Stephanie Hallett shares four lessons about money that she wished she had known before she was 40 – and what is important to her (icon image). Getty Images / Marco Geber
My husband and I are well on our way to retiring rich, but we haven’t always been wise with our money.
I wish we had started investing earlier and learned earlier that we can earn more by working for ourselves.
I’ve also learned that it’s possible to make some bad decisions and still be successful.
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When my husband and I, in our late 20s, started getting serious about our finances, we naturally thought we had everything under control. We thought we would live extremely modestly and work to pay off every penny of our debt, and that’s exactly what we did.
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However, we had never thought about what would happen next or how our attitude towards money might change dramatically as we got older.
The reality is that eventually we became freelancers and started making more money. Now, at 43, I can safely say that we are financially independent and on track to retire rich when our children leave home in seven years.
Still, there are some lessons I learned in my 30s and early 40s that I wish I had known sooner, and for more reasons than one.
Here’s a rundown of what I wish I knew about money when I was younger and why.
1. Making more money changes everything
The first lesson I wish I’d learned sooner is the importance of increasing your income, especially since my old 9-to-5 job was only making about $40,000.
Despite what people say, you can only save as much as you want if you have a steady income. You can reduce your cable bill and set up a monthly meal plan. Further steps, such as buying a smaller home and checking auto insurance and home insurance, can only save a small fraction.
Even worse, a traditional 9-to-5 job also means you only get the annual raise, if you get one at all.
In my job more than ten years ago, I could only get three percent more every year, no matter what it was.
On the other hand, finding a way to make more money can solve countless problems and help you invest in the future in a much faster timeframe.
If I could go back and change something in this area, instead of spending years wondering if I was doing the right thing, I would have given up my traditional job and started my own business as soon as possible.
For those not interested in self-employment, finding other ways to earn more can be a big problem. This can mean working overtime, taking a part-time job, or changing jobs to earn a higher salary.
2. The power of compound interest is amazing
This lesson ties in with the first, but I really wish we had started investing in our retirement much sooner. In fact, we started our first savings plans when we were in our 20’s and only contributed a nominal percentage of our income at the time.
Now that I know and understand the magic of compound interest, I wish we had deposited a lot more than we did.
The fact is, investing regularly and as early as possible is the best way to take advantage of compound interest so you can retire when you want and on your own terms. Eventually, investing allows you to start accumulating savings that will increase in value over time, and finally, compound interest allows you to build your wealth off of the wealth you’ve already made from your investments in the past.
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As an example, consider this financial scenario:
Imagine investing $1,500 a month for 30 years from the age of 30, which means you’ll be making $540,000 in contributions over that time. If you had an average return of 7 percent, after 30 years at age 60 you would have just over $1.7 million.
Now imagine starting at age 40 and investing $2,250 for 20 years, which means you make the same $540,000 in investments over a shorter period of time. At the same 7 percent return, you would close out the 20 years at age 60 with just over $1.1 million.
3. You can make a lot of bad decisions and still do well
While my husband and I have made some really good financial decisions, we’ve also made some pretty tragic ones. For example, as mentioned earlier, we deferred investing for retirement, and we overspent renovating our second home and sold it at a loss.
Also, in the early years of our marriage, we spent a lot of money trading in our cars for new ones, and we initially placed our funds with an expensive investment firm with unnecessary fees.
However, as I got older, I realized that you can make a lot of big mistakes and still do pretty well. You just have to mix some good decisions with the bad ones and focus on slowly moving forward, even if it feels like taking three steps forward and two steps back every year.
Ultimately, my husband and I made many good decisions, such as starting our own business, investing heavily in the years when we made the most money, and avoiding debt for more than a decade and counting. While the mistakes of our past have held us back to some extent, the good choices we’ve made more than make up for the difference.
4. Mental energy is expensive
Especially in the last few years I’ve learned that I need to save my mental energy for the things in life that really matter. That often means I’m more than willing to pay for the conveniences that help keep me sane, whether it’s cleaning my house regularly or ordering groceries online so I don’t have to go shopping.
It took me a long time to learn this lesson, especially since I used to be so temperate. There have been years of my life where I’ve spent hours trying to save a few bucks, either by clipping coupons or by going from store to store to compare prices.
Now that I’m older I prefer to spend my free time working or relaxing with my kids. It took a decade, but now I know for sure that I can spend my time better with my family or my work. I do everything else that can be outsourced, and I hardly ever think about the costs anymore.
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Ultimately, getting older has shown me that money matters, but not for the reasons I used to think. These days I use money to buy freedom and time, the two things in life that are truly priceless.
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