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  • Writer's pictureZach

Money Lessons for my 20 year old Self

In the personal finance space, the phrase I hear more than any other is, “I wish I knew then what I know now!” But the thing for me is that, when I look back at my younger self, I had the opportunities to learn the lessons that lead to financial success, but they weren’t phrased in a way I was ready to hear or understand.

A big part of that was that I was convinced that I was going to live in “adventurous” places the rest of my life, and that because of this, I probably wouldn’t live long enough to really need long term financial planning. By the time I was 26, I had already lived through a bombing, a coup, and a revolution. I’d been attacked and fought off muggers and nearly murdered on the streets of South America. I’d lost friends to drug overdoses and violence. Long term thinking seemed far too optimistic.

But there were two things I wish I’d been able to hear: The first was that money was more than a way to buy things, it is a way to buy freedom. The second was that Index Fund investing was a simple, straightforward way to make my money work for me, and that buy just buying one low cost diversified stock index fund, and one low cost diversified bond index fund, I could get the gains of compound interest from a much earlier age than I eventually started.

When I first started my career as a teacher, I had no idea what money could do. As far as I could tell, it was for partying on the weekends, traveling on holidays, and getting good computers. I was never much for fancy clothes or cars, thank goodness! But my own patterns of consumption didn’t help me learn that money could do more than slake my immediate needs. I had heard of investing, and my dad had even tried to tell me about compound interest, but I wasn’t ready to listen. What’s the point of planning 50 years in the future when you don’t think you’ll live much past 55?

But when you buy assets like stocks, bonds, and real estate (there are others, but I’m not going to get into those now), that starts generating income. The real “a-ha” moment was when I realized that buying these investments was like giving myself a raise. The more I bought, the higher my income would be, as my investments spun off money which snowballed as that money bought more investments, etc. This fundamental mind shift of understanding that money can make me more money, and not just buy stuff was one I think I could have understood as a 20 year old, especially when I was stuck in jobs I hated back then. Being independent of a 9-5 job would have really appealed to me back then.

The other thing I wish I’d really listened to was when my mom told me about Vanguard, but she didn’t really know how to put it for me to understand. If you don’t know, Vanguard is the company that started the first Index Funds that bought a piece of every company in the stock market. But this was before I understood what an Index Fund was, or why it was a superior and simpler method of investing than trying to buy individual stocks and bonds. I even looked at the Vanguard website, but was totally overwhelmed because there were dozens and dozens of funds for different stock markets, types of companies, sectors, etc. I had no idea what I should do with it. It wasn’t until I was 32 and I heard about two fund portfolios, where all you have to buy is one broad stock index and one broad bond index in a pre-chosen ratio depending on how long you’re planning to be investing before retirement. This was a huge lightbulb going off for me, because I finally understood that investing didn’t have to be complicated or beyond a mere mortal such as myself.

Now, of course, there are other important lessons that I could have learned earlier, like how buying cars keeps you poor, or about how minimal living makes you much freer. There are many lessons I’m still learning and will only figure out years from now, I’m sure. But these two lessons, that money can buy assets that make me more money independent of a job, and that investing can be simple through index funds, those are the ones I kick myself that I didn’t learn sooner.

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