Outstanding column. Great resources and external links. Thank you Tim & Ron!
Any young person who is working and does not have an employer-sponsored retirement plan should open a Roth IRA ASAP. It can be used for things other than retirement, if necessary (like the purchase of a first home), and grows tax free. Have money automatically added to the account monthly (up to the annual max). Get in the habit of savings. My 21 year old son and I just got together and started a Roth IR through Vanguard. Wish I had done the same at his age! And if you do have an employer-sponsored retirement plan, do a back-doo Roth IRA. Easy to do. Look it up.
1
Put that 10% in your 401K now. NOW. If you think you can't afford it now, cut down your expenses ruthlessly until you can, and that level of spending should become the new normal for you.
4
Be debt free except for mortgage debt. Try not to borrow for school.
Pay off debt as fast as you passible can. Debt is ruinous.
Mortgage debt is different, it gains equity. You must afford the payments easily.
Think financial Independence. The more in reserve, the better your life will be.
Don't splurge much - it will diminish financial security.
Invest more than 10%. Think 20% or more.
Invest for the long term in stock shares. Bonds do not create wealth.
Do not pay management expenses. A 1% charge lowers return about 12% per year.
A “genius” manager cant beat the market. Dont pay for it.
o Dont buy complex investments or strategies.
o Get a low cost STOCK INDEX FUND. This has unanimous agreement.
Dont invest internationally. US companies that you own do that for you.
Forecast your increasing wealth - do it yourself.
Do not buy and sell. Active trading loses alot of money. The less you work on it the more money you make! Hold thru recessions.
There is a future, an IP (intellectual property) based economy need not extract from the earth.
Pay off debt as fast as you passible can. Debt is ruinous.
Mortgage debt is different, it gains equity. You must afford the payments easily.
Think financial Independence. The more in reserve, the better your life will be.
Don't splurge much - it will diminish financial security.
Invest more than 10%. Think 20% or more.
Invest for the long term in stock shares. Bonds do not create wealth.
Do not pay management expenses. A 1% charge lowers return about 12% per year.
A “genius” manager cant beat the market. Dont pay for it.
o Dont buy complex investments or strategies.
o Get a low cost STOCK INDEX FUND. This has unanimous agreement.
Dont invest internationally. US companies that you own do that for you.
Forecast your increasing wealth - do it yourself.
Do not buy and sell. Active trading loses alot of money. The less you work on it the more money you make! Hold thru recessions.
There is a future, an IP (intellectual property) based economy need not extract from the earth.
7
I'm trying to remember the investing knowledge I had when I was 29 years old......it's too long ago. However, my skill set at that age was no better than the author's. Setting aside a percentage of my salary into a 401k, and buying savings bonds for my children's college fund were it. What I did understand was budgeting - I believe many more young adults have issues managing money than investing it.
One thing we have gotten into the habit of doing is to buy the longest extended warranty (bumper-to-bumper) offered on a new car when we buy a new car. Then we keep that car (after the note is paid off) until the extended warranty runs out. If we pay off the car note after 4 years and we have an 8 year warranty, then for extra four years we "pay the note" into our savings account. Or we may "pay the note" on another loan like a second mortgage, but in that case the "car note money" is paid on the second loan in addition to that loan's regular payments, thus helping to retire the second loan early.
Either way, we always keep the dollar amount of a car loan in our monthly budget, even though we periodically go years with no actual car note to pay. When the 8 year warranty runs out, we trade in the old car for a new one and start over. As for the cost of the extended warranty, we have never had a warranty that did not pay for itself over the course of 8 years. At some point something will go wrong and it will cost more to fix than we paid for the warranty, so it is really just paying for car repairs up front in cheaper dollars. If for any reason we luck out and have a trouble free car with NO problems for 8 years, then we count our blessings and move on.
Either way, we always keep the dollar amount of a car loan in our monthly budget, even though we periodically go years with no actual car note to pay. When the 8 year warranty runs out, we trade in the old car for a new one and start over. As for the cost of the extended warranty, we have never had a warranty that did not pay for itself over the course of 8 years. At some point something will go wrong and it will cost more to fix than we paid for the warranty, so it is really just paying for car repairs up front in cheaper dollars. If for any reason we luck out and have a trouble free car with NO problems for 8 years, then we count our blessings and move on.
