As I progress through my FIRE journey I take a step back to reflect upon everything I learned along the way. I’ll share 5 lessons I learned in my 20’s and 30’s that I wish I had learned earlier, in hopes of helping you in your journey. This is the second of a two part series. Let’s go!
Money Lesson 1
Don’t invest other people’s money. One of my biggest regrets was accepting money from a close friend to invest on their behalf. With my cash and theirs I had invested in an up and coming super hyped beverage company. A meme stock before memes existed and unfortunately, it wasn’t RedBull. It was a penny stock which later went bankrupt after a crazy up and down rollercoaster ride. So, lesson learned, do not invest other people’s money (unless of course that’s your profession), including avoiding margin and avoiding being indebted to others.
Money Lesson 2
Lesson 2 is born from Lesson 1; there’s a distinct difference between investing and gambling. While the two are often confused due to their similarities, as both include a level or risk, potential return, and level of skill. The key difference is that investing is a way to grow wealth over time, whereas gambling is a high-risk activity with low potential for long-term gain. Allocating hard earned cash in poor assets is closer to gambling than investing – it’s a waste of time and emotional energy. We’ll help disambiguate the difference between a good and poor equity in a future post but the lesson here is that quick riches are hard to come by. Stay the course: Earn. Save. Invest. Be patient, compound interest, referred to by Warren Buffet as the 8th wonder of the world will do its magic.
Money Lesson 3
Condominiums are great until HOA fees go through the roof. If you’re considering the purchase of a condo as your first and primary residence, do reconsider. Don’t get me wrong, owning a property and building equity is great. However, one thing that is overlooked is how rapidly HOA fees rise, especially during inflationary periods, and how restrictive HOAs in general can be. When I purchased my condo in 2012 the fees rang in at $85/month, in 10 years they’ve risen to $400/month, a staggering 371% increase. A complete sunk cost that can’t be recovered. It’s arguable what value was realized from the fees as well. There are typically two scenarios. First scenario, you buy a condo with the intention of selling it a few years down the road to upgrade into a home. The catch here is that, yes your condo would appreciate in value but the amount of appreciation is offset by the total sum of condo fees paid over time. This is exasperated by the fact that condos just don’t appreciate as quickly as their townhome and home counterparts due to the complexities with land ownership. Land is scarce, as such homeowners have the leg up with overall appreciation in this regard. It’s estimated that condo units appreciate at an approximate rate of 3.5% year over year versus 5% for their house counterpart. Scenario two, you intend to rent out your condo when you purchase a home as your primary residence. The catch? Consider the effect of HOA fees and how they’ll impact your free cash flow from rent. You’ll likely find you’re either cash flow negative after all expenses or close to it as condo fee increases can outpace rental rate increases, especially if you live in a rent controlled city. It may not be a great investment. Save up and buy an HOA free townhome as your first if at all possible.
Money Lesson 4
Health is wealth. Working hard and saving money doesn’t do much good or go very far without health. My philosophy since early adulthood was and always will be to strive to be able to do anything at any age. I recommend this be a philosophy of yours as well. You’ll feel better, while staving off illness and stress. Whatever your gender consider adopting a weight training routine. Muscle is by far the more efficient of the two, where a pound of muscle contains about 600 calories as opposed to fat’s 3500. Hence fat is less dense per pound than muscle resulting in a zaftig look. Muscle is also more metabolically active than fat tissue, muscle will burn more calories than fat even at rest. As you can imagine the more muscle you have the more calories you’ll burn instead of store. Muscle is like compound interest for your body. As a life long fitness fanatic we’ll expand on the topic of fitness in future posts.
Money Lesson 5
Material goods, do no good. I grew up in a lower middle class family, we didn’t have much, but just enough. When I grew older and started to work for money, I purchased a lot of things that I later regret. Having my own money was a unique experience and at the time I thought I needed things I didn’t have growing up so I bought a lot of ‘stuff’. What I learned was material goods, will generally only go so far in contributing to one’s overall happiness. They’ll eventually age out or wear and end up in a landfill or worse, the ocean. Please think twice about all your purchases and whether they’ll fuel your passions, help to earn you side income, serve a need, or just provide temporary satisfaction to be eventually thrown away. If I was thoughtful about my purchases in my 20’s I would have put myself in a much better financial situation to Financial Freedom (FI). Protect our environment, save your money and realize FI sooner.
Summary
I hope these lessons help you in your journey to financial freedom. We know FI to be “Financial Independence”, but a key driver in becoming financially independent is another FI, “Financial Intelligence”. We will grow and learn together. Add any money lessons you learned in your 20’s and 30’s to the commends below and if you liked this read follow, and applaud for more Money, Life, FIRE, and career posts.
