8 Money Lessons I Wish I Knew In My 20s

Whether we like it or not, money plays a huge role in our society. It serves as a medium of exchange so that you can put food on the table, experience new things such as traveling, or even put you or your kids through school. Today, we're going to take a time machine back 15 years, and I'm going to share with you guys the eight most important and practical lessons about money that I learned in my 20s. Had I known these earlier, I feel like I would have saved a ton of time, so let's get started. So the first lesson is that money has diminishing returns. I've spoken to dozens of self-made millionaires in my life, and I usually ask them what their biggest takeaway about money is. Most of them have pretty similar answers, but they usually share two or three common answers across all of them, and the first takeaway is that money isn't everything after a certain point. You see, the difference between having a million dollars or $1.05 million in your bank account, I feel bad for saying this, but for a millionaire, that's pretty negligible. That extra $0.05 million or 50k isn't going to change that person's life. Now, however, on the flip side, if you gave that $50,000 to someone who's broke, all of a sudden their life is completely flipped upside down. They can now afford to pay off their credit card debt, they now have an emergency fund, and they can sock away some money for their living expenses for quite some time. In other words, having money isn't everything, but not having it is. People who tend to start earning more money usually become obsessed with making more money. Not everybody, but some people do get obsessed, and when you do call them, they're usually working. I mean, we all have that one friend. You know exactly what they're doing at any given moment. They're usually working, and that's to the detriment of their life and their family. The lesson here is that the more money that you make, save, and invest, the less that money actually matters. Obviously, we want to have enough money where we're covering our recurring expenses, such as our bills, but money doesn't necessarily bring you happiness past a certain point. So after a certain point, we really need to be honest with ourselves and actually examine whether or not our relationship with money is a toxic one or not. The next money lesson that I wish I knew in my 20s was that I actually needed a lot less money than I thought. I used to think I would need to make $300k a year just to be happy, and I would talk to a lot of my friends, and we all thought that we would make it whenever we started to make a million dollars or $2 million a year. For many of us, we all have some number in our heads where we think, okay, once I get to that number, I'm going to be super happy, whether that's 500k or 100k or whatever it is. But the fact is, is that these are all arbitrary numbers that we make up in our heads. So I had a mentor of mine in my 20s who changed my mindset on this exact topic, and this is an exercise that you guys can do at home that will easily change your life. The exercise that he had me do was he had me sit down and estimate how much I would need for every single category of spending to live my ideal lifestyle and figure out what that would be on a pre-tax salary basis. So I took an afternoon to do this exact exercise in 2016, and my dream spend at the time was to spend $1,000 a month on travel and $500 a month on clothes in addition to my food, utilities, and rent. My desired lifestyle would have cost me $6,000 after-tax money a month. So if you do the math on that, that's actually a pre-tax salary of $109,000. If I wanted to put some money aside for savings as well, I realized that I probably had to save around $150,000 pre-tax in income to reach my desired like level of living. Now that's still a lot of money, but it's far from the arbitrary number of $300,000 in my head. In fact, it was 50% less. So I challenge you guys to do this exercise for yourself and let me know in the comments what your number is. You'll probably find that you don't actually need as much money as you think in your head to live the lifestyle that you want. I mean, even for me right now, $500 a month on clothing seems ridiculously excessive. All right, money lesson number three is to separate your income from your time. According to Naval Ravikant, you're not going to get rich renting out your time. He states that lawyers and doctors who can charge $300, $400, or $500 an hour are still capped on their income, and with lifestyle creep, they might not even be saving that much money. You want to strive for an extra income source that doesn't directly depend on your time. So that could look like a rental property where the cash flows are bigger than the expenses, or that could look like a part of a business that pays you out every month, or it could just be dividend stock income. If you're curious about dividend stocks, I have a bunch of videos on my channel about that. But the whole point here is that we all have a limited time every single day. And if we're always bound to our time, then it's going to be a lot harder to make a large income or become wealthy if all we're doing is renting out our time. Having some income that isn't tied to your time will actually free you up, especially in times of economic distress, because you're going to feel less pressure and less stressed at work. And speaking of time, that actually brings me to money lesson number four, is that it takes time. What takes time? Making money takes time. Basically, if you have a new side hustle, it'll take you three or six or 12 months to really get rolling. If you start a new business, it's going to take you three years to usually break even or make a profit. And most investments don't actually yield any capital until after many, many years of time. I would say most people start and give up too early on the endeavors that could make them a lot of money. And in this day and age of instant gratification, that totally makes sense. You see someone on social media and they get rich within 30 days. And you're like, hey, why can't I do that? But the truth is, is that most money and most wealth is not built in 30 days. So one of the biggest advantages in your life is that if you give yourself a super long time horizon to do things, you're going to operate at a much better level and you're going to make the right decisions. For example, if you wanted to get really physically fit, well, that would be really difficult to do within 30 days. But all of a sudden, if you change your time horizon to one or two years, you actually might start making lifestyle choices that will actually get you physically fit in that time span. You're going to put less pressure on yourself and you're more likely to hit your goal of being physically fit. Think about this another way in terms of money. So if you were trying to make as much money as possible in 30 days, you actually might compromise your values and you might actually take some actions that aren't aligned with your long term vision. The easiest example I can think of is someone who wants to start dropshipping as a business. Now, dropshipping as a business model can make you a lot of money within 30 days. If you don't know what it is, it's usually where you set up a website, you sell a product directly from China, and then you profit the difference in the margin by sending that product straight from China to your end customer. But in my opinion, dropshipping is just a mere means to prove out a business model because most dropshipping products will die within 6 to 12 months. Now, if you were thinking on a longer term time horizon, perhaps you would actually find a better way to source the product, especially source it