“How One Personal Finance Class Changed my Life,” discusses the impact an elective in college had on my life. This post may contain affiliate links.
Before my senior year of college I was like 70% of Americans who lived paycheck to paycheck. Being a college student, most of my money went towards parties, alcohol, and the infamous Ramen noodles. The concept of saving money seemed like a foreign concept to me as I had the mentality, “I will save money later.”
I distinctly remember having $500 in my bank account going into my senior year and thinking this should be enough to get me through the first couple weeks of parties. However, my mindset would rapidly change in one personal finance class.
During my junior year of college I had the ability to pick an accounting elective. I had the option of choosing corporate taxes or a personal finance class. To be honest, I chose the latter because I thought it would be far easier and more interesting than another accounting class. As an accountant, I believed I understood money which would make this class easy to understand. Well let me tell you, I was completely wrong.
The class itself was not hard but the material we learnt in the course itself was all new to me. On the first day of class my teacher did a general overview of the course and brought up topics such as an emergency fund, a retirement plan, mutual funds, and a load of other topics we would be covering and quite frankly I did not know any of the topics he was talking about other than a 401(k) and stocks.
Towards the end of class he wanted to leave us with a quote. The quote is by the infamous Dave Ramsey who said, “Personal finance is 20% knowledge and 80% behavior.” To illustrate this, he showed us the power of compounding using a retirement calculator. He assumed we would have a starting salary of $50,000 and that we would save 10% of our salary a year for 30 years; he assumed we were going to start saving at the age of 30 until 60 as many of us would blow our salaries on the impulses of our youthful 20s.
After this example, he took the same information but rather than starting at 30 we started at 21 and worked until 60 which gave us 39 years of the same savings and interest rate. The results were shocking as a mere nine year difference resulted in almost a doubling of our retirement nest due to compounding. This example forever changed my mindset about money, showed me the importance of starting early, and made me want to learn more about personal finance.
Here are two ways this class changed my life:
Proactive vs Reactive Mindset
Before this course I had a reactive approach to finances. Rather than planning ahead, I would react to events when I had to. For example, I would purchase an item out of impulse due to a great sale rather than thinking about the consequences it would have on my bank account. The deal seemed good in the moment but it was rarely a necessary purchase.
I believe a reactive mindset drives the paycheck to paycheck lifestyle many people live. We are so used to living in the moment we forget to think about the future as we will “figure it out later.”
Thankfully, this course changed my mindset and made me proactive. There was no more “figuring it out later.” I needed to understand what “it” was and for me that was early retirement. Having a proactive mentality made me realize that living paycheck to paycheck will keep me in the rat race until I am at the age of 65 and have money be a constant worry. Rather than having this stress I decided to learn about budgeting, investing, tax advantage programs, building an emergency fund, and many other topics.
While many of these topics were covered in my course I wanted to see how real people were integrating these techniques into their lives rather than pure academia. I stumbled across many great financial blogs, which you can find on my Blogroll page, which I still read to this day as the information is free, tangible, and realistic.
Since taking this course I have funded my emergency fund, began investing heavily in stocks, and laid out a plan of how I want to build passive income in the future. The next time an unexpected situation arises money will no longer be a stressor thanks to my proactive approach.
Behavior is more important than Knowledge
While the knowledge has certainly kick started my drive towards financial freedom it will ultimately be my behavior that gets me there.
It is easy to set up a plan, crunch the numbers and get excited about how long it will take to achieve financial freedom. However, personal finance is more than numbers on a piece of paper.
For example, the New Year’s “Wannabes.” I refer to the New Year’s “Wannabes” as the people who create goals every New Year related to exercise, eating healthy, improving work ethic etc. For the first two months of the year everybody is in the gym, on a diet, and feeling great about life. Then they slowly take a day off then another day off until they are back to their former lifestyle. This is poor personal finance habits in a nutshell.
It takes years to accrue enough wealth to retire early and it will not happen overnight. Being a millennial who lives in a world of instant gratification this is a hard pill for people to swallow as we do not see the results until much later in life.
This is why it is important to have a vision of the larger picture and set smaller goals to achieve it. One way I do this is that I incorporate a travel fund into my budget so I can travel the world in the future. We are only on the planet for a short amount of time so we need to ensure we live life at every stage but do so in moderation.
Taking a “fun” elective forever changed my life and turned out be the most important class I took throughout my college career. It provided me with the knowledge to move forward in life and achieve my goals. Now that I have some of the knowledge it is up to me to continue learning about more efficient ways to make and save money while being committed to my early retirement plan.
Readers, what life changing event made you more conscious of your finances? What is the most challenging part about setting a goal several decades out? How do you stick to these long-term goals?
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