When you’re poor you don’t “really know” your poor until you get around “not poor people.” This world consists of “haves” and “have nots”, however its hard to truly know which category you exist in, until you’ve been exposed to the other side. I learned this the hard way during my Plebe year (Freshman) at the Academy.
As a college basketball player, we traveled frequently. While my teammates could afford fast food and money to go out to the club, all I could afford to do was fake it. After all you have to fake it until you make it right?
WRONG. In an effort to remain cool I developed some really bad habits.
Mistake #1 Using Credits Cards to supplement my lifestyle.
Walking through the airport, while traveling to and from games I would notice credit card signup booths. At the age of 18, I had no real knowledge of what a credit card was or how it factors into your finances. All I know is I needed money. I needed to fit into the crowd (i.e. my teammates), so I signed up.
And then signed up for more.
You can probably tell where this story is headed, but I think at one point I had roughly 10 credit cards, when someone finally intervened.
That’s no bueno. Each credit card had a limit from $250 up to $1000. Those credit cards allowed me to keep up with my teammates, while screwing my credit in the process.
I was definitely an idiot back then. But that lesson taught me quite a bit.
Eventually my basketball Coach from prep school caught wind of my financial decision. What I didn’t know at the time, outside of basketball, he had been a financial advisor for Primerica and I am thankful for him being in my life. I really respected him and we had a father-son type relationship which is why, when he told me I was f**king up, I listened.
Coach always watched over me and when he found out that I was developing bad financial habits he put an end to it.
Mistake #2 Not knowing the Rule of 72.
My Coached asked me, did I know what the rule of 72? I promptly told him yes but in reality I had no clue what it was and I’m pretty sure he knew that.
The rule of 72 is simple. Take 72 and divide it by the interest rate you expect or estimate that you will receive from an investment/savings account. The result of this calculation is the number of years it will take for your money to double.
In 2003, the S&P 500 returned 28.68%, but obviously this is abnormal. That rate of return is unsustainable and unrealistic. But in last 20 years the S&P has returned on average 10-11%. At that rate of return, my money would double in 7 to 8 years and thats without putting any additional money into the investment!!
Crazy.
Mistake #3 Not having a budget and saving.
My coach did something extremely cruel but also needed. He made me live on $50 a month and develop a budget.
Yes, you read that correct. I lived on $50 a month as a college student. Back then I thought that was the definition of cruel and unusual punishment. But it taught me a great lesson. Because I had grown up in adversity and paucity, I knew how to survive. So, I survived.
With the rest of my monthly income ($150), my coach had me dollar cost average into a mutual fund. I didn’t know what a mutual fund was at the time, but I recognized its rate of return and what that meant using the Rule of 72.
At the age of 19, I did not recognize what he was teaching me back then but I am wholly cognizant of those vital lessons today. Sadly my Coach passed away a couple years ago after succumbing to his battle with Prostate Cancer. I’m very thankful for him being in my life and thankful for the lessons he taught me that had nothing to do with basketball.
When you are poor, saving is a luxury so you never consider it an option. Every dollar matters. However savings the smallest amount will make a difference. I started with $50 per month. The lesson that taught me was priceless.
No matter the amount, you have to start saving. Whether it’s $50 today or $5000 tomorrow you have to start somewhere. Compound interest and the Rule of 72 are your friend.
As always if you have questions or concerns regarding creating an emergency fund, investing, real estate, insurance, or planning for the future, don’t be afraid to speak with qualified financial advisor. Smart Asset has a great tool to find an advisor in your area or feel free to email me (contact@surgifi.com) to help you on your path to financial independence.
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