A reader from the United Kingdom wrote to me last week:
I’ve recently graduated and landed a fairly swanky job. So naturally I’m planning an escape strategy…. Do I want to have my nose to the corporate grind-stone forever? No. Do I fancy retiring from formal work at 43? Um, yeah!
Long-story-short, I’ve just stumbled on your blog and I really like it. (I also really like Komodo dragons.) And I was wondering – what would you tell your 23-year-old self?
Any tips for someone starting with…well… financially nothing? (Not including an overdraft and a sizable student loan).
I’d love to hear what advice you have. First though, we must get to last week’s question when I asked about your summer adventures.
Summer Adventures
My friends, the Penny Planters, had a not-so-fun adventure courtesy of Hurricane Irma. I was concerned about their cabinets and NSX. Both survived. Phew.
Reader Matthew in Michigan is brave (long road-trip with kids):
We had an awesome summer though, our first long road trip with the kids, age 12, 8 and 6 and a broken DVD player in the van. Kids surprised us and did really well the entire trip…minimal fighting! Figured they were old enough now for some long distance trips. We ended up with 3600 mile round trip from southern Michigan to Livingston, MT.
We took a 3 week road trip to see friends and family in the upper midwest. We spent a week camping and hiking in the mountains of North Carolina and we piggybacked another week-long trip and reunion on the back of a work trip. It was a great summer and we made the most of the time we had.
Reader Ann had an awesome trip and did it on the cheap:
Ahh… my best trip EVER ! Rented a house in Burgundy region of France and 3 of my adult children, and their significant others, came and stayed with us. (And it was cheap — the price for the AirBnB for a huge house was about the same as one hotel room would have been, and we used airlines points to get there and back.)
Done by Forty had a trip that I’d love to replicate:
Our big trip this summer was three and a half weeks in Northern Europe: Denmark, Germany, Sweden, Iceland, and Scotland. (We just missed you in Edinburgh, I hear! Next time.)
Reader Andrew’s is my favorite:
I had a pretty amazing set of summer travels: I went to Tokyo! The trip involved a train ride to Vancouver BC (paid for with points), and overnight there (points), a flight out to Japan with air Canada (points), and finally 9 mights at a very nice airbnb (cash) – which was discounted because they were hoping to build up reviews.
And when I got back, I went on a 2-day 200 mile bike ride down to Portland, OR.
I love trains and would love to do a long bike ride some day, maybe from Colorado to Chicago.
Advice for a 23 Year Old?
So, my 23 year-old friend asked me for advice. Here was my response:
- Learn how to invest property. Right now. Don’t mess around with silly strategies that promise to beat the markets. I love Jim Collins’ Stock Series. Bogle’s books are also perfect, especially the The Little Book of Common Sense Investing.
- Don’t be conservative: At your age, it’s silly to keep money in cash or bonds (unless you’re saving up for a near-term purchase). (Keep in mind that I’m not an investment professional. Do your own research and make your own decisions.)
- Don’t buy stuff: Forget a new car, 1000 pound handbags and all of that other stuff. Your advantage is your youth. Put that money to work.
- Don’t give a sh*t about what anyone else thinks: Live frugal and with confidence. It doesn’t matter how anyone else views your lifestyle. Play the long game. To anyone who questions your choices; it will all make sense to them when you’re 40 and have 3,000,000 pounds in the bank while they’re struggling to make ends meet.
My advice was conventional, but it is what I’d tell my 23 year-old self. I have no idea if this advice would have resonated with younger me. Since this reader is actively seeking out the information, I think there is a good chance it will resonate with her.
How about you? What would tell a 23 year-old to do?
I would tell a 23 year old what you think is important now is probably not important in 10 years to you, let alone 20 years. I know for me that my goals have dramatically changed from when I was 23 to 33. I assume since I haven’t hit 43 that they will probably change again. In addition, read as much as you can and learn as much as you can. It will open up doors that you never knew plus learning about subjects you care about is fun.
Mustard Seed Money recently posted…How Much the Average American Has in their IRA
Great suggestions MSM!
