Sunday, December 1, 2013

Financial Lessons to Learn Early in Life

As I look back on my financial life, I find that I’m kicking myself now for certain moves I made -- or didn’t make -- regarding my personal finances.  I only wish I had some things that I could to do over as I can see so much more clearly now that I’m older.  With experience now on my side, I wish I could pair the lessons I’ve now learned with the time that was on my side 20 years ago.

The following lessons would likely have made my financial life easier and my current financial situation better had I learned them sooner than later.

Dividend reinvesting
Having a DRIP (dividend reinvestment plan) is something I wish I’d known about much earlier in life.  As a more conservative investor, it really used to bother me when the stock market would take big dips, taking my retirement plan along for the ride.  With dividend reinvesting though, while my fund price tends to correlate with market trends, it also purchases me extra shares each month at current market prices and that continue to earn for me. 

So when the market goes down, while my fund price might follow, I’m continuing to add shares at a lower price, so it doesn’t hurt as bad.  Had I recognized the benefits of such a plan at an earlier age, I could have taken much of the stress out of stock market investing and built up significantly more shares over a period of nearly a decade.

Dollar cost averaging
One of the main things my dividend reinvesting taught me was the value of dollar cost averaging.  Being able to purchase shares at high prices, low prices, and places in between spreads out my risk of buying too many shares all at once and at too high a price.

I’ve found that while shares of stocks or stock funds are most commonly associated with dollar cost averaging, it can be done with a variety of things like commodities or even real estate as well.

Time and patience can be valuable partners
As I age, I begin to realize the true value of time and patience when it comes to investing and personal finances.  Getting overzealous or impatient can lead to poor investment decisions or unnecessary risk.

For example, I sold the company stock I held in my 20s unnecessarily, pulling in a small profit from its increase from a $10 per share purchase price to $14 per share.  My reasoning…the stock wasn’t doing much and I was tired of watching it.  I didn’t need the money, and I wasn’t loosing money.  Several years later, the stock price went to around $45 a share when the company was bought out.  I lost out on thousands of dollars in potential profit because I got antsy and sold too soon.

A job is more than just a paycheck
I couldn’t wait to graduate from college.  Not because I was excited about a career but more because I was excited at the prospect of earning money and getting a regular paycheck.  But over time and as I advanced in my career, I began to realize that a job can be much more than just a regular paycheck.  Sure, that’s certainly a part of it, but there is -- or at least can be -- more to a job.

It wasn’t until I actually left the regular workforce to become a self-employed individual that I began to fully comprehend just what a job could be.  There is the opportunity for networking, possibly building connections that can lead to career advancement or better placement.  There can be a variety of benefits related to health care, transportation, retirement planning, and things like free meals, uniform or clothing allowances, company awards, bonuses, and functions, and numerous other perks.  And of course there may be opportunities for growth potential through learning on the job skills or continuing education programs.

Had I realized this earlier on in my young career, I might have stuck with regular employment a bit longer before venturing out on my own.  This way I could have absorbed more of these benefits for longer, making my position stronger once I eventually moved on to working for myself.



The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.


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