I want to spend some time talking about money. If you are like me, you’ve probably realized that if you want to do things in this life– it requires money. I spend a fair amount of time talking to my 20 something soldiers about their finances– sharing some ideas and principles passed down to me both through my education and various mentors in my life. So let’s be clear…. you may say money is not important– but chances are if you believe that– you’ve never had to live without it.
So what is money? What makes money important is your relationship to it. True, money doesn’t buy happiness. It doesn’t make a successful marriage, career, or meaningful life. But if used properly, it does eliminate a few obstacles that stand between you and those things. If you are working a job and drawing an income– you are selling your time in exchange for money. That time could be invested a thousand different ways– how, where, for whom you choose to invest it will determine a lot about your future, your families’ future, and your life. When you chose to exchange that time for money, you never get it back. And what you do with that money is very very important to your future.
So here are my 10 thoughts on money and how I approach it, what I try and teach my soldiers, and what I’ve learned from those before me. I’ve tried to link articles and books that I have found most helpful… hopefully you will too:
1. View Money As A Means To Gaining Financial Freedom, Not Riches.
There are few “get rich quick schemes” in life. And most of them are an illusion. If there’s one thing about earning money, you will find the more that you have– the more there are people willing to take it from you. Our entire economy is built on separating you from your money. You need a new car, a new house, new appliances, a vacation, cable television, high speed internet, new clothes, etc. etc. Everyone wants to live the good life. I will let you in on a little secret. Some of the wealthiest people I know, do not look or act rich. They live well below their means. That’s because they understand having money and flashy things is not near as important as having freedom. Achieving financial freedom is the single most important thing you can do with your money. Remember what we said about time? You cannot make more time. You were born and you will die. As sure as the sun rises and sets. Having financial freedom is about securing time. It is about having enough money to be able to work because you want to, not because you have to. It’s about spending time with your children, your spouse, doing things that you love to do because you are financially independent. I know people that have walked away from their jobs in their late 30’s and never worked another day in their lifetime– and they made money doing it. They achieved this by understanding their relationship to money at an early age and most important– always viewed attaining wealth as a means to an end– not an end in itself.
2. Choose the Right Career.
The second biggest decision in your life is going to be what you chose to do for a living. I am a firm believer that anyone can build wealth if they make good, educated, and responsible decisions about their future. But let me add this: do something you love. Don’t chase money. Find something you love doing and find a way to make a living at it. Again, how you choose to invest your time is important. You do not want to be miserable for half your life so you have the chance to enjoy the other half. Find something that is meaningful to you, that you can willingly pour yourself into, and the money will come. Trust me.
3. Choose the right Spouse.
The biggest decision in life you will make is who you are going to spend your life with. Now I am not suggesting that decision should be made solely based on financial compatibility. But understand this: when you choose to marry someone you want to make sure you have a common vision for the future. Otherwise, one or both of you are going to be miserable. It is important that you and your spouse are on the same page when it comes to finances. Bottom line is this: with all the problems facing couples in this day and age– don’t let finances be one of them. You have bigger things to worry about in your marriage and a healthy financial situation will give you the freedom to focus on them.
4. Avoid Debt
Nothing kills personal finance quicker than debt. The interest rates on some credit cards are borderline criminal. Would you buy something that was 20% or 30% over priced? That is essentially what your doing when you use credit. No amount of investing or saving will hedge against a lot of debt. So, best to avoid it at all cost while you are young. If you find yourself in a lot of debt, pay it off as quick as possible. If you find yourself in a really bad spot– consider consolidating your debt for a lower interest rate. The old adage applies here: Bad news doesn’t get better with age. And everyday you avoid dealing with debt you and your family are worse off. Car payments are another “bad debt”… because there are few things in life you will purchase that will depreciate in value quicker than a new automobile. Try to avoid the tendency to buy a new vehicle for as long as possible– and if you do need a vehicle– consider buying used. A vehicle is a means to an end– transportation to get you to and from your place of work, school, or other responsibilities. Try to view it as such. With that said, there are some “good debts” out there– student loan or a mortgage for example. If you make good decisions about them, those debts are investments in your future. But that doesn’t mean you shouldn’t use caution and not do your homework to make sure your getting the absolute best value in return for your money.
5. Live Within Your Means.
Ever heard of the Latte Factor? Essentially, it’s the idea that small expenses taken over time add up to a lot. By eliminating these expenses you free up your money to invest and utilize in other places. It requires a bit of a lifestyle change– but do your best to eliminate your cost of living. Cook at home more. Buy a latte machine, and cut out the Starbucks trips. Avoid frivolous cable expenses and magazine subscriptions. Car pool more. Brown bag lunch. Pre-game before going to the Bar. All these things add up. It’s how I approach my traveling budget. It’s more important for me to invest money and have some left over to take an awesome trip somewhere once or twice a year than it is for me to eat out all the time and have 1,000 high definition TV channels I rarely watch. Try to find little ways to cut expenses and use that money towards your bigger dreams.
