If only. If only I knew then what I know now. Or at least what I think I know now.

A concept anyone over the age of thirty understands very well. Okay, maybe forty.

“If only I had this wealth management advice when I was twenty, rather than learning painful lessons for the next decade or two.”

That is the tale of one woman in today’s discussion. 

Learning About Money In One’s Twenties

S.L. Bathgate seems like the typical young adult. Someone I can relate to.

Looking back on my twenties, I realized that I spent my money mainly because I wanted to feel richer than I actually was. This single desire was probably the most fundamental problem I had with money during my twenties, and admittedly, it is one that I still struggle with today.

I got my first office job in my early twenties, complete with a paltry, yet steady, salary. Suddenly, I was hungry to experience the full spectrum that life had to offer, and all too eager to ignore the wide disparity between my means and aspirations. It was still a time when everything in the world seemed novel, and by virtue of its novelty, was mandatory to experience. Bottomless mimosa brunches? Buying that $200 used guitar on a whim? Impromptu road trips? Yes, yes and yes.

I knew I shouldn’t have been spending my money so liberally, but for the first time, it felt like a relief to just have the nice things that always seemed missing from my life. Somehow, it seemed perfectly fine to drop at least $200 a month on sushi dinners, to purchase designer handbags, to drink endless rounds of American craft beers, and to have and to hold each new Apple product in my hands.

I do not know of too many people who did not follow this path. Present company included.

I remember when I first moved to the Cayman Islands. An acquaintance there said that you will live your first year like a rock star. And he was right, although I never could get the long, flowing hair looking quite right.

Many of my fellow ex-pats lived a few more years like rock stars. Making great money, living beach-front, out for dinner every night, and travelling the world on vacation.

Not the way to live if you want to accumulate wealth and retire comfortably. But after living like a pauper through school, once you start earning a little cash you want to enjoy it and make up for lost time. I know I did.

At Thirty, The Party Stops

After enjoying her twenties, Ms. Bathgate reaches thirty to find her financial situation less than stellar.

It was clear that I had refused to live within my means, and I needed to do something to change my situation. On one too many occasions, I had ransacked my short-lived savings to pay off mounting credit card bills. I still had an array of credit cards I had accumulated during my early twenties while playing the balance transfer game. And my credit score had taken a sizeable hit.

Fortunately, Ms. Bathgate came to her senses and sorted out her financial problems. Sadly, many individuals do not correct their errors at 30, nor even 40 or 50. And with each passing month, rectifying the problem becomes harder and harder.


The Power of Compound Returns

The longer one delays saving, the greater the capital required to catch up over time.

Consider a previous lesson on compound returns. Nicole starts investing $300 per month at age 25 and stops investing at age 40. Her total capital invested over 15 years is only $54,000.

Her twin brother Matt enjoyed his 20s and 30s a little too much. Matt only begins to save at age 40. To catch Nicole’s wealth level at age 70, Matt must invest $700 per month from age 40 to age 70. His total capital invested over 30 years is $252,000.

Matt needs to come up with almost five times the disposable income to end up with the same wealth as Nicole when both reach age 70. Not an easy proposition.

The power of compound returns is a big incentive to start saving early in life.

Her Plan Going Forward

Ms. Bathgate is planning on changing her (long-term) fortunes.

I’ve come up with some new goals for my thirties. I am going to contribute at least 10 percent of my salary towards my retirement. I am going to chip away at my student loan debt until it is paid off or forgiven, whichever one comes first. I am going to embrace the very simple concept that I must spend less than I earn.

A decent strategy. As is said, the first step is acknowledging you have a problem. Many do not.

I wish her the best of luck.

But f I was advising Ms. Bathgate, I think she could have improved her stated plan with a few simple amendments.

We will look at my suggestions next time.

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