As an investment advisor and Certified Financial Planner, I’ve worked with over a thousand clients and investors over the years. Over countless conversations and meetings, I’ve seen the excitement, anxiety, and fear that comes with navigating their finances during this pivotal life stage.
I’ve also worked with many highly successful clients, each with their own story. Here are eight key money lessons that stand out.
1. Start Early, Even If It’s Small
Every dollar saved today is a dollar working for you tomorrow.
The earlier you start investing, even with small amounts, the more time your money has to grow. Don’t wait for the “perfect” time or moment or until you’ve saved up a large sum. Just start now with whatever you can manage, and gradually watch your savings snowball over time.
Here’s an illustration of how your investments could grow over time with modest weekly contribution amounts, with an average investment return of 8%, over one, five, and ten-year periods:
| Amounts Towards Investing (per week) | Year 1 – Ending Value | Year 5 – Ending Value | Year 10 – Ending Value |
| $50 | $2,816 | $19,388 | $57,829 |
| $100 | $5,633 | $38,776 | $115,657 |
| $250 | $14,082 | $96,939 | $289,143 |
Compound interest is powerful. Start saving and investing early, even if it’s just a small amount.
2. Spend Less Than You Earn
As your income grows, avoid the temptation to increase your spending proportionately. Resist the urge to upgrade your car, move into a larger house, or splurge on unnecessary luxuries. Consider these scenarios of clients I’ve worked with.
A client who was earning $90,000 per year but only needed $65,000 to live comfortably. Another client was earning $150,000 per year but was spending $160,000 to maintain their lifestyle.
Similarly, I worked with a client who was earning an 8% average return on their investments but had low expenses, compared to another client who was earning a 10% average return on their investments but spent all of it.
Which clients do you think were financially better off?
The ability to live frugally is a powerful financial tool, as it gives you more control than variables such as income or investment returns. It’s not just about how much you earn but how much you save and how wisely you spend.
3. Pay Yourself First
Think of yourself as a valuable asset deserving of regular investment. Now, apply this mindset to your personal finances by adopting the principle of “paying yourself first.” This means setting aside a portion of your income for savings and investments before spending on anything else.
Most employers offer matching contributions, which is a way of “double-dipping” for your retirement savings. You can do this by maximizing your employee contributions each year through your employer’s retirement benefits and taking advantage of essentially “free money” through your 401(k), 403(b), or Roth 401(k) plans. Another benefit is that contributing to these retirement plans offers tax advantages that can further boost your savings.
Many clients I’ve worked with have consistently maximized their 401(k) plan contributions from a young age. By their forties and fifties, they had amassed well over $1 million in retirement savings accounts.
By consistently setting aside savings, you’ll find that these amounts become automatic and barely noticeable over time, though it will go a long way towards building a solid financial future.
4. Debt is a Double-Edged Sword
Debt can be a powerful tool, but like any powerful tool, it requires careful handling. Some forms of debt, like student loans, can be investments in your future earning potential, and taking on a mortgage for a home is generally a good long-term decision.
In working with young clients more recently, I’ve noticed a common trend amongst some who tend to overspend on luxury vacations or expensive cars. This kind of spending can significantly impact your financial well-being. Data has shown that many millennials have a tendency to spend on high-end luxury items and extravagant vacations.
Despite the debt they carry, there is a clear willingness among some millennials to forego spending in other areas in order to obtain luxury items like jewelry, designer clothing, handbags, and travel experiences. Moreover, a study found that 32% of high-earning millennials planned to increase their travel spending, with more than a third planning to spend more than $5,000 on an upcoming luxury trip.
The allure of upgrading to the latest car model can be tempting for people. However, the costs associated with owning such these kinds of vehicles, including insurance, maintenance, and depreciation, can quickly add up and leave less room in your budget for savings and investments. Though these experiences and items can bring short-term happiness, they often lead to financial stress in the long run, and hinder your ability to reach major goals, such as retiring early.
By prioritizing savings and investments over unnecessary spending, investors are able to build a stronger financial foundation for their future.
5. Active Trading Isn’t Easy
“Beating the market” can be tempting, especially for young investors captivated by the “YOLO” (you only live once) and the “FOMO” (fear of missing out) mentality. The “stonks” phenomenon of 2021 exemplified this trend. Fueled by social media hype and online platforms like Robinhood, inexperienced and first-time investors flocked to trading heavily shorted stocks, driven by emotions and the pursuit of short-term gains.
While some saw significant returns, others had losses when the market inevitably corrected. This highlights the inherent risks of frequent trading and market timing, especially for newer investors who lack the experience and discipline to navigate market volatility and bear markets.