I have gotten really into reading finance books – much to the amusement of my friends/ family!
I’m not that far removed from 23, although I was married with a kid at that age, so life looked different for me.
That aside, I would say that you have to live nothing like the other 23 year olds.
Don’t get suckered into the mindset of “I earned it”. You graduated college, you didn’t find the cure to cancer (I’m assuming 🙂 ) Don’t let yourself start down that path, or it’s hard to stop.
The going out, wasting money on expensive liquor at bars or clubs, buying unnecessary things to keep up with the looks and status of the office…. none of that is important. If you want to do any of that, find less expensive alternatives to do it and still be working towards your goal.
Find someone to keep you accountable. That may be hard at 23, as there aren’t many people that will do that. But you need someone that can encourage you and remind you along the way of what your goal is. Because you will hit a wall and say “screw it, I want this _____________!” at some point. And having someone to remind you that you don’t need it is a huge deal.
And last, enjoy life. You don’t have to spend money to enjoy life. The journey to FIRE is so fun and filled with wins and losses, greatness and disaster. Don’t get so focused on the destination, that you miss the whole trip. You’re young, so enjoy that! You have huge future ahead, so dream and live! You don’t need money to do any of that.
Good luck!
I am not married, don’t have a kid and have not cured cancer!
What a good point re: the ‘i earned it’ attitude. I DO say that.
I love your point about being accountable to someone. Thanks for commenting 🙂
I’d add: Make saving automatic. Have as much as you can set up to roll to savings, or your investment account.
To the last point, be frugal, but budget in outings with friends. Having good friends in your life is so worth making sure you get to their…(insert event here). I have a coworker and former coworker and we go out to lunch once a month to catch up. That’s pretty much the only time I go out for lunch, which also makes it special.
23 year old me could have used some relationship advice, but I might not have listened.
Having an emergency fund when jobs went away was important. Also, no matter the circumstances try not to ‘burn bridges’ as you exit. There’s a good chance you’ll hear a name years down the road, or need a reference or now you have a useful contact for a friend.
Spend some time figuring your self out, your values, and if you use that as your guide and act accordingly it makes life much easier.
You’ve got this.
P.s. Money spent on good shoes is also worth not having foot pain later.
Love it –>> Spend some time figuring your self out, your values, and if you use that as your guide and act accordingly it makes life much easier.
forget financial advice, that was great life advice! Thank you!
(I have just finished reading the Automatic Millionaire – though a cringe-inducing title, it also advocates setting up direct debits to ensure you’re saving. So I will definitely be doing this!)
I have three words for you ISA, SIPP, LISA.
At 23, you’ll need to find some balance. I agree with the others that your life won’t look like what all the other 23 year olds are doing. You should save aggressively and as much as possible while still enjoying life. You wouldn’t want to have resentment build up day after day until you give it all up and end up “treating yourself” to everything you see.
So skip the car and the expensive handbags and hitting the bars every night. But do make a budget line for some fun! Whether that looks like going to the bar a couple of times per month or taking a fun weekend trip with your favorite people whenever you’ve saved up enough is up to you. While you’re saving up that money, teach yourself that you can have fun without spending a bunch of cash to do so.
Remember that we aren’t promised tomorrow. And while that’s a terrible excuse for not saving enough money and setting goals (like FIRE), it is something to remember so you can keep a good balance and live your whole life to the fullest. Best of luck!
Jamie that is such a good comment, thank you! It would be so easy to be too zealous, save loads, then blow it in a live-for-the-moment kind of weekend.
Luckily I don’t drive and I’m not too fussed about handbags! 😀
Max out a retirement account every year, starting now. you will never have this magic window of early years compounding interest again.
Heck yeah! to that!
Will do! Good shout!
Invest more! I have always been a saver (as an adult), but never really invested. I had a 401k, but was relatively conservative in my youth. So I would tell my 23 year old self to invest in the market (index funds), invest in real estate and max my 401k. I’m in pretty good financial shape now, but I think I would have arrived at my goal long since if I would have invested more. Oh… and keep your car until it dies… don’t upgrade every 3 years. 🙂
Great tip, thank you!
