time, there would be a bunch of things I would have done differently.
Even though I started maxing out my 401k as soon as I got my first job, I did very little non-retirement investing. I maintained a brokerage account with Ameritrade, but that was for my failed attempt at day trading and not really a sustainable attempt at investing for the long hall.
Buying Land or other Property:
Another thing I wish I had done was purchase some land or some other real estate property when I was younger. Of course hindsight is 20/20, but I truly believe having some sort of “positive” financial commitment at a young age helps keep you grounded and build equity. Basically, it’s a forced savings account. Having a structured payment on something that could appreciate in value (like a real estate loan) can be an effective way to build equity.
Setting Financial Goals:
I wish I had set more personal finance goals to help curb my tendency to buy things “just because I could”. I believe if my wife and I had set more long term goals, such as were we want to be financially in 5 years, 10 years, etc., we’d be in an even better financial position now. Maybe we wouldn’t have to work as much. Time flies quickly! Ten years may seem like a long time if you’re just starting out on your own, but I can promise you it will go by a lot quicker than you think.
It’s been 18 years now since I’ve been out of college but it seems like it feels like it’s only been 5. Even if you’re older than 45, it’s never too late to start turning your financial habits around. Don’t be normal, don’t fall in to the financial trap that so many of us have. It’s a whole lot better to be financially secure in the future than pretend like you are wealthy today.
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