Three Things About Money I Wish I Knew Sooner (3/20/25)
3 Things About Money I Wish I Knew Sooner
We’re celebrating tonight. In addition to being the first day of spring, my husband and I are celebrating our wedding anniversary. For those of you not familiar with our story, John and I met in our early twenties, about 18 years ago. We certainly didn’t know when we first met that we would eventually get married, and our lives took us in different directions for quite some time before we reconnected about a decade later. I occasionally think about how different things might be if we had known sooner that we would wind up together, and that recently got me thinking about what else I wish I had known sooner. Tonight I’m sharing three financial lessons I learned the hard way.
1.Investing is different from trading. Investing in the stock market is different from trading and “stock picking.” When I first started working in finance and CNBC was broadcast next to my desk all day everyday, I started to feel like I needed to know what was going on with individual stocks in order to understand investing. I opened my first brokerage account and started buying stocks without any idea of what I was hoping to accomplish. After some pretty common missteps, I began to appreciate that speculative trading and investing are two very different things, and you do not need to be a stock picker in order to be a good investor.
Takeaway: Good investing is boring. Consider a robo advisor or well diversified ETF and scroll past any IG influencer who claims to have hot stock tips.
2. Cash Really is Important. Once I started investing and feeling more comfortable with the idea of putting my money to work, I fell victim to another investor pitfall - undervaluing cash. I figured I had seen my money grow for a few years and would try to invest every dollar possible moving forward. When I received an annual bonus one year I put every penny of it into the market even though my savings account balance was less than sufficient. About 6 months later I experienced back to back financial hardships and was forced to sell out of those investments, triggering an annoying tax bill, because I didn’t have a proper emergency fund. Cash savings is not something that becomes less important as you grow older or more experienced managing finances, it is ALWAYS important.
Takeaway: Your emergency fund (3-6 month’s worth of your essential expenses in cash savings, ideally in a high-yield savings account) should take priority over investing. If/when you need to dip into this savings, pause any investment contributions until you bring your emergency fund balance back up.
3.Avoid Lifestyle Creep. Despite being quite a few years into a career providing financial advice, I did not appreciate the concept of accelerating spending or lifestyle creep. Lifestyle creep, or lifestyle inflation, is the phenomenon where your income increases and then you allow your expenses to increase, too. One year I found out I was getting a sizable raise, and the very first thing I did was look for a new apartment. I was very happily living with two roommates on a manageable budget and would have had the opportunity to increase my savings and debt paydown efforts. Instead, I immediately made an appointment to tour a new apartment building where I signed a lease for my own one bedroom, almost doubling my total housing costs. Between furnishing the apartment, the increased rent, and paying all the utilities by myself, I was in a tighter cash flow position than if I had never received the raise. I convinced myself I could afford the lifestyle change because my career was going well, but all I did was lock myself into a higher cost of living.
Takeaway: When you receive a raise or promotion, start a side hustle, or in some other way come into increased income, avoid lifestyle changes that increase your cost of living on an ongoing basis. A good rule of thumb is to try to save 50% of every raise you receive, living on a smaller percentage of your income over time.
Wishing you good financial health.
