Financial Lessons from My 20s

My 20s was a period of big changes in my life – in my career I started (and finished university), started working full time shortly after graduating and then articled for a few years to get an accounting designation. I also got married, bought a home, purchased a vehicle and a dog (the dog was a better purchase).

All of these career changes meant my money situation was also about to change.

Lifestyle Inflation

Probably one of the biggest changes was not only my own finances but those around me. When I was still in school almost everyone (including myself) lived in a tight budget – we had to since most of us were going to school full time, unable to make an income by working and almost all had student loans.

Since then things have changed for me and many of my peers who also graduated. Some of us settled down right away and started a family while others waited a while and focused on their careers. Gone are the days of living on ramen noodles and now many of us dine out for lunch with coworkers and go out to fancy restaurants several times a week. Some have added expenses like a house cleaner (I am guilty of that), car payments, a mortgage and all the costs of raising a child. Travel costs have started to creep in too now that we have an income and some extra cash to spend on a nice trip once and a while.

Personally I have tried to keep my costs as low as possible and still live like a student, but there are certain things I’ve found to be non-negotiable – eating healthy meals even if it means spending more, trading my time for a ‘luxury’ like having a house cleaner and buying a vehicle to get around town.

Lifestyle inflation can creep in over time if you let it. It’s great to be able to afford nicer things as your wages and spending power increases, but the key is to live a lifestyle that makes you happy but also allows you ample room to save for the future.

Buying vs. Renting

When I was in school almost everyone talked of buying a place of their own when they graduated. It was seen as common sense that once you graduated you needed to buy a place to avoid paying someone else’s mortgage through monthly rent payments.

And really, who can blame them – we live in a culture where renting is seen as second class and to climb the property ladder you need to buy a place of your own to create wealth. Anyone who bought a home in Vancouver or Toronto certainly wouldn’t argue since real estate prices there have increased dramatically in the past couple years.

However, I know a few people who have continued to rent and are still able to increase their savings. They aren’t tied down to one property and if a job opportunity comes up in another city they are able to go for it without having to worry about selling their home.

Renting is a perfectly acceptable personal choice and I know people who have rented for decades and still are able to generate wealth. The obvious difference is that most of their money is tied to equity investments like dividend stocks instead of real estate. I think the key is to make savings automatic and continue to invest money that would have otherwise been used to buy real estate. Buying a home is almost forced savings whereas renting requires more discipline to invest the money that would otherwise be spent on property taxes and home décor that homeowners spend their money on.

Personally I was quite interested in owning property as soon as I could, and I bought a home shortly after graduating. But if I had rented for a few years I think my situation now wouldn’t be much different than it is now, and renting would have been a decent alternative to jumping into home ownership right away.

Conclusion – if I could go back to my 20s I’d probably be more aware of lifestyle inflation and how much it really costs over time. I would also try to realize that renting is a personal choice that would be (and still is) a good alternative to home ownership.

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