Every one of us has had "aha! moments." Epiphanies. Days when we reach a crossroads and realize that we have to make some changes. For the next two months, we're sharing moments like those in our Life Stage Lessons series: Real stories straight from the financial lives of our DailyFinance contributors about times when they realized they were due for a serious course correction. So read on, learn from our mistakes, and get inspired to improve your relationship with your money.
I have my late grandfather to thank for inspiring me to learn about investing. He was raised in a family that literally couldn't afford windows on the exterior walls of their house, yet he built a company that sold in the early 1990s for a seven-figure sum.
I wish I'd known him as a younger man. Being able to work alongside him, witness his decision-making skills, and marvel at his ability to react to business changes would have been a real treat.
But that's not how life works. The person I got to know was not a hard-driving entrepreneur, but a gentle, sweet and loving old man. He was an incredible grandparent who was generous with his time and love, but I also remember that he was constantly worried about money. What's perhaps more important is that the worries got more severe as he aged.
Living the Good Life
Like many small-business owners, grandpa knew how to create wealth, but he didn't know how to manage a sum for the long term. Spending was never an issue during his working life, because his business, in effect, bailed him out. I remember learning of him buying a house and a luxurious sports car for cash almost at the same time during the 1980s, a feat most people could only dream about. But as years went by, the high-end sports cars gradually gave way to high-end sedans, and ultimately to mid-tier sedans.
His reductions in spending weren't because he ran out of money. My grandfather was relatively frugal. He lived below his means, and still had plenty of money when he passed away. He left enough assets to pay for my grandmother's continual nursing care for two decades now -- and for the foreseeable future.
Still, seeing his situation play out was a real eye-opener for me as a teenager: Why would someone as successful as grandpa ever need to worry about money? I spent a fair amount of time thinking about it as a young man, but it's clear to me now that the answer was his lack of real knowledge about how to grow capital, and how the financial markets work.
Like many members of their generation, my grandparents stuffed pretty much all of their savings in a bank account and considered themselves investment geniuses when they bought a bunch of Certificates of Deposit. In the 1990s, that strategy worked out OK since interest rates were in double digits. But between decades of declining rates and dwindling interest payments, and the need to draw from his principle to pay for living expenses, he no doubt foresaw how rapidly his nest egg could erode.
Opportunity for Retirement Planning Missed
If they'd had a sensible investment plan, grandpa could have relaxed, knowing there was little chance they'd ever run out of money. After all, with a properly balanced portfolio, following the conservative "4 Percent Rule" would have allowed them to spend a six-figure sum every year, a level they never actually came close to hitting after retirement.
Because my grandparents had no one guide them to a financially comfortable retirement, they missed some huge opportunities, and gained unnecessary stress. Not that they needed to spend more, but being able to see his portfolio grow would have been a comfort to grandpa. However, if there's a silver lining to be found in this story, it's that his situation prompted me to get educated about investing early on. Along the way, I also learned of the beauty in saving and letting time work its compound-growth magic.
I'm happy to say that, though I'm only in my 30s, I've already amassed a tidy sum over two decades of saving and investing. Without even knowing it, my grandfather may have proved to be the most important influence in my financial life, simply by showing me that slow and steady wins the race.
Thank you, grandpa. I miss you, and I will always remember the lessons you taught me.
15 Important Expenses That You Forgot to Plan For
My Rich Grandpa's Money Worries Turned Me Into an Investor
Is your water bill due quarterly? Figure out how much you need to save each month to have enough to pay for the bill when it comes, and put that amount aside each month so you'll be prepared. Do the same for any bills due regularly but not monthly.
Bills you only have to pay once a year can be even harder to remember, so be sure to note things like property taxes, auto registration fees and insurance premiums and budget for them as well.
Annual subscriptions and memberships regularly trip up people's budgets. Be sure to set aside money each month for things like:
Newspaper and magazine subscriptions.
Warehouse club memberships.
Road service membership fees.
Other expenses don't happen on a regular basis, but you can still predict the need to pay for them over the course of the year. Chief among these are repair and maintenance expenses, with the biggest ones being car-related costs (oil changes, inspections, new brakes or tires, etc.) and home costs (leaky faucets, spring-time yard work, etc.).
Some home repairs go beyond the scope of "routine" and require a significant amount of money in reserve. These can include replacing your roof, installing new windows or doing a major home renovation. You can anticipate the need for most of these repairs before you have to make them, so be sure to start budgeting for them in advance.
You also need to repair and maintain your body, so factor in medical costs like annual physicals, eye exams and dental checkups, as well as co-pays and prescriptions costs if you have any ongoing conditions.
If you plan to purchase any large items in the foreseeable future, from appliances to a new car, make sure you're putting aside enough each month to pay for them in cash. It's always best to pay for big-ticket items upfront rather than finance them (unless you can get a fantastic discount by financing and can pay the balance in full before any interest kicks in).
From birthdays to holidays, there are plenty of special occasions each year to budget for. Make sure to include:
Party hosting costs.
Dinner costs if you take someone out to celebrate.
Wedding expenses (gifts, travel, hotel stays, etc.).
Your four-legged family members also need to be part of your budget. Pet care costs to consider include:
Food and treats.
Vet bills and medications.
Boarding or pet sitting.
Do you take an annual vacation? Travel twice a year to visit family for the holidays? Set aside money each month for any travel-related costs such as airfare, hotels, meals, rental cars and souvenirs.
Whether you run a business or simply a household, there are certain expenses you may need to plan for in the business category. These can include:
Tax preparation fees and tax payments.
Dues for professional organizations.
Whether you give annually to a charity of your choice or like to have some money set aside for your friends' and family's fundraisers, make sure to allocate enough each month to cover these donations
A good budget allows for a little "free" spending money you can do with as you please. It can be $20 a month for fancy coffee at your favorite coffee shop or $100 a month to feed your favorite hobby. The amount doesn't matter so much as the fact that you're allowing yourself a little guilt-free fun to keep your budget from feeling too restrictive.
Depending on your lifestyle, your eating out and entertainment budget could be a little or a lot. Whether you prefer to have dinner out once a weekend or see a movie every few weeks, figure out how much you'd ideally like to have and then examine any budget categories you can tweak to make room for it. If you realize you need to cut back on your habits a little to save money, that's fine too-at least you're aware of it now so you can act accordingly.
Even if you're not a clothes horse, chances are there are certain items you'll need to purchase throughout the year. These can include:
Updated work clothes.
A new coat, hat and other accessories come winter.
A new bathing suit for the summer.
New shoes as yours wear out.
Back-to-school clothes for your kids.
Calculate your annual spending on all clothing and accessories and divide that amount by 12 to determine how much you should be putting aside each month.