2
The most important financial advice I ever got was this: Live beneath your income. A zillion years ago when I was Tim's age I got this advice from two great friends, independently. Also, when you get a raise, rather than spending that money on stuff or daily expenses, either save it or apply it to debt. You got along without that money before the raise, you can get along without it now.
6
Most advisors will tell young people to put 90 percent of their savings in stocks. I tell my kids to put the first $10,000 in bonds instead. Then, when they reach that figure safely, they can diversify into stocks. I also tell them to buy equities when they're cheap, not when they're expensive. A steep market drop isn't the time to panic... it's the time to buy as much stock as possible. FInally, don't think of your tax-deferred savings as "wealth." Think of it in terms of the amount of annual or monthly income it will generate in retirement.
1
Perhaps someone can explain to me how a person can get to be 29 y.o. and not understand the basics of money and economy.
2
Good comprehensive advice, but why mention that AX credit card that costs $450/year when advising someone who says he doesn't have much or know much about finances.
How about READING a good advice book or two rather than "consulting a professional" as a first step? Review personal finance articles, at Morningstar or other sites not selling a product. You NEED an understanding of basics just to assess self-described experts, and the advice they give. This requires reading comprehension, logical thinking and simple math, not a grasp of algorithms. There are free calculators which do computations for you. Take advantage of free education first; when your your time is much more profitably spent at your chosen profession, then hire a certified financial advisor or good CPA.
As for so OLD and not having a sizable retirement account - good grief- what past generations had huge retirement savings at this age? Time provides significant benefits, but many can't put aside 10% of their gross early in worklife. I didn't open an IRA or have a deferred compensation plan w/automatic deductions (no match) until my 30's. But once it was possible, every raise went into the pot, so the percentage went up over time, with temptation to spend out of sight. You may have to cut expenses to do this; good practice.
Colleges & high schools should offer financial ed. as part of career or vocational guidance. Maybe, like passing a swim test, it could be a nonacademic requirement for graduation.
How about READING a good advice book or two rather than "consulting a professional" as a first step? Review personal finance articles, at Morningstar or other sites not selling a product. You NEED an understanding of basics just to assess self-described experts, and the advice they give. This requires reading comprehension, logical thinking and simple math, not a grasp of algorithms. There are free calculators which do computations for you. Take advantage of free education first; when your your time is much more profitably spent at your chosen profession, then hire a certified financial advisor or good CPA.
As for so OLD and not having a sizable retirement account - good grief- what past generations had huge retirement savings at this age? Time provides significant benefits, but many can't put aside 10% of their gross early in worklife. I didn't open an IRA or have a deferred compensation plan w/automatic deductions (no match) until my 30's. But once it was possible, every raise went into the pot, so the percentage went up over time, with temptation to spend out of sight. You may have to cut expenses to do this; good practice.
Colleges & high schools should offer financial ed. as part of career or vocational guidance. Maybe, like passing a swim test, it could be a nonacademic requirement for graduation.
3
I hired a CPA to do my taxes, and he messed it up. I filed the corrected forms myself and got back $500. Ultimately you can do it yourself. Investing is just not that hard. Index funds, buy and hold. That is all you need to know.
4
I had the good fortune to be raised by parents who went through the great depression. They taught me from an early age to practice delayed gratification. I hated it at first (I wanted what I wanted without waiting). But looking back on it, it was their greatest gift to me.
I learned to wait before buying anything major. Often times after a few days you decide you don't really need what seemed absolutely necessary a few days earlier. This helped me save so I could then start buying things I decided I really did want or need for cash. No bills.
I look around and wonder who people are able to spend so freely. I think I'm seeing a lot of credit card use that shouldn't be happening.
I learned to wait before buying anything major. Often times after a few days you decide you don't really need what seemed absolutely necessary a few days earlier. This helped me save so I could then start buying things I decided I really did want or need for cash. No bills.
