Monday, October 13, 2008

Best Financial Advice I've Received

Peter at Bible Money Matters posted on Friday about the best financial advice he's received. Peter says:

So the advice I got from my parents by observing them growing up:

  1. Be content in life by focusing on important things like faith and family.
  2. Live frugally, spend less than you earn and pay cash.

I thought I'd share the best financial advice that I've received!

When I was in high school, I took an accounting class. In it, the teacher taught a little about IRA's and other retirement accounts. I don't remember any of the details, but I do remember coming away from that class knowing that you should start investing when you're young and compound interest will work in your favor.

Because of this lesson, when I turned 18, I decided to put a little bit of money in an IRA. I didn't know anything about investing, so I just went to my credit union. Here's some advice for you: credit unions are not the best place to go for investing advice!

The woman I spoke with didn't tell me the difference between a Roth and a Traditional IRA, she didn't mention anything about mutual funds, she seemed to have no opinion at all. She just took my money and put it in a cd in a Traditional IRA. Looking back, this was about the dumbest thing she could have done. I was 18! I belonged in a good growth mutual fund in a Roth IRA! *sigh* (ps- that IRA has since been moved out of the credit union. I love banking with credit unions, but I don't keep my investments there!)

A few years later, I was working in an insurance office in the same building as an Edward Jones office. My bosses were friends with the Edward Jones adviser, so he'd come over and chat with me sometimes. He kept telling me that I should start doing a monthly investment, no matter how small, into a Roth IRA. He said that since I was young, time and compounding would work in my favor (hmmm, starting to sound familiar!). I eventually headed his advice and opened up a Roth, putting in just $25 a month, which was all I could afford at the time.

Fast forward another year or so, and I came across the book "Smart Women Finish Rich" by David Bach. In it, there is a really neat graph showing how investing when you're young pays off.

The message has stuck, and it's one I've passed onto my brothers and anyone else who will listen: Start investing when you're young because time and compound interest will work in your favor!

What's the best financial advice you've ever received?

3 comments:

Peter said...

Good advice! I wish I had started investing at a younger age!

Free From Broke said...

Compounding and time...Classic!

ChristianPF said...

Amen! I agree with Pete's wonderful advice and yours as well. I think between those, it about sums it up...

1. Be content
2. Spend less than you earn
3. Start investing young