Today is my 28th birthday, which is why I am a little late on the release of this post. I just got back from a training in Atlanta and am wiped from traveling. I’ve been thinking a lot about all I’ve learned in the past year and how I’ve changed. My birthday has always been a great time for me to reset because it used to be the exact halfway point of the summer. It was about 5 weeks since school had let out and I had about 5 more weeks before the next year started. Unfortunately my summer ends in 2 more weeks but I can still reflect just the same.
For my birthday I have come up with a list of the top 4 things I have learned about personal finance in the past year.
1. Debt is bad.
When I was in high school, I heard a lot about “good debt” and “bad debt.” Everyone seemed to agree that student loans were good debt and carrying a credit card balance was bad debt. But no one said anything about autoloans or mortgages. I took out student loans believing it was good debt. And I bought a car because adults with salaries can handle monthly payments. But in the past year – really the past 4 months – I have really come to believe that all debt is bad. Some debt is definitely more bad than others, for example, credit card debt is more bad than any of the others simply because the interest rates are higher. But all debt is bad because every time my pay check rolls into my checking account, I must pay toward that debt. For every check I get, a piece of that belongs to all these various banks. And that’s bad. That is my money and I want to use all of it, not just some of it.
This belief is why I got a roommate and will be using that income to pay off my car by next July. I of course will still be aiming for Teacher Loan Forgiveness after my 5th year teaching, but I am going to adjust the payment so the balance reaches 0 right when I hit that 5 year forgiveness mark. I don’t want to be servicing debt any more. I am sick of it. I want it out of my life so I have more control over my money. I don’t have a solid plan for paying down more mortgage but I know for sure I won’t let it live out its full life of 30 years!
2. Automation is the key to success.
For the longest time, I manually paid the majority of my bills every month. I sat down and wrote the rent check and hit pay on all my utilities. I thought this gave me more control over my money. Frankly, it doesn’t. The bill costs the same if I manually send in the payment or have it set to autopay. But manually paying the bills was costing me time. And at certain times in my life, it was also costing me money and hurting my credit score. I once got so sick for a week that I didn’t know what day it was. By the time I was better and back to real life, I was hit with a $75 late fee because the rent was past due. I’ve never missed rent before or after that time, yet there was no grace or forgiveness. Now with automated mortgage payments, I don’t run that risk. When I was 23, I was severely depressed and missed several simple credit card payments. I had the little calendar reminders on my iphone, but even that doesn’t help when you’re depressed. Depression is full of “I’ll do this later” thoughts.
Now, I save hours of my life and have the confidence that my finances are taken care of. I don’t have to worry while I travel or when work gets crazy. I don’t have to remember to pay the bills. As of February of this year, every one of my bills and subscriptions was automated. I feel less stress and can concentrate on more interesting and more important finance items, like reaching financial independence.
3. The 457 is the greatest financial tool available in the US.
I don’t know why every teacher doesn’t have one. Well, actually I have an idea: no one advertises the 457. No 457 representatives come to the teachers’ lounge and get you to sign up. You have to do it all on your own. The 457 in Ohio is unbelievably superior to the 403b I got duped into signing up for. I still don’t understand what an annuity is but I know it isn’t going to be easy to get my money out of that account (I stopped contributing as soon as I got the sense of how bad this account is). There are taxes and surrender fees I’ll have to pay. And there was, of course, the over 1% management fees, while the 457 has a Vanguard S&P 500 index fund available for 0.02% expense ratio. And I have access to this money as soon as I stop working for my employer, even if I am only… say, 30 years old.
If you are a public servant open a 457 immediately.
4. Investing is not just for the rich. Investing is not risky.
I remember writing in my ledger when I was 26 that I wanted to open an investment account by the time I was 35. I actually thought I would need $10,000 to start investing and that I would need to do a lot of learning about individual companies so I would know what to invest in. This is the part where I lament “I wish someone had taught me this stuff when I was younger.” Luckily, I read in the New York Times about index investing, googled the term, found the Charles Schwab website and learned that the barrier to entry is practically nothing. Schwab requires only $100 to get started, a perfect amount for a scared chicken like I was. So I got started then started learning more and more about investing since I had some skin in the game. I upped my investments more the next month. And now two and a half years later, I just set up direct deposit to my Roth IRA and my brokerage accounts.
Investing scared me because I thought you could lose your whole fortune in a single day. Now I have a secure understanding that by investing in a total stock market index fund, you experience (almost) no risk. Over the long term – 20, 30, 50 years – the stock market always goes up. It will vary wildly in the day to day and week to week time frames. This up and down isn’t risk, it’s volatility. The only way you can lose money when invested in the total stock market, is if you cash out when the market is down. If you wait out the rough patch or the recession, your portfolio will bounce back to a higher level than it was before the rough patch.