I look around and wonder who people are able to spend so freely. I think I'm seeing a lot of credit card use that shouldn't be happening.
2
This is just another example of how our public education system (K-12) continues to fail our students. Not only do we allow students to move onto the next grade without completing the requirements, we also are leaving behind the teaching of BASIC financial skills & knowledge. There should certainly be MANDATORY classes in high school on money/investing/budgeting/savings before graduation.
How do we expect a high school graduate to take out student loans for college when MANY of them don't understand budgeting, saving, investing, and basic finances??? Isn't that as dumb as giving a pyro a lighter?
How do we expect a high school graduate to take out student loans for college when MANY of them don't understand budgeting, saving, investing, and basic finances??? Isn't that as dumb as giving a pyro a lighter?
2
Our public education system is not failing our students! If children don't see their parents saving for the future, if they grow up surrounded by conspicuous consumption ( I want what I want when I want it) if they are mesmerized by the constant barrage of advertising luring them into thinking they MUST have the latest gadget or clothing line or whatever, then the schools are fighting uphill battle.
Many schools offer budgeting. At the high school level, the subject matter is abstract. High schoolers aren't at the point where they need the information but when they are in the adult world and facing these issues there are many ways to get the needed information. One is newspaper articles, talking to advisers etc.
Stop blaming the schools for society's ills!!!
Many schools offer budgeting. At the high school level, the subject matter is abstract. High schoolers aren't at the point where they need the information but when they are in the adult world and facing these issues there are many ways to get the needed information. One is newspaper articles, talking to advisers etc.
Stop blaming the schools for society's ills!!!
6
Good point but since our education system does a poor job of almost everything expecting them to do this is foolish. If they would just teach them to think properly the rest is easily obtained on the internet.
1
This is a helpful column, but I would add that it does rather more to diagnose the problem than it does to plot a solution to the not-just-millennials' problem of anemic saving/debt repayment (I'm 33, so kinda millennial). Earlier this year, I finally faced my pile of credit card debt (>$15K), student loans ($$$$), and high spending habits. With the help of trusted friends, I started You Need A Budget (YNAB). It gave me a global overview of my situation and of how each financial decision I make has a chain effect. I learned the value of my dollars and eliminated all financial stress (information is power!). As of today, my credit score has increased by 50 points, CC debt decreased by ~$3K, and I have two new high rewards credit cards that I use for regular spending and which I pay off each month. I accomplished all this with a static income and no perceptible decrease in lifestyle. Eliminating the hopelessness engendered by a chaotic financial situation was by far the most effective financial tool I've ever encountered.
6
You are doing great Tim - keep up the good work
1. Put at least the % they match into your 401K. don't leave that benefit on the table by not saving.
2. Before you play the credit card rewards game, make a budget, track your spending for a few months and become acutely aware of where you are spending your money
3. Pay your school loans down as soon as you can. Your goals will change in the next few years and you may want to invest in a home. Get your debt low and your credit score high
1. Put at least the % they match into your 401K. don't leave that benefit on the table by not saving.
2. Before you play the credit card rewards game, make a budget, track your spending for a few months and become acutely aware of where you are spending your money
3. Pay your school loans down as soon as you can. Your goals will change in the next few years and you may want to invest in a home. Get your debt low and your credit score high
2
And spend very little on things that you just want until you have no credit card debt at least.
Millennials need to learn how to spend money. If they fail, saving and investing are theoretical annoyances.
Ron should have told Tim to eliminate narcissistic spontaneous expensive consumables, to share housing expenses, and be open to moving to less attractive locals for more attractive employment opportunities.
Ron should have told Tim to eliminate narcissistic spontaneous expensive consumables, to share housing expenses, and be open to moving to less attractive locals for more attractive employment opportunities.
4
Three added bits of advice:
- If you own a car, resist the urge to upgrade after a few years. Pay it off and drive the thing into the ground. It's a lot harder to save money/get rich/get out of debt when you have a car payment.
- Resist the urge to liquidate or borrow from your 401k or retirement plan.
