Advice this Financial Advisor in Houston Would Offer His 18-Year-Old Self
“You live and you learn.”
These aren’t just everyday cliches – they’re accurate representations of all those times we had to learn lessons the hard way. When it comes to retirement planning and your financial future, these “live and learn” moments can be especially difficult.
With that in mind, the team at Linscomb & Williams has put together the following pieces of advice based on our 50 years of experience helping busy families plan for the future they want. From the minds of our financial advisors in Houston, TX; Atlanta, GA; and Birmingham, AL, collectively, if we could rewind the clock and give any piece of financial advice to our 18-year-old selves, here’s what we’d say:
Use Cash; Debt is Dangerous
As soon as you turn 18, the flood gates seemingly open and credit offers begin pouring through your mailbox. Avoid these cards at all costs unless you’re certain you can pay your balance in full every single month (which, let’s be honest, most people don’t have that type of self-control).
Almost 50 percent of American adults have credit card debt, with the average balance around $5,315. That may not sound too outrageous, especially if you’re 18 years old, but consider this: If you carry a $5,000 balance with a 20 percent interest rate, it’d take you nearly 12 years to pay it off via a minimum payment every month, and you’ll pay an extra $4,400 in interest — almost double your original balance!
But a credit card isn’t the only thing you have to watch out for. There’s also student loan debt, bloated mortgage payments, auto loans – the list goes on.
Use cash (or your debit card) as much as you can. There’s something special about taking the time to save for a bigger purchase. When you can slow down and think about your purchases, evaluating if each is something you really want, many times, you’ll enjoy it more when it arrives. You feel like you’ve earned it. And sometimes, you'll decide before finalizing the purchase that it is not really something as important to you as you first thought!
At Linscomb & Williams, we’ve seen that establishing good spending habits works best when you start early! Read our recent blog post: Smart Kids – Smart Money: What are You Teaching Your Kids About Financial Planning?
The Saying ‘Life Doesn't Always Go as Planned’ is True, So Prepare!
Almost 40 percent of Americans don’t have enough money to cover a $400 emergency. When life happens, they’re forced to borrow money or rack up credit card debt to cover it.
When you’re 18 years old, having even $500 or $1,000 in savings can serve as a nice buffer between you and the unknown. But as soon as you get your first full-time job, start building up to a three- or six-month emergency fund as soon as you can.
Life will throw you curveballs. You may accidentally rear-end someone on your way to work. You may have to visit the ER, only to find out your insurance won’t pay for the services you need. Your dog may get into your chocolate stash and you’ll need to rush to the vet.
An emergency fund can help make these situations less stressful and give you peace of mind.
Check out our financial planning guides:
Saving Now Will Benefit You Later
Saving can be difficult, but it’s important to remember that anything you save now is money you have later on. If you fail to save for retirement, simply maintaining your lifestyle when you’re no longer working can be a struggle.
Talk to a financial advisor to determine how much you should be saving. If you can’t save that much to begin with, start small. Save 5 percent of each paycheck; then increase it by 1 percent each month until you get to the amount that works for you.
Saving now will help ensure that you can comfortably afford all the luxuries you want later in life.
Read our recent blog post: 4 Scenarios: What Can Happen if You Don’t Plan.
Don’t Be Afraid of the Market
As financial advisors at Linscomb & Williams, we can’t tell you how many people put off investing because they’re afraid of the stock market. Sure, the average investor may not know how investing really works. Social media and news cycles often describe the market like a ferocious beast that can’t be tamed. But the solution is not to avoid investing; the solution is to enlist the right person to help you get started!
In fact, the earlier you start investing, the better. When you’re 18, time is on your side. Investing even the smallest amount can equate to a lot of money saved by the time you’re ready to retire.
Consider Sally and Matt. They both invest $100 a month, but Sally started at age 18, while Matt started at age 28. Look at the chart below to see how much more money Sally has at age 65.
You can see that Sally only invested about $12,000 more than Matt over their lifetimes, yet she earned more than twice as much money in interest just by starting at age 18 versus age 28.
Start Planning for Retirement Early
When you’re young, retirement can seem light years away. Often times, retirement is the last thing on an 18-year-old’s mind – retirement is an “old person” problem.
But trust us: Retirement will get here much quicker than you think. And you’ll have a much better chance of being successful and living your dream life in retirement if you start planning early.
Again, consider Sally and Matt from above. Time is on your side when you’re young. You won’t have to work nearly as hard or save as much money to accomplish your dreams when compound interest can do the heavy lifting for you.
If Your Employer Offers a 401(k) Match, Take It!
As soon as you land a job that offers 401(k) matching, take advantage of it! An employer match is free money in your pocket.
Here’s an example:
Let’s say you get a job out of college making $40,000 a year. Your employer offers a 100 percent match on your retirement contributions, up to 5 percent of your salary. If you saved $2,000 in your 401(k), your employer would throw in an additional $2,000.
Even if your employer offered a 50 percent match on up to 5 percent of your salary, that equates to an extra $1,000 if you save $2,000. Not too shabby! Where else can you find an instant guaranteed return of 50 to 100 percent on money you save?
The Value of a Good Financial Advisor is Huge; Mistakes Can Be Costly
Our financial lives can be complex. The right financial advisor will empower you.
At Linscomb & Williams, we believe a financial advisor should make their clients feel excited about their financial future and help them gain clarity about what steps are needed to reach their goals, whatever those goals may be.
The wrong financial advisor, on the other hand, can be costly. Read our recent blog post: How to Spot a Bad Financial Advisor. Be aware of red flags, and get started on the right foot by choosing the right financial advisor the first time. If you’re currently looking for a financial advisor in Texas, Georgia or Alabama, schedule a no-obligation conversation with the Linscomb & Williams team to see if we’re a good fit. For that matter, we are open to a virtual conversation no matter where you might be located.
Are We Missing Anything?
As financial advisors in Houston, Atlanta, Huntsville (AL) and Birmingham (AL), these are just a few of the things we wish we could go back and tell our 18-year-old selves. Do you have anything else you’d add to this list?
Even if you’ve made your fair share of financial mistakes in the past, it’s never too late to course-correct and start making a plan to reach your goals. It may just be more work. At Linscomb & Williams, our financial advisors are passionate about helping our clients make smarter decisions with their money. If you’d like help creating a financial roadmap that empowers you to accomplish your dreams, let’s talk! A simple conversation can go a long way.