I was planning on investing in index funds and not faffing about with it.
If I’m FI by 55 I’ll be delighted!
(And I don’t even drive, so that’s car expenses sorted!)
Depending on the interest rate on the student loans, I would suggest tackling both the debt AND investing at the same time. The debt will whittle away but the investments will compound and grow in the long run.
Also- fight lifestyle inflation like your (financial) life depends on it! Invest your bonuses/raises, live frugally, don’t upgrade because you have a consistent paycheck, etc.
Good luck! If you are asking these questions at 23, you are already off to a good start!
“Depending on the interest rate on the student loans, I would suggest tackling both the debt AND investing at the same time. ”
Good one!
I think that’s a great idea!
I’ve figured out it will be cheaper for me if I pay off my student loan ASAP (it sounds obvious but it’s actually barely ever the case with English student loans). So I plan to pay this while saving/ investing.
Ad I’ll try to avoid lifestyle inflation by living like a student forever! Shared house at 30? Here I come!
Mr. 1500 – That’s good advice!
Here are a couple of things I’d add:
1) Don’t forget to enjoy life as you go along. If you can find a job you like, time will go by much faster.
2) If you decide to get married, make certain you marry a frugal spouse. Of course, other qualities matter, but if your spouse is not frugal and you are, it’s a recipe for divorce.
Mr. Freaky Frugal recently posted…Investing attitude
Yes on #2, finding a frugal partner. And when you do that, get used to living on one person’s income and banking the second person’s income. You’ll never go wrong – you’ll always have money in the bank that way, and you’ll be used to living a scaled-down lifestyle. A decade or two will go by…and you’ll have all the money you need plus the ability/habit of living simply. Bliss!
My… cough… first go around was not a match. My next wife, a much better match, we do the pretend only 1 income for the second.
You’d fall out of your chair with how fast you build wealth this way. Even better, if we decide to have kids, we know she can be a stay at home mom until they are in school and we have the savings / investments to boot!
Great tip! Though marriage is a way off (I neither have the money or the inclination), I will *try* to ensure I marry someone with a similar view of money.
Also I love your idea of living on one person’s income – that would be amazing.
Great advice – I’d add to get a place to live that is close to work. I’d buy a house and rent out the extra rooms so your mortgage is paid for (I did this! – blind squirrels do find nuts). Also find a side hustle or part time job and invest 100% of the income, I’ve made well over $40,000 over the last 13 years coaching high school soccer (this amazes me), most of that money has been turned into jet exhaust and screams of joy as I slid down snow covered mountains! The amount of money you can earn with just a few extra hours per week is incredible, the 35 year old me wishes the 23 year old me had been a bit more profitable!
Get to work, you will be 35 in the blink of an eye.
PedalsforPennies recently posted…How was your summer?
I WAS 23 IN THE BLINK OF AN EYE.
I told a girl I babysit the other day; ‘You go to bed 11 and wake up 23!’ Is how it feels anyway.
I would like to have a good side-hustle….shame I’m no good at football! I’ll keep thinking….
Thanks for commenting Pedalsforpennies 🙂
I would tell my 23 year old find what makes you happy and cut out the rest of the crap. Learn to invest and work on your income. Finanly remember to enjoy yourself. Do those four things and you’ll be fine.
FullTimeFinance recently posted…Retirement Withdrawal Strategy
Thank you so much for the punchy advice!
Memorable.
I should get it on a mug so I can read it often! ha
I love this! Ahhh, 23, it seems like it was only two years ago for me. 😉
I agree with your advice about investing while young. This is the time to use the extra time on your side to let that money compound.
Mrs. Picky Pincher recently posted…What A Frugal Weekend! September 24
I have just discovered compound interest!
I am so excited 😛
Start investing right away and keep lifestyle inflation under control. You don’t have to do everything right, but you have to start ASAP. Get your ship heading in the right direction and keep making small corrections along the way.
Finding the right partner is really important too, but that seems to need a lot of luck…
Great advice, thanks Joe 🙂
I would tell my 23-year old self to “Just keep on doing what you’re doing. Have faith in yourself and it’ll all work out in the end.”
