Financial Advice I Would Give My Twenty-Year-Old Self

What financial advice would you give to your twenty-year-old self?  My twenty-two-year old son recently asked me that very question.  My first thought was that he must not have been listening, because as a financial planner, I have constantly given him financial advice since he knew a dime was worth more than a nickel even though a nickel is larger. But in contemplating the subject on a deeper level, I realized there are many financial lessons parents don’t necessarily share – not because they are too private but since questions like his can be unusual and the subject doesn’t necessarily come up.

When you think about advice you’d give yourself, the mind tends to go to what we did wrong.  Of course we all have made mistakes, but we also have done some things right so I’ll include those.  However, twenty year olds today face additional challenges.  The expense of college was much lower on a relative basis when I was a student while today the tuition at universities across the country has almost doubled in the past decade.  New graduates are currently saddled with an average of $27,000 in student loan debt, which makes it harder to run out and put a down payment on a rental property.

If I had been faced with that as a young person, I would have attacked the debt by living incredibly frugally and made paying off the debt a priority to get it out of the way. Then, I could focus on other goals.

That being said, if I could go back in time and talk to my twenty-year-old self, here is the financial advice I would give her:

Learn to negotiate.  This goes for everyone but especially for women since women are 2.5 times more likely to have a “great deal of apprehension” about negotiations.  According to Linda Babcock and Sara Laschever, authors of Women Don’t Ask,  failing to negotiate your first salary and starting your career at just $4000 less in salary can result in a career income loss of over $500,000 by age 60.  Since men are four times as likely as women to negotiate their first salary, this may have a major impact on the salary gender gap.  It may actually be a “negotiation gap” rather than a gender gap in income. Understanding the market value of your work is not too difficult to find on sites such as and  Taking that knowledge into face-to-face negotiations with your employer or prospective employers can have a significant impact on your finances.

Start out saving a higher percentage of your income. The difference between saving 10% of your income (which is the rule of thumb) and 20% of your income is significant over your lifetime. A 25 year old who makes $50,000 a year and saved 10% of income would have over $800K at age 65 if they earned 6%. That doubles to over $1.6 million when you save 20% and right out of college is the best time to do that since you are used to living on the cheap.  Recent graduates today are saddled with student loan debt, which does make this more of a challenge but that said, starting early and committing to saving a high percentage of income is a sure wealth builder.

Marry someone you deeply love and stay married. Obviously no one goes into a marriage planning on getting a divorce but nearly 50% of marriages end in divorce. Divorce has an extremely negative impact on finances.  Just the legal cost of a divorce itself runs about $20,000 per couple, which instead could have grown to just over $64k in retirement savings if invested at 6% over 20 years instead.

There are other hidden costs.  Splitting assets may have tax implications with an investment sale triggering capital gains taxes.  Selling property may also result in a “fire sale” at an inopportune time in order to dissolve the financial union, resulting in thousands of dollars in losses. When the going gets tough in a marriage, I would like to tell my twenty year old self that 86% of marriedcouples who reported being unhappy in their marriage reported that things had improved within a few years.  Though this is not true for all marriages and some couples aren’t meant to be together, being happily married can be a great boost to your financial health.

Invest in real property.  Buying real estate can be an excellent long-term investment if you don’t mind being a landlord and you have six months of a mortgage payment lined up as a back-up plan to make the payment when tenants move out. The beauty of investing in real estate is the tenants make the payment over the years and when your property is free and clear, you have an income stream for life.  One strategy is to buy your first home with the intention that you will turn it into a rental property when you’ve saved enough for your next down payment.  You can also exchange properties using a 1031 tax free exchange to either trade up or to purchase like kind property in a better location – such as a resort property you rent to tourists and then can use two weeks a year yourself.

Learn how the tax system works.  Focusing on your career and moving up the ladder or starting your own business makes you money but you don’t want to give it all to Uncle Sam.  With the Federal deficit still hitting over a trillion dollars this year, the writing is on the wall that taxes are going to have to continue to increase. Become a tax expert and consider the tax implications of your financial decisions.  For example, if tax rates are expected to be much higher in the future, choose the Roth 401(k) instead of the traditional pre-tax 401(k) at your workplace – see this Roth 401(k) versus traditional calculator.  All of your employer contributions will be taxed at ordinary income tax rates when you withdraw them at retirement but your Roth 401(k) contributions and earnings can be withdrawn completely tax-free at age 59 ½ (if you’ve had the account for over five years).

Pay close attention to deduction phase out limits.  I wrote about this earlier in “When to Refuse Your Year End Bonus” because just a few thousand dollars in income can lose you thousands of dollars in tax deductions as your income increases. For example, when you own rental property, the tax deductions are phased out when your adjusted gross income is over $150,000 – you have to “carry them forward” instead of being able to use them now.  For a taxpayer in the 25% tax bracket who has passive real estate losses of $20,000, that translates into a $5000 tax deduction.  Being proactive about your taxes can save you thousands of dollars annually and in retirement.

Obtain an advanced degree or professional designation. Whatever your chosen profession may be, the time and effort in earning an advanced degree or professional designation is worth it. In my case, early on in my career I decided to obtain the Certified Financial Planner™ designation.  The knowledge I obtained as well as the ongoing continuing education required has been valuable to me but the contacts I made were just as valuable.  I was given several job offers from financial professionals I met in my classes – they called me when they had openings.  Also, when the banking industry was going through massive change in the 1990’s with merger after merger, I was always picked up by the new company when other very capable professionals who didn’t have the designation were laid off since I held the CFP® designation.  Many companies offer a tuition reimbursement program as an employee benefit if the education has a direct impact on your current position.  In that case, all it costs is the time.

Looking back, I am also very glad to have hiked in Yosemite, danced in Buenos Aires, walked in Monet’s garden in Giverny, France and went skiing on the “Greatest Snow on Earth” in Park City, Utah – never going into debt to do so.  With the holidays here and families spending time together, the time is ripe for sharing financial advice.  You never know, it just might make for some interesting conversations.

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