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Debt Diaries

“To Plan, or Not to Plan, That is the Question.”

There is an ancient Chinese proverb that says:

“The best time to plant a tree was 20 years ago.  The second-best time is now.” 

The same is true for most things in life, but for saving, it means everything.  There are few economic principles as powerful as compound interest, and the earlier in life you start saving and investing, the faster your understanding becomes.  There is also a wise saying that goes “Do as I say, not as I do”. 

Unfortunately, this was the path I started on because debt was my biggest obstacle.

My first financial plan was flawed

Armed with a degree in economics, you would think I would have a solid understanding of investing, and I did. To make matters worse, I had series 7, 6, and 63 licenses because I was starting my dream career as a stockbroker.  I know, I know, its’ either ironic or laughable, but it was true.  I lived under the mantra to “fake it until you make it” because that was my way of excusing my financial behavior. 

I wasn’t equipped to make good decisions around personal finance, credit, debt, and investing, regardless of my degree or licenses I possessed.  You see, I thought I could outsmart father time, but I lacked the basic understanding of financial planning principles, and the common sense to apply them.

I am convinced that good money habits start at home, and without them, it puts you at a serious disadvantage.  Sure, my parents were savers and lived within their means, but they lacked the understanding of how the stock market worked, compound interest, and the benefits of passing this along to their children. 

Mom and dad’s financial plan wasn’t sound either

My parent’s strategy was to save everything, live within your means, and pay in cash.  They had zero to little debt and used savings accounts and CD’s to protect their money.  You might say, “what is wrong with that?”  Well, let me tell you how that plays out.

I am also convinced that my parent’s financial strategy was handed down to them, and in their minds, it served them well.  I would also argue that their strategy was flawed, and would have lasting effects for years to come, for both myself and my sister.  They never shared much about their finances and as I got older, I was too proud or too embarrassed to ask for advice when needed. 

I had a degree in economics, I should know everything — right? 

Wrong! 

This attitude leads to living outside your means, never saving for retirement, and getting so far into debt that you feel like you can’t breathe.

The two types of wealth

In my view, there is two types of wealth:  1) Asset rich and 2) liquid.  My parents were asset rich, paid for everything in cash, no debt, and started saving for retirement later in life.  This sounds pretty good, but they didn’t understand the potential tax implications of mortgage interest and how to use it to your advantage, they just complained about paying taxes.  In fact, one of my dad’s favorite financial moments was having enough money in his checking account to pay for a new car with his debit card. 

Listen closely — this only makes sense if you treat your money like employees and require them to always be working for you.  Depleting your cash position to buy assets outside of this scenario doesn’t work or make good financial sense.  You will never be truly liquid.

The advantages of financial planning for retirement

By starting early with saving and investing – and avoiding debt at all costs – you’ll likely become self-sufficient and have more control over your life.  You don’t want to depend on Social Security, Medicare, Medicaid, or even relatives to take care of you in retirement.  If you start saving early, the time value of money and compound interest will take care of you. 

Both of these principles are beautiful things.  It will help grow your money while you are sleeping (think of this as your side hustle when first starting out).  All you have to do is invest small amounts of money over the long run and leave it alone.  Sounds simple, because it is simple.

A long term financial plan begins with time

You can find several calculators online that can demonstrate these principles, but here is one scenario that puts it in perspective: 

Take two people saving for retirement, one is age 22 and the other is 52.  If they both start saving for retirement on the same day, and saving the same amount, $475.00 per month, and assuming only 8% interest, the results are staggering — at age 67, the 52-year-old has accumulated $167,148 dollars, and the 22-year-old has accumulated $2,379,328.  Not too shabby, and more than likely the 22-year-old has other investment accounts and could call themselves a millionaire by age 45 or 50.  If that type of thing is important to you, then remember that this is what being liquid looks like. 

Remember: financial freedom is possible!

Anyone can possess assets or have the appearance of wealth, but to have the ability to purchase what you want, when you want, and without depleting your cash position or having the fear of getting further into debt, that’s financial freedom and being liquid. 

And I am here to tell you, it’s possible.  So do as I say, and not what I did! 

Start saving early, avoid getting into debt at all costs, and never be too embarrassed to ask for help if needed.  Like I always tell my daughters, there are two approaches to life: an easy way or a hard way.  The easy way may be harder in the beginning, but it always pays greater dividends over time.

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