Originally Posted by abrokegal
I've been lurking around here for a while and finally created an account.
I'm really curious about what you would tell young people (18-25 yrs old) about money, saving, being frugal, retirement planning, budgeting, etc. What are things you wish you'd started sooner? What would you recommend to a young person about money?
This is something I wrote back in 1998.
Some numbers probably warrant adjusting but the principle remains.
Title: Making Your Pile (Accumulate Major Assets)
What is in the Pile?
1) The Means Of Production
Education or training to include the tools, wardrobe and vehicle that are required to do the work
of your choice. This also includes deferring income in job X while you gain expertise in that choice
even if you could make more doing job Y. Budget @ $40,000.
(This should include paying off student loans.)
2) A Reserve Fund
Also known as "****-you" money. Enables you to weather any hardship that might arise
even one of your own doing. Allow some multiple of one years minimum living expenses.
Budget @ $ 20,000. (This does NOT include paying off old debts.)
3) Ya Gotta Live Somewhere
A modest yet adequately sized house in a decent area that can be easily sold
or rented if desired or needed. Budget @ $ 150,000.
(This should be done as a cash purchase but a short term -10yr-
mortgage could be OK if you have renters to pay most of it.)
4) Everybody's Got Stuff
All those possessions that will round out a life worth living. Furniture, Appliances,
Electronics, Athletics, Books, Clothing, Hobbies, and everything else you may like.
Budget @ $ 30,000. (This must first include paying off old credit debt.)
Unless your job requires and allows you to deduct a nicer vehicle…
a modest yet adequate and reliable used car that will be used gently for
2-3 years and then sold and replaced before any major repairs/services are required.
Budget @ $ 10,000. (Do NOT buy a car on credit --EVER!)
Total Pile to be Accumulated $ 250,000.00 (2012 make it $300,000)
The various categories above are listed in the order of their importance in achieving the overall goal of accumulating them all and freeing up the balance of your adult life.
Note that there is no allowance in any of the different categories for debt or interest payments,
the care of any medical conditions, or the support of dependents.
If your life includes any of these thing’s then you will need to adjust accordingly.
Work hard when you are young, gain skill-sets, avoid debt,
save aggressively, have fun and travel too.
How Many Years ? (To accumulate your $ 250K pile)
5 Years ? = $ 50,000 per year plus Minimum Living Expenses
10 years ? = $ 25,000 per year plus Minimum Living Expenses
15 Years ? = $ 17,000 per year plus Minimum Living Expenses
This example is based on the 10 year plan:
(and uses a college age through the twenties sensibility)
Pile Accumulation $ 25,000.
Living Expenses 15,000. 40,000.
Payroll Factors @ 30% 12,000. = $ 52,000.
This means you will need to gross in excess of $ 50K each year.
How many hours do you need to work to earn this money ??
Answer: Not more than many people already do and that a young adult has ample ability to manage.
Total Time Available: 52 weeks per year
Vacation Set-Aside -4 weeks per year
Net Available Time 48 weeks per year
Moderate Skill Rate $ 20.00 per hour
$52,000 / $20. = 2600 hours per year
2600 hr / 48 = 54 hours per week
30 weeks x 55 hrs = 1650.
18 weeks x 45 hrs = 810.
4 weeks x 0 hrs = 0. = 2460 hrs
Good Regular Job.................... & with a Part Time Job:
48w x40h x $20 x 1.0 =38,400 R/T..... 52w x40h x $20 x 1.0 =41,600 R/T
30w x15h x $20 x 1.5 =13,500 O/T..... 20w x10h x $20 x 1.5 = 6,000 O/T
18w x 5h x $20 x 1.5 = 2,700 O/T..... 22w x10h x $20 x 1.0 = 4,400 P/T
Real Regular Job = $ 54,600. = $ 52,000.
If you are able to earn more -- then you will be able to make
your pile in less than the 10 years forecast above.
Where do YOU stand in this scenario?
What are YOU able (or willing) to do to achieve YOUR pile?
Minimum Living Expenses
Everyone has different particulars with some of these things being higher, and some lower.
This is a starting point. The intention is to outline a reasonable budget that will meet the needs
of a young adult, busy securing their future.
Depending on your earning power, the variable is how many years you will need to live this life
before moving on to what should be a very bright future.
ANNUAL Budget Items:
* Shared House or Apartment w/ Utilities
allow $400 per month $ 4800.
* Communication; Mobile & ISP Account
allow $ 50 per month 600.
* Basic Groceries & Household Items
allow $ 50 per week 2500.
* Basic Wardrobe (nothing fancy)
allow $ 50 per month 600.
-Used Econo-Box Beater 1000
-Insurance & Registration 700
-Gas/Oil (min mileage) 800 2500.
* Medical & Dental 1000.
* Extra Groceries and Clothing 1000.
* Entertainment 500.
* Savings and Miscellaneous 1500.
Total Minimum Living Expenses $ 15,000.00
Note that there is no allowance in any of the different categories
for debt or interest payments, the care of any medical conditions,
or the support of dependents. If your life includes any of these things
then you will need to adjust accordingly.
Ten years later you will have advanced further in your chosen field
of work which should mean an increase in the value of your skills;
above the effects of inflation. At the same time you will have purchased
a house, filled it with stuff, bought a decent car, saved a pile of cash,
achieved a superb credit score, and all without debt of any sort.
The $25,000 you have gotten into the habit of saving each year (to invest in yourself) and the ever larger amounts you will be able to afford because of salary increases, along with the $5,000 you save by not paying rent; can then be used for any of the things you have been denying yourself the past ten years.
Travel? Marriage and family? Start your own business? Investments?
There is really no limit to what might be achieved and you are still young
enough to appreciate the freedom a strong financial foundation can achieve.
Go for it!