6. The Magic of “Compounding Interest“
So you’ve managed to eliminate debt, cut your expenses and now you have a little left over. What do you do with it? You invest it. If you’re young like me– the biggest advantage you have is time. All your future earning potential is ahead of you. Essentially because you have time, every little bit of money invested now is worth exponentially more 10, 20, 30 years down the road. What’s more… is you can assume a little more risk– because chances are you don’t need the money you invested to pay for your next meal. Just leave it be. It’ll start making money for you. When you were a kid, you heard a lot about savings accounts and while it was important to save for the future. While fundamentally that is true… savings accounts draw interest at abysmal rates in this day and age. Consider other options. CDs, Stocks, Bonds, IRAs, etc. The IRA is probably the single biggest tool you can use while you are young to invest in your future. Assuming you invested $5,500 (the max contribution for a Roth IRA as of 2014) per year, starting at 25, assuming a modest 8% interest– you would have over $1,000,000 at retirement. Post- 2008, you cannot depend on social security or your employer to provide for your retirement and the IRA gives you the ability to invest in your own retirement by contributing a little money every year. Taken over time, this money will compound and be worth a lot more. All it takes is $5,500/ year. Or about $458/ month– which for some of you is nothing more than a car payment and a good bar tab. So first and foremost start an IRA… once you can consistently max out your IRA every year THEN start looking at other investment options.
7. Investing for the long term
Unless you work as a financial advisor or stock broker…. best to avoid the day trades and penny stocks. If you know what you’re doing go ahead. But I always viewed individual stocks as the last resort for investing– if I have met my IRA contributions, mutual fund contributions, Thrift Savings Plan or 401(k) contributions and I still have some left over then I might dabble. When you invest in a stock you are taking part ownership of that company and the fate of your money is inevitably tied to the performance of that company. So unless you really understand what you’re doing or just have money you can afford to lose– it’s probably not the best strategy. It’s best to look at investments options that will play out over the long term (that usually means a decade or more).
8. Diversify, Diversify, Diversify
9. Make it Automatic
If you’re like me– sometimes your biggest enemy is yourself. If you have money in your checking account– you have a tendency to spend it. I treat my investments just like bills. I set up at automatic payment plan. My money comes in on the 1st and 15th of the month. My investment expenses get automatically deducted just like the electric bill, water bill, insurance payment, internet bill, and rent. Truth is– I don’t even miss it because it’s like I never had it to begin with. Plus, by doing it this way you utilize dollar cost averaging— which is a really cool trick that requires no work.
10. Have a Strategy
Armed with this knowledge, perhaps the biggest thing you can do is identify what you want, write it down, and then develop a strategy and plan to get there. For me, I keep a little book that has my vision for the future written in it and I read it often to remind myself what my priorities are and how I want to get there. This is an internal thing I picked up after reading Napoleon Hill’s Think and Grow Rich in High School. And have utilized thousands of times in everything from my personal finances, to keeping myself calm and collected under stress, to athletics, to just life in general. Your mind is a very powerful thing and how you think about your future, both consciously and subconsciously has a lot of influence on whether things become reality or not. I didn’t really believe in this until I started skydiving– and realized how much visualization actually helps. We would literally spend hours visualizing a complex dive over and over and over– and that would translate into physical motor skills in the air almost every time. You have to control your mind and your thoughts. Call it whatever you want– positive energy, vibe, spirit… but one thing holds true… if the mind can conceive it the body can achieve it. So get in the right frame of mind about what direction you want your life to go and devote a lot of time to thinking about it– to the point it becomes real to you.
So that’s it. It might sound like the same old stuff– but I have found these fundamentals if properly applied can do remarkable things. For more specifics check out:
WSJ’s Guide To the New Rules of Personal Finance by Dave Kansas
WSJ’s Complete Personal Finance Guide by Jeff Opdyke
Ty Stephens is a Native of East Texas, and he is a graduate of the United States Military Academy at West Point with a BS in International Relations. After commissioning in 2011 as an Infantry Officer, he has served as both a Armored Platoon Leader and a Battalion Mortar Platoon Leader while assigned to 1st Battalion 18th Infantry Regiment, 2nd Armored Brigade Combat Team, 1st Infantry Division at Ft. Riley, Kansas. He has deployed in support of Operation Shared Accord to South Africa in 2013 and Operation Enduring Freedom- Horn of Africa in 2014. Ty has traveled to the North, Latin and South Americas, Western Europe, and South Asia. Ty enjoys the outdoors and adventure sports.
The thoughts conveyed in this article are the writer’s alone, and the following content does not reflect the official views or policies of the Department of Defense, the Department of the Army, the United States Military Academy or the United States Government.