Why? My 23 year old self was in bad financial spot at the time, but it did ultimately work out fine. The solid financial principals I live by today were built in those early formative years.
Ultimately, life worked out great!
Mr. Tako recently posted…Phoning It In (2017)
I’m glad there’s room for mistakes!
Thanks for commenting, Mr Tako 🙂
I’d give basically the same advice. Learn all you can about money early, be frugal and invest the difference, and learn early on that it doesn’t matter what others think about your financial life. They’re not going to help you out if you get in a pinch: do what’s right for you.
But I’d also tell someone at that age to keep some money around for doing the stuff you want to do in your twenties, perhaps before kids come along. Go travel on the cheap. Save money for going out and doing the stuff you like with friends. Take some time off of work and your hustle for adventures.
As important as money is, it’s nothing compared to the time you get to spend right after college.
Done by Forty recently posted…A Visit to Copenhagen
Ahh to be 23 again!!! And that’s coming from someone who is 27 years old.
1. Max out your retirement accounts.
2. Start a savings account
3. Start a taxable brokerage account
4. Don’t upgrade your lifestyle. It’s easy to do when you are going from broke college student to salaried professional.
If you start saving now, it will be easier in the long term.
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One trick i read somewhere that stuck with me was any raises go straight toward:
Maxing out 401k (33%)
Paying off ANY/ALL debt (33%)
Emergency fund of 3-6 months minimum (33%)
If you check those boxes, either go wild and inflate away or decide to chip away at early retirment with investing.
Advice to a 23 year old me? Realize that you are living your life for you, not for anyone else. You don’t have to impress others, or get anyone’s approval. For better or for worse, it’s on you – so make sure you are doing what’s going to make you happiest long term.
For me, this realization led to meant quitting a PhD program when I was 24 that I didn’t really want to be in, but was doing to make various mentors and family members happy. One of the best decisions (financially and emotionally) I’ve ever made to date.
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I’d like to echo what others have said. I remember when I was 23 and just starting out in full time work (I’m now 36). I was making $31,000 per year, and my take-home pay was $1700 per month. My rent in a DC suburb tiny apartment was $849 per month. “Maxing out” my 401k would’ve left me virtually no additional money. I knew that maxing out my retirement accounts was something I was totally “supposed” to do, but it just wasn’t feasible. And forget about finding the extra money to max out a Roth! Looking back, I probably should’ve lived with roommates to save on rent, and not gone out to eat for lunch so much. It really does add up!
Those were definitely some of my mistakes! But, for some of the things I did well and for financial advice I’d give, I switched jobs frequently early in my career. Like I mentioned, my first job (with a liberal arts Bachelor’s degree) paid me $31,000 per year. Five years later, my salary was $79,000 per year. I had switched companies three times, asking for higher salaries at each switch. It’s a lot easier to max out your 401k making $79,000 per year instead of $31,000 per year! So, be willing to switch jobs and be willing to move to different cities to keep your earning potential high!
Also, it may not seem directly like “financial” advice, but it is in the long-term: Be sure to take good care of your health during this time! Exercise, get your annual physical, and don’t eat too much.
My advice to a 23 year old would simply be to stop comparing yourself to everybody else. If you set your goal as FI you will have a TON of naysayers who basically do everything opposite to you. At that age, most people love to SPEND. Don’t think you have to “keep up” with these people. In 10 years when you’re 33 with hundreds of thousands of pounds in a portfolio, you’ll be the one laughing at them for spending all their money on “things” for the past 10 years.
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Miser:
I had people in my life naysay me for years. I sit back now at 35 and just smile at that big old pile of cash thats snowballing and eventually giving me years (decades?) of freedom.
Said people are living pay check to pay check and woe to them during the next recession. They shake their head when i buy a new car in cash / have no mortgage and say im “lucky”. *snicker*
Once you’ve established investing habits (like, now) don’t cut them for ANYTHING. If you’re living at home with Mum and Dad investing $300 a week, then keep doing that when you move out. Don’t trick yourself into thinking you can drop that investing down to $200 a week because now you’re paying a mortgage. Instead, get a smaller mortgage or house hack.
