From: alexhormozi
A significant financial pitfall for individuals in their 20s is underspending on education and overspending on status symbols [00:00:14]. This mistake, if made early, can have long-lasting financial repercussions [00:00:09].
The Illusion of Status
In one’s 20s, it’s common to not be financially “balling” [00:00:17]. Displaying overt signs of wealth, such as bought Instagram checkmarks or posing with luxury cars, is easily recognized as disingenuous by those who understand genuine success [00:00:21]. People who are genuinely successful are not impressed by a $200,000 watch [00:00:27].
Instead, successful individuals appreciate seeing young people who are “eating poor, learning and hustling” [00:00:33]. Driving expensive cars like a Rolls or Benz, while maxing out expenditures to “flex” to other twenty-year-olds, is considered foolish [00:00:38]. True status and respect in your 20s come from performing the right actions and investing in your capacity to earn [00:00:51]. Those on the wrong path, focused on superficial status, may be disregarded by successful mentors [00:00:58].
Prioritizing Learning Over Earning
A significant mistake is taking jobs solely for immediate income rather than for the knowledge and skills they provide [00:01:04]. In one instance, a candidate rejected a job offer for a mere $3,000 more a year, missing the fundamental point that they were in a season of learning, not earning [00:01:14].
Organizations willing to pay a “premium” often do so for existing knowledge, meaning they may not offer opportunities for growth and skill development [00:01:34]. Attempting to “cash in early” by prioritizing earning in one’s 20s is shortsighted, as an extra 25,000 annually is inconsequential compared to the long-term earning potential gained from acquiring valuable skills [00:01:43]. This aligns with the importance of learning over earning for long-term success.
Investing in Yourself: The Number One Asset
Paradoxically, simply “saving money” in your 20s can be a mistake [00:01:55]. While not spending money on frivolous items is wise, that capital should be actively invested, not just saved [00:02:00].
“Instead of saving money to invest in assets, invest in the number one asset which is you and increasing your earning potential.” [00:02:42]
Traditional investments like dollar-cost averaging into an S&P 500 fund are beneficial but may not lead to significant wealth for those starting with low income [00:02:07]. The true path to wealth in your 20s is to invest in yourself and your earning capacity [00:02:17]. Saving a few hundred dollars a month will yield minimal returns over decades when inflation is considered [00:02:22]. In contrast, spending $10,000 to double or triple your earning capacity can provide a far greater return [00:02:36]. This emphasizes the importance of investing in education and skills development.
Financial Priorities and Habits
To effectively invest in oneself:
- Prioritize Investment First Decide how much you will invest in your learning and education before spending any other money [00:02:47]. This involves setting aside funds at the top, allowing them to accumulate, and then deploying the capital when learning opportunities arise [00:02:55]. This is part of balancing life priorities.
- Automate Investment, Manualize Spending Make it effortless to invest in yourself by automating transfers to a dedicated investment account for personal growth [00:03:17]. Conversely, make it harder to spend on non-returning items, perhaps by using cash instead of credit cards, as cash transactions create a physical pain that reduces impulse buying [00:03:25].
- Avoid Aimless Shopping Resist the urge to “go shopping” without a specific list, as this often leads to wasteful spending [00:03:49]. Stick to a pre-approved budget and only purchase items on your list [00:03:57].
- Measure Savings, Not Earnings Focus on how much you are saving to invest in yourself, rather than simply how much you are earning or spending [00:07:09]. Set personal records for the amount you put into your investment account each month [00:07:33].
- Daily Account Monitoring Regularly check your bank account, ideally every morning [00:07:37]. This confronts reality, identifies spending patterns, and fosters discipline, similar to how daily weighing can aid weight loss [00:07:47].
Modeling the Right Season of Life
It’s crucial not to emulate the current lifestyle of highly successful individuals when you are in a different stage of your financial journey [00:06:06]. For example, flying private is a sign of spending a lot of money, not necessarily wealth creation [00:06:23]. Reputation is built on past actions and promises kept [00:06:11]. Therefore, aspiring individuals should model the actions successful people took in their earlier, formative “season of life,” rather than their current affluent habits [00:06:17]. This relates to misconceptions about wealth and status.