Editor’s note: We are pleased to publish the winning essays from the 2016 Financial Poise Essay Contest: Financially Fit in Your 40s. Our judges read through piles of excellent essays written by students who are keenly aware of the importance of having a financial plan. The winning essays demonstrated financial poise through their clear, practical and actionable strategies.
by: Rachel Sullivan – Finalist, Tulane University
When I was younger, about 10-years old, my dad started teaching me about money. Whenever we were on long car rides, I would ask him questions about the stock market, and he would answer with all that he knew. He’s no genius in the eyes of the financial industry. In fact, he’s not even in the financial industry? he’s a humble contractor from a small town. He’s a genius in my eyes, though, for teaching his young daughter the concept of money, how it grows, and how important it is. Ever since those car rides, when I struggled to understand how money and markets work, I’ve formulated rules for myself in regards to my spending and investing habits.
In high school, I downloaded a budget app where I kept track of all my accounts and transactions. I read books, asked questions, and made mistakes. Through these mistakes, though, I learned. I’m now a finance major at Tulane University, and those little rules for myself have been adapted and changed over the years with the knowledge that I’ve gained. I know that I don’t know much, but I do know the importance of saving money. I also realize that saving money isn’t everything. The most important rules I’ve outlined, in a nutshell, are as follows:
The first rule seems completely obvious: “don’t buy things you don’t need.” However, many people don’t understand this. They see something on sale and buy it. They spend their money as if it’s unlimited, and don’t think about the consequences of their purchases. I say “they,” but honestly, I’ve been a victim of this, too. When I first started working, money was a magical thing (as was online shopping). Instead of getting a five dollar bill here and there from my parents, I was making an hourly wage, and in my naive eyes, making a lot of money. So instead of saving this money, I bought silly things such as cheap jewelry on Ebay, a hammock chair that there was no place for, and Bath and Body Works shower gel. I was spending every penny that I earned on things that I didn’t need. I was also a victim of marketing. I would see that something was on sale for cheap, and buy it without realizing that I didn’t actually need it. I can’t tell you how many Bath and Body Works products are sitting in my closet unused, simply because I have too many. (Good for B&BW, though its marketing team is great!) Things you should never buy include bottled water, DVD movies that you can just rent, and extended warranties (Greutman). They’re simply unnecessary.
An alternative to buying that new, unnecessary hammock chair, would have been to put that extra money into a savings account with a good interest rate, or into a mutual fund. I estimated that I made and spent about $2,000 until I realized how irresponsible I had been. If I had put that into my mutual fund at the time that I made the money, it would have grown to be about $3,524 to date, assuming the fund’s current interest rate. Instead, I have a hammock chair sitting in my closet and memories of useless junk.
Not buying frivolities to save money isn’t a novel idea by any means. Everyone knows that we shouldn’t buy unnecessary things. Unfortunately, people often find it hard to distinguish between necessities and wants. People only learn once they step back and evaluate, and by making mistakes and gaining experience. While reading the list of The 10 Tips for a Better Life, I saw that the number 4 tip is “don’t buy things you don’t need” (“10 Tips…”). This wasn’t even a list of how to stay financially responsible, it was about overall well-being. Following this rule will make life easier? it will save you money, decrease clutter, and make more time available for other activities.
My second rule, spend time with other financially responsible people, was only learned recently, and under unfortunate circumstances. As I mentioned before, I go to Tulane University, a private school where the student demographic is very wealthy. I, however, am not wealthy.
While some students can pay for tuition in full, out of pocket, I have to take out student loans. I don’t have regrets, though, as I see the value in the investment of education. What I do regret is the money spent while at school as a result of being pressured by people who can afford much more than I can. For example, during my first semester, my wealthy friends would suggest going out to eat at an expensive restaurant, and not wanting to feel left out, I would join them even though I could barely afford it. This type of thing happened way too often, and I should have politely declined instead of agreeing. I found myself always running out of money, and I had to stop monthly contributions to my investments and savings because of it. I was working weekly, but still had to dip into my savings account often in order to afford to live the way I was choosing to live it.
During the next semester, I realized that I was being irresponsible. While I had been telling myself that I had to enjoy myself “in the now” and not have regrets later in life, I was overdoing it. I found a happy medium where I started contributing to my mutual funds and savings accounts again, but could still enjoy all that New Orleans has to offer. The main adjustment that I made was finding a group of friends similar to my class of wealth, who also had to work for their money and saw the value in its finiteness. This concept is similar to weight loss theories urging people to lose weight with friends. Research shows that “those who are?trying to lose weight?are more likely to?be successful?if they spend time with?others?with?the same goal” (“A New Reason…”). Similarly, “those who surround themselves with?people?who are inclined to repay their?debts, will be more likely to repay their own debts?because social circles influence behavior” (“A New Reason…”). Thankfully, I learned this lesson early in life, so now I won’t make that mistake going forward.
