For anyone getting started with adulthood, the financial stuff can be among the trickiest aspects to navigate.
That can be the case even for those who go on to be financial advisors.
For these professionals, some advice they regularly give clients now — after years of extra education and real-world experience — were unknown to them when they were younger. And there are some key things they would tell their younger selves if they could.
For instance, certified financial planner Marguerita Cheng said she headed into adulthood knowing that she should save money — i.e., put it in a savings account — but investing those funds in the stock market was not on her radar at first.
“Today I’d tell my younger self, ‘It’s great that you’re working and putting money in savings, but be sure you understand the difference between saving and investing,'” said Cheng, CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.
Regular savings accounts generally pay interest rates that aren’t keeping up with inflation, which was an annual 8.5% in March (far above the Federal Reserve’s target rate of 2%). This means money left in cash loses its purchasing power over time. In contrast, the stock market has averaged about 8.3% annual gains over the last 30 years, after accounting for inflation.
Meanwhile, there are also lots of good reasons to have money in savings in case of emergency.
CFP Diahann Lassus, managing principal at Peapack Private Wealth Management in New Providence, New Jersey, learned a big lesson from having nothing set aside when she was a young adult.
Lassus had to learn how to replace a busted water pump in her car’s engine by herself because she couldn’t afford to pay someone to install it — and she needed her car to get to work.
“Set up an emergency fund,” said Lassus, who is also on the CNBC FA Council. “I learned you have to plan ahead and focus on what might happen instead of spending everything you have today.”
Advisors generally recommend stashing away at least three to six months’ worth of living expenses.
Recommended reading from advisors:
“The Psychology of Money” by Morgan Housel. “The book provides valuable lessons about how to think about money and investing and personal finance. It would be a great primer for anyone who is staring to earn, save and invest money,” said of Cathy Curtis of Curtis Financial Planning in Oakland, California.
“A Random Walk Down Wall Street” by Burton Malkiel. “It really makes you think about the lack of predictability of the financial markets,” said Diahann Lassus of Peapack Private Wealth Management in New Providence, New Jersey.
“Get Good with Money: Ten Simple Steps to Becoming Financially Whole” by Tiffany “The Budgetnista” Aliche. “It’s a process to help readers find peace of mind and financial stability. She shares her personal experience to help others achieve financial success on their terms,” said Marguerita Cheng of Blue Ocean Global Wealth in Gaithersburg, Maryland.
Lassus also said that when she was able to save some money, it was with a specific near-term goal in mind — i.e., buying something that had caught her eye.
“I never looked past the short-term,” Lassus said. “There were a lot of positive things that might have happened sooner if I had looked further down the road at longer-term objectives.”
Buying a home
CFP Cathy Curtis said she wishes someone had talked to her about the true cost of owning a house.
“It’s really easy to overlook some important details that can add thousands of dollars to your home budget over the years,” said Curtis, founder of Curtis Financial Planning in Oakland, California, and also a member of the FA Council.
“There are expenses over and above mortgage, property tax, insurance, routine upkeep and and even home improvements you’ll want to make in the future,” she said.
For instance, she said, look closely at the yard. If there are large trees on the property, consider that they may have to be regularly trimmed or cut down one day, both of which can be costly, depending on various factors including the height of the tree and equipment needed to do the job. Same goes for lawn and garden upkeep, if you end up needing to hire a professional to take care of what you cannot.
It’s also important in the buying process to read any seller’s disclosures carefully, as well as the home inspection report, Curtis said. Both will alert you to issues with the house that could end up costing you money to fix. Or, potentially, the problems uncovered might lead to negotiating a discount from the seller.
“The point is to go in with your eyes wide open,” Curtis said. “Don’t let your emotions overrule your reason on such a big purchase.”