Editors Note – this article is part of our series “Best financial advice I’ve ever received.” People frequently ask bankers the best piece of advice they have ever gotten. So for this series, we’re asking MidWestOne employees to share the best money management tips they’ve ever gotten.
The best piece of financial advice I ever received came from a book I read as a young professional. At the time, I was overly optimistic of my idea of retirement and what it would look like.
After reading the book, Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence by Vicki Robin and Joe Rodriguez, my view of retirement changed.
The book was able to spell out finances simply. It brought my idea of retirement back down to earth and also taught me about saving money versus spending money.
In a perfect world, you would be able to retire early. But that is not always the case. The best advice I ever received came from that book. It was applicable then and still is today, and it is relevant to people of all ages:
Be an aggressive saver.
As a young person, with so much in front of you, saving aggressively is probably going to pay more dividends because you have so much more time to apply it.
The immediate impact of this advice is that spending habits most often need to be changed. My aggressive saving has continued to this day. There are a number of ways aggressive saving can happen:
Prioritize your spending to decipher between purchases that are important and unimportant. For example, some important purchases relate to your family, a mortgage, your car and retirement. For big ticket items, I tried to be smart with how I handled those transactions.
Live beneath your means. Spending less than you earn will allow for your greater ability to save for the future.
Find opportunities to save. If you have to finance a large purchase, which is fine to do, pay off the loan as soon as possible. Then, use the item long after it is paid off. At this point, the item is considered “free.”
For example, you might think the smartest purchase is to buy a new car. But, this is not the most beneficial financially. Instead, buy a less expensive used car. The cost of keeping a used car up-to-date is a lot less than buying a new car. If you choose a plan to pay off the vehicle, keep driving the car after you have completely paid for it. This is essentially like driving a car for free.
Don’t carry credit card debt. This means when possible, pay in cash, which will help eliminate even having any debt on your credit card.
Plan to pay-off your home mortgage before you retire. If you are 50 years old, you probably should not use a 30-year mortgage to purchase a new home or refinance your existing loan.