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Just asking the question means you’re on the right track! Lots of good advice in the column and comments above. Keep finding other folks in the community so that you aren’t the odd one out, looked at like you have three heads (unless you do), and being questioned about your sanity.
🙂
Keep thinking you are a poor college student (which you sort of are until the debt monster is crushed), but upgrade your life a little bit to ensure you have healthy food to eat, shoes that keep your feet dry, etc.
Start up a group doing less expensive fun things and you’ll end up with friends who help reinforce a more frugal aware lifestyle…
I would have loved to have learned about FI back in my early 20’s… I would be done by now… best of luck!
“Just asking the question means you’re on the right track! ”
Yep!
(Continue to) live like a student, earn like a professional.
Property can have three different actions: buy, sell, or rent. Since the other article talked about finding property, we will now talk about how to invest property because owning a property as a real estate investor is not much use unless you have already had a plan on what to do with it. We have tackled on the buying side of certain properties and now let us talk about the selling side of properties.
MY advice to a 23YO is start with frugality, get out of debt, learn to invest, then invest. These tasks can be performed concurrently only to an extent.
Learn frugality and pursue it to maximize your profit/expense ratio. If it’s negative, you’re doomed to slavery. If it’s neutral, you’re doomed to ceaseless labor. If it’s positive, the more positive you can make it, the better for debt-retirement and wealth-building. You can be Warren-Freakin’-Buffet, but if you’re in debt with negative-cash-flow it’ll take a miracle to use your amazing investment-fu skillz.
Risk is an invisible and under appreciated downside of debt. Debt-service is a tax on your future. Put your surplus into eliminating debt to boost investing power when debt-free.
Impatient? Read everything you can about investing from the sidelines. Stay on the sidelines until you’ve got a 3-6month emergency fund in cash. (Got risk?) If you’re ignorant of investing, that’s OK: when you’ve only got a few hundred banked the difference between 2% and 12% interest isn’t much money. Keep learning.
After you’ve got some significant savings and you’ve got mad investment-fu skillz, start looking at how to use them. Create a balanced portfolio of uncorrelated productive assets then dollar-cost-average build on them for 10 years. (John Bogle is your friend.) You’ll be in Croesus-mode at that point.
I wish I could go back and tell my 23 year old self not to think that people are looking out for you! I should have spent WAY more time trying to understand retirement account options (and what all the fees meant!) Instead, I just signed a bunch of papers and worried about my lesson planning, students, and coaching. It is overwhelming to get all that HR paperwork – but I had a Master’s Degree! Holy $hit. I lost SO much money to the fees in my high cost (insurance company) mutual funds… And I wish someone would have sat me down to really explain compound interest. I could make sense of atoms and molecules but pretty much ignored all investing information.
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Hmm, if I could talk to my 23 year old self I’d tell me to buy all the Apple stock I could. I believe back then it was like a $1. 🙂
Alright, as for a 23 year old now… I think most responses here cover the basics. I would add the following:
– Take risks now and get comfortable with change. More than any other generation before it, change is going to be a constant for you. If you don’t embrace this, you will have a hard time coping in the future. This is especially true professionally
– Constantly strive to learn and keep ahead of the curve.
– Always negotiate your salary and benefits! Just like saving early has a huge impact on your financial situation later in life so does a bigger starting salary and bigger increases. Negotiate and take advantage of other perks. For example a commuting perk can add up to a lot of money that you otherwise would have spent out of pocket.
– Cultivate and maintain a professional network, and conversely don’t burn bridges. Some people always underestimate this, but so many jobs are filled through networks and connections (especially at the high end).
– Get yourself to never use the phrase “deserve…”. Instead ask yourself if you’ve “earned” whatever it is, and be brutally honest with yourself. Which brings up another important point:
– Learn to be BRUTALLY honest with yourself. No one else will
That’s about it for now. Hope it helps.
