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Topics: Finance For Kids |
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| Developing Your Financial Tailwind |
Submitted by:
anonymous 02/02/2009 8:40 PM
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I was hiking in the Columbia River Gorge with my good friend Danny a few weeks back. We had enjoyed many wonderful hikes together in places like Glacier National Park, Big Sur, and The Cascades. We got to talking about how easy a good hike can be ruined by something as minor as a blister on your little toe or a persistent headwind. I was reflecting on our conversations a couple of nights ago thinking that going through life with debt is like going through life with a persistent headwind.
 When I was young my mother always told us we could play a different game if we had savings. That life would go a lot smoother if we didn’t have to worry about debt. We were always taught to abhor debt from a young age. Now I must admit that I was dealt a pretty good hand of cards when I was born. As Warren Buffett would say I won the ovarian lottery. I grew up squarely in the middle of the middle class and I understand that many others where not dealt as good a hand as mine. But I did make sacrifices that others who where dealt the same cards didn't make. I had read the Richest Man in Babylon when I was a kid and understood the power of compounding. I knew it was important to build a financial tailwind early on.
As soon as I could walk and talk I was always working. Whether it was picking up pine cones from my neighbors yard at half a cent a piece, mowing lawns in the afternoon, or running lemonade stands on the weekends, I was always working. When I was old enough to drive I bought a used car and paid all my expenses. When it came time for college I took the cheapest path I could find. I went to the local community college and then to Portland State University located 20 minutes from our home. This kept college expenses lower than going away to college or to a fancy university. It also gave me the chance to have paid internships all the way through my college years. Thanks to these decisions I graduated with no debt and had a job lined up as soon as I graduated.
When I was in my early twenties just out of college I decided to live at home with my parents so I could build up my savings. I wanted to use these first couple of years just after college to build up my savings and create a financial tailwind. I knew that having savings would give me more flexibility and control over my life and the chance to take advantage of opportunities as they presented themselves. Because of this I was able to follow my heart and start my own business. It took several years of hard work and sacrifice but eventually it became a profitable company. I later sold my company and joined a larger outfit.
I'm now in my thirties and I get the opportunity to watch twenty-somethings just out of college start on their journeys. Some of these kids have been dealt tougher cards, many dealt the same cards, and a few dealt even better cards than I was. As I watch these people begin their economic lives I tell them to build their savings and develop an economic tailwind. I tell them life goes a lot smoother with savings. Many of these kids do a wonderful job of saving and building solid foundations but I see many who go out and buy new cars, expensive apartments, drop over a hundred dollars each weekend on dinners and drinks. I worry many of them will go through their entire lives facing financial headwinds.
Not all debt is bad and not all debt creates financial headwinds. Taking on student debt to get a college degree in the long run will create a financial tailwind through higher salary potential. Buying a home you can afford can turn into a financial tailwind. But spending money you don't have on depreciating assets like new cars, or expensive trips will turn into a financial headwind.
You want to make sure the miracle of compounding is working for you and not against you. A few small sacrifices in your early years such has buying a cheap used car, sharing an apartment rather than getting your own apartment, and skipping the expensive daily lattes can help establish a financial tailwind that will stay with you the rest of your life.
I realize for many of you reading this, the train has already left the station in terms of your youth. You may even be saddled with some sizable debt. The most important thing is to come up with a plan to turn the forces of compound interest from working against you to working for you. This will ultimately involve sacrifices. Slowly but surely you'll begin to feel the wind slowly shift.
Photo Credit: JonF119 |
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