In fact, many studies have shown that frequent trading and often have negative effects. On the other hand, index investing offers a much more efficient and less stressful approach, which includes:
- Diversification: Index funds offer immediate diversification by holding a wide array of assets, reducing your risk and the impact of any single company or sector performing poorly.
- Lower fees: Index funds typically have very low fees compared to actively managed funds. This allows you to keep more of your returns instead of paying them to fund managers.
Additional reasons why active trading can be counterproductive:
- Market timing is difficult: Predicting short-term market movements is incredibly difficult, even for professionals.
- Transaction costs: Every time you buy or sell an investment, you incur transaction costs such as commissions and fees.
- Taxes: Selling investments for a profit can generate capital gains taxes, which further reduce your returns.
- Compounding: The power of compounding is crucial for long-term wealth accumulation.
- Emotional decisions: Fear and greed often drive people to make impulsive decisions about their investments.
While living life to the fullest can be thrilling, it’s also important to balance this with a sustainable lifestyle that supports long-term wealth building.
6. Stay Disciplined During Market Turmoil
The financial landscape constantly fluctuates, and investing in the stock market can be bumpy at times, with periods of calm followed by unexpected storms. It’s important to remember that volatility is inherent in all markets, but not to allow short-term fluctuations to throw off your long-term investment strategy.
Over my career, I’ve witnessed firsthand the impact of market turmoil on young and seasoned investors. During the 2007 — 2008 Global Financial Crisis, many investors saw their portfolios plummet, leading many to panic and make rash decisions. Sadly, there were clients I worked with who were driven by fear and emotion and sold out of their stocks at the peak of the crisis, locking in large losses. Over the coming years, the markets eventually recovered, while those who remained patient and stayed invested reaped significant rewards.
In 2022, the S&P 500 experienced a significant decline of 20%, while the NASDAQ dropped by 33%. Various factors, including rising interest rates, geopolitical tensions, and concerns about a potential recession, fueled this downturn. Once again, many investors bought into fear, uncertainty, and doubt (FUD), leading many to abandon their investments, fearing further losses.
However, 2023 was a year of remarkable recovery, with the markets bouncing back and exceeding pre-crash levels. Those who had the patience to stay invested and didn’t succumb to panic selling were rewarded again, seeing their portfolios climb steadily back to new highs. These market cycles can offer valuable lessons for investors:
- Market downturns are inevitable. Investors should be prepared for periods of volatility and take a long-term view.
- FUD can be detrimental. Avoid making emotional decisions based on fear and panic, which can lead to locking in losses.
- Discipline and patience are key. Investors who stay calm and remain invested during downturns are positioned to benefit from eventual market recoveries.
7. Build Multiple Income Streams
While relying solely on a single paycheck might seem too comforting, it can also limit your earning potential. This truth is well understood by millionaires who have diversified their income through multiple income streams. This strategy is not just for the wealthy but is a reality for many of the affluent clients I’ve worked with who have prioritized creating multiple income streams. Here’s why:
- Relying solely on one source of income can be risky. If you lose your job, your financial stability can be threatened. Multiple income streams can provide a safety net and reduce dependence on any single source.
- With more money coming in, you can invest more, pay off debt faster, and reach your financial goals sooner. This snowball effect has significantly boosted the wealth of many successful clients whom I worked with.
- Having multiple income streams offers you more freedom and flexibility. You can choose to work less, pursue your passions, or take on new challenges with less financial pressure.
8. Leverage the Power of Self-Development and Education
Most of the wealthy clients I work with understand that they don’t have all the answers. This self-awareness leads them to recognize their own limitations and to continue developing themselves through learning and education. They gain knowledge from many sources such as books, podcasts, joining masterminds and courses. Some even hire business coaches who can provide them with expert guidance and accountability.
Successful people also utilize their resources, such as friends, their network, family, community, and other professionals, to achieve their goals and overcome challenges.
Another benefit of continuous growth is that acquiring new knowledge and skills can also open up new opportunities.
Finally, they also recognize when there are time they need to hire professionals who can provide them with specialized skills or guidance.
Final Thoughts
Life is full of surprises. These can include financial setbacks, life challenges, and unexpected events. During those instances when financial challenges appear overwhelming, it could be beneficial to seek the expertise of a Certified Financial Planner or a trusted financial advisor.
When choosing to work with a financial planner or financial advisor, opt for someone who is not driven by commissions or the sale of products to ensure that their guidance is unbiased and genuinely in your best interest.
Just like you, every successful investor began their journey with a blend of enthusiasm and uncertainty. Success didn’t come instantly for most successful investors. It was the result of years of dedication, discipline, and patience.
