I had a great time in my 20s. I had built great friendships, found my own identity, found love, and got off to a strong start in my career. I had it all—except for a good financial education. Had I been more aware about personal finance, I’d be in a much better position than I am today. But I really can’t complain.

I will share with you the 8 key lessons that I wish I knew straight out of college. I will split them into a 2-part blog series between “defense” and “offense”. Defense is what will keep you from going broke (Part 1). Offense is what will give you the best chance of building massive wealth (Part 2). It’s possible to be wealthy by only playing offense. But if that’s all you do, that wealth will be hard to grow or even preserve over the long term. To build generational wealth, you will need to be good at both offense and defense.

Defense

1. Get and stay out of debt

You can’t build wealth if you don’t have any money. I know a lot of people in their 20s who think that debt is normal. That it is normal to finance everything from cars and wedding rings to smaller purchases such as iPhones and couches. The argument is that, it is better to invest the difference in the stock market or real estate. While mathematically true for the average case, it is not true if you factor in risk. The worst-case scenario is when you lose your job in a crashing economy. Which means you lose the ability to generate money. Which means you lose the ability to service the debt. Which will lead you to sell your assets at a low price in order to pay the loan(s). Now instead of buying low and selling high, you’ll end up buying high and selling low. This is exactly what happened in 2008 to a lot of “wealthy” individuals who seemed like they had it all. On the other hand, those who were able to service their debt or, even better, had no debt and cash-on-hand were able to capitalize on one of the strongest bull markets in history.

The best defense is to have no obligations to anyone.

2. Create and stick to a budget

Don't be blind to your finances. You should know how much you spend and how much you make. It’s an exercise of discipline and courage. Have you ever avoided looking at your monthly credit card bill because you know it is going to be be a lot? I’ve been there too. Look at it!

Creating a budget and following through is a great way to play defense and not let the lifestyle creep kick in. And if it does, you at least know.

You can read about how I budget here.

3. Contribute to your retirement

Your 20s is the best time to invest for your retirement. It will

• let the account compound over a longer period of time

• force you to be more disciplined with your money

• tax you at a lower effective tax rate because you’ll generally make less in your 20s than in your 30s and beyond

To the extent possible, you should max out all of your retirement accounts after you’ve built up an emergency fund. I recommend this order:

• Traditional 401k up to the company match, followed by

• Roth IRA (if you qualify), followed by

• Traditional 401k if you make more than ~$170K per year. Otherwise, Roth 401k.

  • Marginal tax rate jumps from 24% to 32% when your taxable income passes $160K, for single tax filers. And with the $12K standard deduction in 2019, that brings the taxable income to ~$160K.

  • This is not a hard rule, but it’s good to keep in mind that there’s a big jump from 24% to 32% at the margin (2019)—that is, for each additional taxable dollar, 32% will go to the Federal government. If you’ve done this well, then you can intelligently do the Traditional 401K to Roth IRA conversion in your later years to greatly reduce the overall tax burden.

If you do this in your 20s you'll be able to retire with dignity and not have to rely on anyone else.

4. Marry someone who shares your money values

We think about money all the time. It’s a part of almost everything we do. You are reading this article because of money. People are willing to work long hours because of money. All of the recent political turmoil ultimately boils down to money. Money has become a dirty word to a lot of people, so they avoid talking about it altogether. But don't avoid that conversation with your future spouse! It is not weird. It is necessary.

I'm not a marriage expert but I know that relationships last when the husband and wife work together. Imagine that your wife wants to be financially free in order to provide safety and peace for her family. And all you want is to live a YOLO lifestyle with fine dining, big houses, and luxury cars. If someone doesn't change, this marriage is going to tank.

Up through your 20s, life can progress smoothly without much money. Get out of school, get a job, make more friends, date, and enjoy life. But as you enter your 30s, you will experience a whole new set of challenges. Getting married, progressing in your career, buying a house, raising kids. These are all heavily a function of money.

Marrying someone with similar money values as yours is not only good defense for your finances, it’s great defense for your marriage.

Check out Part II of the series where I talk about how to play wealth-building offense in your 20s.