within your home country. You would then be able to build a real brand and maybe you can even differentiate on the product with some innovation. Having a company with a strong brand and a competitive advantage will allow you to stay making money for a long period of time and it will actually extend the runway of your dropshipping business model past 6 to 12 months. And by pursuing a long term time horizon, you might actually be willing to take short term losses in favor for long term gains later on. And that's something that someone who has a short term mindset simply just will not do. Before we move on to money lesson number five, I want to let you guys know that this video is not sponsored in any way, but it is brought to you by my own newsletter, Hump Days, which is almost at 10,000 readers. We come out with business news twice a week on Wednesdays and Sundays, and it's completely free to sign up. It's free information. So if you'd like to sign up, the link is in the description below. All right. Money lesson number five is that making more money is actually more important than cutting back expenses. And this was another huge takeaway of all the self-made millionaires that I talked to. While both income and expenses definitely matter, I would argue that if you're just cutting back on your expenses, there is a limit to how much you can actually do. We can cut back on subscriptions. We can cut back on unnecessary purchases. We can buy things that are used versus new. But for the person who's making $25,000 a year, frugality is only going to go so far. You're going to hear a lot of personal finance advice online about not buying certain things. So not buying coffee is usually a very common thing that people are going to say. They're going to say that if you save that $4 that you spend on your Starbucks coffee every single day and invest that money, that money is going to be worth millions of dollars in the future. I think that advice is more geared towards you not spending frivolously and being frugal with your money. But as long as you already have those down, then what's going to really move the needle with financial independence is just to make more income. Here's another good question, which is would you really care if you spent $4 a day on coffee if your income was not 50K but instead $500,000? Probably not. Okay, so how do we increase our income? Well, a temporary solution would be to ask for more hours at work. You can definitely do that. But I think a longer term solution is to try to get a new job or get a promotion at work so that you can earn more money. For side income, you can create another income stream by doing a side hustle or finding a passive investment. That could really help. But I think the best long-term thing is to really just educate yourself and increase your skills so that you can earn more in the marketplace. Now, if you do increase your income, the other thing we need to watch out for is lifestyle inflation because you could be making double, but if you're also spending double, then you're not really getting anywhere. At the end of the day, we want to make more income, but we also want to save a bunch of that income because if we can save and invest that, then we're going to be a lot better off and more financially independent. Money lesson number six is to have a mid-month check-in. When you're first starting to get in the habit of being aware of your finances, I think having a mid-month check-in to see how you're progressing is a really good idea. So I personally like to check my bank statements, my credit card statements, and any other statements where I spend money on on the 15th of every month. And then what I'm going to do is I'm going to assess how much I spent in the first 15 days, and I'm going to see if I can tailor my behavior or my spending for the latter half of the month to reach my goals. The idea here is that if you're only checking out your finances once a month, that might not be frequent enough. So if you're having mid-month check-ins, you're doubling the amount of times that you're checking in on your finances. I would say managing your money is a process like eating healthy or going to the gym. And the more check-ins we have, and the more honest that we can be with ourselves, the better off we're going to be. So having this mid-month check-in, I think is pretty vital. Now, if you really want to go above and beyond, you can also add in some more check-ins. So you can have a quarterly check-in to see how you're progressing for the year, or even a mid-year check-in to see how you're progressing for the year as well. All right, the next lesson is to pay yourself first. This is a simple strategy that many of us don't do. But the idea here is that you want to set aside some money for yourself in the future, because if you're not going to do it, who is? An easy way to do this is that whenever you get paid every single month, if you know the exact day, you can set up an automatic withdrawal within your bank account so that when the money comes into your main checking, that a portion of that gets siphoned over to a savings account. And that savings account is for you to save and invest. So say you make $1,000 a week, perhaps $1,000 goes into your checking account, and then $200 of that comes into a savings account every single week. And by the end of the month, you have $800 extra for saving and investing. Once you pay yourself first, then you can think about your bills and your discretionary income. And the idea is that you don't touch the $800 that you've put away automatically for discretionary expenses, but you just focus on what's left for whatever you need to spend on. All right, money lesson number eight. I think this is the most important one, and many self-made millionaires actually agreed with me, which is that if you can't buy something twice, then you can't afford it. Now, this is mostly in reference to luxury goods and goods that we really wanna buy. So maybe not our necessities, but the idea here is that if you can't buy something two times over, you should really rethink your purchase. This is just a good rule of thumb so that you're not succumbing to lifestyle inflation. And this actually brings up an interesting tangent about math. Most of us in America are on what's called W-2 income or salary income. We have an employer who pays us for the work that we do. That also means whatever you make, you're gonna pay taxes on. So if you make $50,000 a year, your tax rate is gonna be 27%. That means for every $100 you make, only 73 of those dollars are you actually keeping in your pocket. So when you go and buy something of luxury, let's say you go to the Louis Vuitton store and you see a wallet that you really enjoy, and it's $500 sitting on the rack. That might be $500 that you spend in the store itself, but that actually was 684 pre-tax dollars that you had to earn to afford that $500 after tax. So almost everything that you buy is going to be bought with after-tax dollars. So that's just something extra to consider is that when you are making your pre-tax income of say $100,000, what can that actually buy you after tax? So while money lesson number eight is about if you can't buy something twice, you can't afford it. The real lesson, I think, is that everything that you buy is with after-tax money and that everything that we make in our income is with pre-tax money. So that's just something that you need to consider. All right, make sure to sign up for my free newsletter, Hump Days. That'll be linked in the description below if you'd like to check that out. And let me know if any of these money lessons really helps you because all of these I wish I knew in my 20s. I hope that you're having a good day. I'll see you guys in the next video. Peace.