The best money advice I'd tell my 20-year-old self

In the personal finance space, the phrase I hear more than any other is: “I wish I knew then what I know now!” When I look back at my younger self, I had opportunities to learn the lessons that lead to financial success, but they weren’t phrased in a way that I was ready to hear or understand. Because I was convinced that I was going to live in “adventurous” places the rest of my life, I thought I probably wouldn’t live long enough to need long-term financial planning. By the time I was 26, I had already lived through a bombing, a coup and a revolution. I’d been attacked and fought off muggers and nearly murdered on the streets of South America. Long-term thinking seemed far too optimistic. But there were two things I wish I’d been able to hear. The first is that money is more than a way to buy things, it is a way to buy freedom. The second is that index fund investing is a simple, straightforward way to make my money work for me – and that buying one low-cost diversified stock index fund and one low-cost diversified bond index fund meant I could reap the gains of compound interest from a much earlier age than when I eventually started. When I first began my career as a teacher, I had no idea what money could do. As far as I could tell, it was for partying on the weekends, travelling on holidays, and getting good computers. I was never much for fancy clothes or cars, thank goodness! But my own patterns of consumption didn’t help me learn that money could do more than slake my immediate needs. I had heard of investing, and my dad had even tried to tell me about compound interest, but I wasn’t ready to listen. What’s the point of planning 50 years in the future when you don’t think you’ll live much past 55? But when you buy assets like stocks, bonds and real estate (there are others, but I’m not going to get into those now), they start to generate income. The real “a-ha” moment was when I realised that buying these investments was like giving myself a raise. The more I bought, the higher my income would be, as my investments spun off money that snowballed as that money bought more investments. This fundamental mindshift of understanding that money can make me more money, and not just buy stuff was one I think I could have understood as a 20 year old, especially when I was stuck in jobs I hated back then. Being independent of a nine-to-five job would have really appealed to me back then. The other piece of advice I wish I’d really listened to was when my mum told me about Vanguard, but she didn’t really know how to put it into words that I would understand. If you don’t know, Vanguard is the company that started the first index funds that bought a piece of every company in the stock market. But this was before I understood what an index fund was, or why it was a superior and simpler method of investing than trying to buy individual stocks and bonds. I even looked at the Vanguard website, but was totally overwhelmed because there were dozens and dozens of funds for different stock markets, types of companies and sectors. I had no idea what I should do with it. It wasn’t until I was 32 and I heard about two fund portfolios, where all you have to buy is one broad stock index and one broad bond index in a pre-chosen ratio depending on how long you’re planning to be investing before retirement. This was a huge lightbulb moment for me because I finally understood that investing didn’t have to be complicated or beyond the understanding of a mere mortal such as myself. Now, of course, there are other important lessons that I could have learned earlier, like how buying cars keeps you poor, or about how minimal living makes you much freer. There are many lessons I’m still learning and will only figure out years from now, I’m sure. But these two lessons – that money can buy assets that make me more money independent of a job, and that investing can be simple through index funds – are the ones that I kick myself for not learning sooner.

The best money advice I'd tell my 20-year-old self

Understanding the benefits of compound interest is an important lesson to set you on the path to a secure financial future