It was -5 degrees on MLK day. If schools were not scheduled to be closed, after the weekend snowfall and extreme cold, they were now! Except us, of course. Our students had the day off, but teachers (begrudgingly) came in for a day full of meetings.
A brief discussion broke out about some fundamental life-wisdom and self-awareness that our students just don’t have and aren’t receiving—whether at home or here at school. Things like self-confidence, self-worth and the courage to fail, and some specific concepts like the need for prayer in difficult times, to ask questions and persevere in problem-solving, or that trade schools or community college can be a successful option. This got me thinking of so many things that I would want to tell my students, so I titled a google doc: “The Most Important Things I Could Ever Tell You.”
After creating bullet points about self-awareness and the important nature of God’s role in their lives, I found myself having a lot to say about personal finance. Maybe it is because I recently discovered these financial truths, myself. And while they filled me with regret over my past mistakes, these urgent truths also gave me even greater hope and excitement for the future.
So here were my notes from that day, for you, for my students, for my child:
The Most Important Financial Advice I Could Ever Tell You
1. Spend less than you earn
This is rule number one for a reason, it is the prerequisite for everything else. If it is not followed, your debt grows. So another way to put it is: no more personal debt. (I’ll keep mortgage debt out of this discussion.) No progress can be made—ZERO—without spending less than you earn. It is the foundation to attaining all other financial goals.
2. Create an emergency fund
I recommend a high-interest savings account. This is your safety buffer for emergencies, only. Get it up to at least $1000 before throwing money elsewhere. The emergency fund will prepare you to attack the remaining goals with added peace and security.
3. Pay off your debt(s)
If you’re in debt, start paying it off. Whether it’s the avalanche method (highest interest to lowest) or snowball method (lowest debt payoff amount to highest), you need to go beyond minimum payments. Put as much of your monthly surplus as you can toward your debts. Keep other short and midrange goals in mind, and, of course, never going against rule number one!
4. Credit cards are a privilege (use with caution)
If you have a card or you will get a card, only spend less than what you have in the bank. Ideally, only what you have in your checking account, and only what you will have in your checking account by the time that bill is due. For those without self-discipline, no credit cards. You don’t need them to build a credit score. And you will only risk hurting your credit score by having one.
5. Save—just do it...but do it smart
Short/medium term: get a high interest savings or high yield CD account and stash away each paycheck/month for whatever you’re saving toward.
Long term: Put money away early and consistently for retirement and long-term savings. Open a Roth IRA. I’d recommend a robo-advisor or something with low-cost index funds through Vanguard, or similar. I’ve been depositing $100 a month while paying off debt, just to build the habit and for some psychological peace of mind that at least I’ve started saving for retirement.
6. Minimize Student Debt
Whether you’re anticipating college, continuing undergrad studies or trade school, or plan to start graduate school, put the research, time, and effort to get as much money as possible. Enroll in FAFSA right away. Apply for scholarships and grants that the school offers and that you can find locally and online. Yes, you will add to your taxable income at tax time, but that’s over 4x less than what you would have paid without the scholarship.
If you’re in high school, discern and consider Community College for the first year or two. You could save tens of thousands just in that year or two! Plus, you can boost your chances for scholarships as you transition to university.
7. Be a mindful (and minimal) consumer
Limit consumerism. Buy what you need and what will bring real value to your life. Eliminate materialism (thinking that stuff will make you happy). Value people and experiences over things. Appreciate and be grateful for what you have.
Those were my initial thoughts. What did I miss? Let’s all share our financial wisdom because so many really need to hear it!