My third rule, don’t throw things of value out, also came as a result of being a broke college student. I sometimes see things on the side of the road with a sign deeming them “FREE,” and wonder how somebody could throw something so expensive out. I one time saw a perfectly tuned piano sitting on a curb, which could have been sold for at least $100. Most people don’t realize that their things have so much value, so before throwing something away, it’s always good to check on sites like Ebay or Craigslist. There’s an entire industry that deals with just used comic books, that could range from $3 to $3 million (Zurzulo). Yes, sometimes it could be a waste of time to check, but other times, it may be worth the effort. One person’s trash is another person’s treasure.
The fourth rule is multifaceted. The rule is to not spend more than you make in a week on one purchase. This may seem impossible, but I only mean this to apply to a checking account? this is where the other facets come in. You should always have an emergency savings fund, and a recreational savings fund. Dip into these when you want to buy that $500 concert ticket, or need to spend $1000 on a car repair. A checking account should be used for small purchases only, like day-to-day expenses. I started doing this in high school, and so far it’s been successful. When I needed $200 for tires, I used my emergency savings money and didn’t feel the hurt of it. I only contribute about $10 or $15 each month to both, and it’s enough to be substantial in the long run, but to not hinder me from having adequate spending money.
The last, and most important rule I have for myself, is to save for retirement. My friends laugh at me when I tell them I have a retirement fund, but the best thing young people have going for them, no matter what their income is, is time. Compounded interest is a magical thing.
Here’s a math problem for you:
Assume an interest rate of 7%. Chrissy and Lauren were born in the same year. Chrissy invests $5,000 each year from age 25 to age 35 (10 years). Lauren starts investing when she’s 35 and continues until she is 65 (30 years). When Chrissy is 65 years old, she will have $602,070 after investing a total of $50,000. Lauren will have $540,741 when she is 65 years old, after her total investment of 150,000. Chrissy invests less money for a shorter time, and still ends up with a greater total, all because she started earlier and had the advantage of time (Ro).
Right now, 31% of all Americans aren’t saving for retirement, which will mean that they won’t have sufficient savings when it comes time for them to retire (“Is Your Retirement…”). Even if they start now, they’re going to have to save more, and for a longer time, than they would have if they had started saving in college. I urge all my friends to start saving, and show them this problem, but only a few of them have started. The importance of saving now cannot be emphasized enough. Time, for people my age, is our most important asset.
Most people recognize that “a penny saved is better than a penny earned” (“A Penny Saved…”). However, the main logic behind this is the fact that a penny in your pocket is worth the amount of the full penny? a penny earned is taxed. When I think about that sentence, though, I realized that a penny saved is worth more because it will be worth more in the future if you’re smart about it. My main philosophy boils down to this? because we college students are so young, it’s imperative that we start saving now, however, we shouldn’t save so much that we can’t enjoy ourselves. And it’s not that difficult, really. If these rules are followed, and you’re always investing your money wisely, then you should be financially fit in your forties. In fact, if you have started a retirement fund at a young age, and don’t spend money irresponsibly, you should be financially fit for your whole life.
“A?New Reason To Invest In Facebook??.” Financial Poise . DailyDac, LLC, 2 May 2016. Web. 30 May 2016. <https://www.financialpoise.com/lifehacks/socialmediaandthefuture>
“A Penny Saved Is Better Than a Penny Earned.” Financial Poise . DailyDac, LLC, 13 Jan. 2016. Web. 30 May 2016. <https://www.financialpoise.com/lifehacks/frugallivingsavemoney/>
Greutman, Lauren. “13 Things You Should NEVER Pay For.” I Am That Lady . Klong Designs, 26 Oct. 2015. Web. 30 May 2016. <http://www.iamthatlady.com/13thingsyoushouldneverpayfor/>
“Is Your Retirement in Jeopardy?” Accredited Investor Markets . DailyDac, LLC, 11 Mar. 2013. Web. 30 May 2016. <https://www.financialpoise.com/accreditedinvestormarkets/isyourretirementinjeopardy/>
Ro, Sam. “Every 25YearOld In America Should See This Chart.” Business Insider . Business Insider, Inc, 21 Mar. 2014. Web. 30 May 2016. <http://www.businessinsider.com/compoundinterestretirementfunds20143>
Zurzolo, Vincent. “Taking Comic Books Seriously Can Lead to Serious Money for Investors Accredited Investor Markets.” Accredited Investor Markets . DailyDac, LLC, 13 July 2015. Web. 30 May 2016. <https://www.financialpoise.com/accreditedinvestormarkets/article/takingcomicbooksseriouslycanleadtoseriousmoneyforinvestors/>
“10 Tips For A Better Life Financial Poise.” Financial Poise . DailyDac, LLC, 23 Feb. 2016. Web. 30 May 2016.
< https://www.financialpoise.com/lifehacks/10tipsforlivinga betterlife/>
— Rachel Sullivan is a 19-year-old student at Tulane University pursuing a double major in Finance and Economics.
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