Take note of everything you spend and figure out how to maximise your £ to quality ratio. For instance I just spent an extra £1.50 per month on my broadband because it came with an extra 5GB data allowance which went onto my phone contract. When it comes to contract renewal time next Febuary I will have spent an extra £7.50 on my broadband but will then be able to save around £20 per month on my phone by using the data to make phone calls and send text messages. Another example will be shopping at Aldi/Lidl (I prefer Aldi) fo me its around £60 cheaper per month than shops like ASDA/TESCO.
Use Cashback sites for EVERYTHING! That broadband deal I mentioned above, well I went through top cashback and got an extra £125 for signing up through them. So thats Christmas paid for.
Otherwise, figure out what your dream is and put a realistic plan in place to get there.
My advice would be to live frugal as long as you can stand it…. Payoff debt and invest in tax advantaged accounts first. I didn’t start until i was like ~27 and those extra extra 5 years would have made my networth a helluva lot bigger today. Don’t freak out when the market drops, staying invested is the most important thing. Read, read, read…
Start investing with a very simple passive three fund portfolio until you find a style that suits your needs / while you learn:
https://www.bogleheads.org/wiki/Three-fund_portfolio
Until you are comfortable answering the following questions, i wouldn’t invest in individual stocks:
http://awealthofcommonsense.com/2017/08/decisions-decisions/
If you are comfortable reading things from other people and able to analyze pros/cons the following website is gold for learning how different people invest. I don’t mimic any one person but instead spend 15 mins a day skimming articles and writing things down that i don’t understand or for followup. Over time you’ll notice themes and get helpful pointers on where to direct your learning. The problem with investing is there’s a 1000 ways to do it but many of them are risky, and strategey changes as you get older / depending on life goals. It’s not something you can digest in a few hours of studying.
https://seekingalpha.com/
And i forgot to add this…. read this first. Its fairly short (about 30mins to 1hr). Read it, reread it, stick it in the drawer and read it a year from now.
https://www.etf.com/docs/IfYouCan.pdf
I wrote an article about how I’m investing and tracking $100 a month for my kids. I want to show them the power of time/compounding and I really hope they’ll have a decent understanding by the time they start work. The 23 year old seems dedicated, they will be a success if they can keep this mindset.
Another UK based reader here;
1. Time goes quickly, do the things that make you happy but keep an eye on the future and find the balance. You need to enjoy yourself but find the cheaper ways to do it.
2. Learn about compound interest, I wished I understood the power of compounding and how critical it is to your investments especially your pension which can’t be accessed until your late 50’s. Pay in early and you’ll only need to pay in a fraction of what you will if you leave it until your 30’s.
3. You’ve got a £40k a year pension contribution limit and a £20K a year ISA contribution limit. Use as much of these as you can. Not paying tax on any of the growith and dividiends is a great advantage on your way to finacial independence.
4. There is no way to get to your pension in the UK until you reach pension age, if you’re aiming for an early 40’s retirement you’re looking at another 15-20 years before your pension is avaliable, work out how to fund it from the ISA to bridge the gap
4. Get yourself over to http://monevator.com/ great site for UK investment. They have got a really good series on index investing.
5. Open yourself a stocks and shares ISA and pay into the company pension scheme, set these up to automatically happen when you are paid each month so you never ‘miss’ having the money.
I have a somewhat counterintuitive advice: do the crazy stuff now. Do that long trip, hop over to another continent to work, make that 6-week hike in the mountains. You will find out you will regret things you haven’t done – and in your age they are dirt cheap. I’ve done the long travel and the interrail (I’m living in Europe) and now, pushing 40, I no longer want to do the hostel thing. I also no longer get youth or student discounts.
It will not prevent you from saving if you are smart – the stuff part, expensive cars and handbags are what is fleeting. I was able to save up for my first apartment etc and still do awesome things. I only regret those trips I did not take. Your priorities of course may differ.
This is great! I wish I would have calmed down a bit and lived a little when I was in my 20s.
At 23, maxing out your retirement account is a great idea. I’d also advise against getting locked into a big 30 year mortgage if the goal is to retire early.
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Save money travel Vietnam, Hue to visit Hai Van Pass