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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?
I'm in this age range (22) and will be graduating soon, so advice is helpful. I have a part-time job that should soon be full-time with benefits and health care coverage. I find out for sure on Wednesday. My immediate goals are to save a $1000 emergency fund ($300/1000 so far) and a 3-month fund. I budget very strictly and have managed to cut back about $300 in monthly expenses. No college loans or other debt. Not too sure what financial goals I should focus on after these 2 goals. Maybe retirement saving? Where do I go after these immediate goals?
Read the book "The Millionaire Next Door." Read it and it WILL change your life. Pay attention to how most millionaires accumulated enormous wealth throughout their life and how they unwisely spoiled their children (most of the time) and the wealth was gone within a generation or two.
Wealth is defined as "net worth," not "net income!" To accumulate net worth, you must have a positive number between "net income" and "net spending."
I am not going to burden anybody with all the statistics from the book. The basic rule of wealth is that money comes from savings.
1. Be confident and secure about yourself - DO NOT TRY TO IMPRESS ANYBODY with material things!!! Actually avoid people who are easily impressed by material things because they are shallow and superficial.
2. Live below your means - be frugal
3. Spend your money wisely - mostly on things that hold long term value and/or generate income/dividend.
4. Work smart
5. Continue to educate yourself, especially on finances
6. Get out of debt as soon as you can
For most people, 1 and 2 are very difficult. I am going to tell you this. Detach yourself from all the material stuff. You, firstly, need to be confident and secure. You must understand and demonstrate that you DO NOT NEED to impress anybody!!! Why do you need flashy cars, boats, fancy cloth etc.? The only thing those things can tell me is that you are unsure about yourself. You package yourself in those superficial stuff in hope that nobody would see the real you - the weak, the insecure, the boring and the empty.
Point 4 is extremely important to working class - if you aren't opening your own shop. I couch people on the side as how they should work. Work hard means jack squat in the corporate world. You need to know what your real job is. No, the answer is not accountant, engineer, programmer... or whatever your job title is. If you don't know what your real job is, you are most likely won't be happy or successful.
Point 6, don't buy a house unless your rent cost is equal to or greater than property tax+maintenance+upkeep for the house. Make sure you understand this equation. Consider a less expensive place to live before you consider buying. Buying a house on mortgage carries enormous amount of debt burden and waste in interest.
Start saving for your home. Terrible time for this with such low interest rates. Check out balanced funds.
Deferred gratification. Buy when you can pay cash. By that time you may not want the item any longer.
Don't waste money on cars. Buy reasonable new cars, in cash, and take care of it.
Get a subscription to Money Magazine or something similar. Start learning with the basics and never stop.
Good luck.
What's payroll deduction?
When I started working, I made sure every month I worked, I saved enough to not have to work for a month. Later, as I make more money, I save even more. Nowadays, I save about 2/3 of my income.
I just wish someone had been able to pour into my head from day 1 the reality that having money work for you instead of you always working for money to keep up with expenses - is the most IMPORTANT thing in life, right after good health and solid relationships.
1. Good health.
2. Close relationships.
3. Learn to save so you can turn money into capital.
I never had the chance to be taught such incredible wisdom because I grew up under the communist system where saving and investing did not even exist and virtually made no sense.
I caught on much later than I should have and became the frugal type too late in life.
I am just hoping to be able to instill in my children the idea that money is for building freedom (as in "capital"), not for buying/consuming extra nice things beyond basic necessities.
They should live by the motto "use it up, wear it out, make it do or do without" then they should ALWAYS set something aside, even from their very first meager pay...and as the income grows...not necessarily a small percentage.
My 6 yo son recently won an essay contest and the prize was a 25$ gift card at Target (a fortune for a 6 yo). I have no clue why it didn't occur to me to ask the cash value from Target so he can actually see the money, and set something aside from those 25 dollars.
He ended up busting it all on a toy (of course) and I regretted that I missed out on a first time, great teaching moment.
From now on, it will be different though.
Overworking and overachieving-for-the-sake-of-overachieving (doing a lot of things with often mediocre results results) have become norms/built-in expectations in our society. For this very reason, it will be crucial for a young person to understand that at some point, he/she will literally TIRE of toil; and that applies even if they absolutely adore the object of their work in the beginning of their careers.
Work DOES get old, especially when deadlines, plates overflowing with responsibilities and the fast pace NEVER END.
This is where that 24/7 working capital should step in nicely.
But for that, they need to start young.
However, how many parents tell children: "go to school, get good grades, make money, set them aside so that at some point you can afford to not do so much darn work anymore?".
The poem instead goes: "go to school, get good grades, make money, so you can live well and have nice things".
My very own parents taught me that saving is silly (to be fair, under the socialist system it was) and that money is something that you must keep making/working for, not something that you get from "saving" (which they interpreted as "eating from under your nails = being a miser).
Different times, different world, mom and dad...
Had I not woken up in time, these other "comrades" would have eaten me alive by now.
PS: NEVER EVER think of the price of any product or service in terms of a
monthly payment. A car is not 400/month....it is X dollars period.
Assuming you are going to be working for someone and earning an salaried income, its diffcilut to sort of provide any specifics or %'s of salary, 401k etc.
The good news is that it DOES seem you have a good short term game plan
So what to do after that? Well as I mentioned above it depends.
Here is some advice, some of it you may have already or not:
- Develop a spreadsheet of all your expenses with xls or Google Docs etc. You absolutely wont be able to start coming up with a game plan unless you can budget properly.
- Start following the news, especially business and political news.
- Create a fake portfolio of stocks with google finance or similar. Pick a handful of stocks from companies that you KNOW and simply follow them. No need to put any money in. Just read up on these companies from time to time and get a feel for how and why the stocks might be moving. When the time comes where if you are ready to take a dive into stocks, the shell shock may be less severe.
- Start an IRA (traditional, Roth) account or 401k if you work for a company that offers it. If there is matching contribution ONLY contribute the max of what they are (eg. match is 4%, you do 4-5%). Over the long term, keep on an eye on the funds that are in those accounts rather than the generic, cut paste models they put you into by default.
Other than that, make sure you have a cushion for savings and at least 6 months back up (rent etc). If you plan on staying put where you are , maybe even starting a down payment fund for real estate. Who knows, you may work for a company that has openings in other places or you just might want to pack up and head out.
At your age, its a great time to get a head of the pack, but honestly, its not do or die. So, be disciplined as you have been but dont become obsessed about the above. These are just pointers.
Life changes and we never know where or what we might wind up doing from year to year. But definiitely take some of the advice from the other posters. They are all really coming from a good place.
Good luck
Last edited by shmoov_groovzsd; 05-07-2012 at 05:51 PM..
Forgot a key one: do not get married. A lot of people lose their wealth through divorce.
If you really want to, make sure you sign a prenuptial agreement.
NOT getting married is hardly a smart move towards a frugal, financially secure life. Everything is easier and more economical in two.
You can say make sure you get married to the right person. Unfortunately, there are fewer and fewer prospective partners available with rock solid, old fashioned values that made marriage a great deal in life in the first place.
I can see how it would make more financial sense for a man to skip marriage ...but lack of marriage costs men a lot of other things besides money.
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