3 things I wish I knew in my 20s

I'm old. 56 to be exact. I didn't start investing my money until I was in my mid 40s. And then I didn't know much about what I wanted to do. I never learned anything about money from my parents and the only courses I took in school were accounting and economics. There was nothing about investing.

At first I did what all the financial columnists suggested. I put my money in index funds. And it was fine while I was working. The money grew at a moderate pace but didn't provide me any income. Then I read an article about investing for income and that took me down the rabbit hole of dividend investing.

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That one column pushed me to learn about passive income and how it would allow me to live a decent life while leaving the hamster wheel of regular life. I retired from working a 9 to 5 job 4 years ago. Had I known about dividend investing years ago I may have retired much sooner or had a larger nest egg to retire with. Here's what I wish I knew in my 20s.

Personal Profit

What is personal profit? Personal profit is paying yourself. It's a cliché these days and is called "pay yourself first." Some suggest to set aside 10% of your take-home pay and put in savings or in an investment account. I don't necessarily subscribe to that method. It's easier said than done. Figure out the bare minimum you need to survive then pay yourself out of what remains. The key is to put aside the maximum you can. It will pay dividends (pun intended) later on down the line.

It doesn't take a lot of work to figure out what you can pay yourself. You don't even need a computer or smartphone. Start with a piece of paper and put your average paycheck amount at the top. Then start listing your necessary expenses below that. Necessary expenses are expenses you must pay to survive. Think food, clothing, and housing. Then list supplementary expenses. Supplementary expenses are what it sounds like, they supplement your necessary expenses. These are things like utilities and transportation. Then list discretionary expenses. Discretionary expenses are wants, not needs. They're things like dining out (or take-out), concerts, sporting events, or other items of entertainment and/or hobbies. Subtract your expenses from your paycheck, and that gives you your personal profit.

If the amount is in the negative you're not alone. When I was in my 20s, I definitely spent more than I made. I got married when I was 19 and had my first child when I was 20. We bought a condo, had two cars, and had to pay for daycare. Money was flowing out of my wallet like water over Niagara Falls. As a result of not understanding basic budgeting and the need to take personal profit, I spent about 20 years crawling out of debt. Credit card debt, mortgage debt, and auto loans. I had no savings and had nothing to invest.

Most of what I spent money on in my 20s, 30s, and 40s was in the discretionary bucket. As my income rose with age, so did my discretionary spending. It's human nature. The money we spent on stuff may have temporarily made us feel good, but it was really nothing more than feeding a societal addiction to keep up with everyone else. I look back on those years with a little regret, thinking how much I would have been able to take as personal profit for my retirement years.

The bottom line is, I wish I new to only do what's necessary, spend as little as possible to support what's necessary, and cut out discretionary spending to the extreme.

Passive Income

Passive income is the best kind of income. It should require little to no work on your part once things are set up. At the very minimum, your initial investment (principal amount) should be stable while that investment pays you on a regular basis. If you're young you want growth. Especially if you're still working and you can make regular contributions to your investment portfolio.