- If someday you have kids, start a 529 account at birth and start saving for college. It's a daunting task, but starting early adds time and compounding to your side of the equation. We put bonuses and gifts in, and saved as much as we could afford. Our eldest goes off to college soon and the principal will pay for freshman and soph year; time, reinvesting + compounding will pay for jr and sr. year.
We will drive her to college in an old clunker, but she'll graduate someday (God willing) with little to no debt.
- If you own a car, resist the urge to upgrade after a few years. Pay it off and drive the thing into the ground. It's a lot harder to save money/get rich/get out of debt when you have a car payment.
- Resist the urge to liquidate or borrow from your 401k or retirement plan.
- If someday you have kids, start a 529 account at birth and start saving for college. It's a daunting task, but starting early adds time and compounding to your side of the equation. We put bonuses and gifts in, and saved as much as we could afford. Our eldest goes off to college soon and the principal will pay for freshman and soph year; time, reinvesting + compounding will pay for jr and sr. year.
We will drive her to college in an old clunker, but she'll graduate someday (God willing) with little to no debt.
11
"Only 27 percent have professional help" - we have been this route, but finding a trustworthy financial adviser is hard. In my experience they have made me think that used car salesmen get a bad rap. How do you find an adviser you can trust? I remember something like if they are a Fiduciary then they are legally obligated in a different way to help maximize returns but I don't know. I need to look into this more again. So far it's just been one after then next trying to sell me life insurance with a bunch of scary what if scenarios. I already have that part of things figured out thank you...
2
And for those who don't earn much of anything, any money paid to financial advisors is dubious at best when the decisions to be made aren't really that complicated.
1
Life insurance is never an investment vehicle, find an adviser that has nothing to do with insurance sales. Hourly fee is your best bet.
1
I CANNOT agree with this more! Most easily accessible advisors are employed by a parent agency and have sales quotas. It is a terrible conflict of interest. I am in the same position as you, @Peter. I read a lot of scraps of information and attempt to make it a quilt of knowledge that actually suits my needs. I cross-reference what I can with my accountant. My husband now has an opportunity to do some free-lance work with someone who was a successful planner (now retired), so I can get some information there. The financial party lines make me very concerned (anyone remember all the people who were refinancing their homes and/or taking out huge mortgages in the early 2000s?!). For example, from what I can tell about 529 college savings plans, they are about the best way to ensure you get absolutely no aid from a college. I've pieced together that reducing my taxable income and stashing money in other places makes more sense. But I ultimately have no idea. And basically now way of making sure I'm not doing this all wrong.
Can we end with the one most important piece of advice you think everyone like me should know as we become real adult people?
That compound interest works for you and against you and the interest you are paying on debt you have will cancel out any interest you make on the same amount of savings in your 401K.
That compound interest works for you and against you and the interest you are paying on debt you have will cancel out any interest you make on the same amount of savings in your 401K.
5
As a "credit invisible" millenial, this statement caught my eye right away:
"It’s based on your credit report, which shows how or if you’ve paid your bills on time...."
Your credit score is actually *not* based on timely payments for utilities or cell phones or rent, or really any other recurring payment. As long as those accounts don't go to collections, they have no effect on your credit. Your credit score (as I understand it) is mostly about debt, and your willingness to carry it. This debt can take the form of loans or revolving credit, i.e. credit cards.
I don't have a credit card, and never have, and I don't have debt from student loans. For someone like me, this means that although I pay my bills on time and have an extensive rental history, I have limited credit history, and my credit score is not great. Wild, right?
"It’s based on your credit report, which shows how or if you’ve paid your bills on time...."
Your credit score is actually *not* based on timely payments for utilities or cell phones or rent, or really any other recurring payment. As long as those accounts don't go to collections, they have no effect on your credit. Your credit score (as I understand it) is mostly about debt, and your willingness to carry it. This debt can take the form of loans or revolving credit, i.e. credit cards.
I don't have a credit card, and never have, and I don't have debt from student loans. For someone like me, this means that although I pay my bills on time and have an extensive rental history, I have limited credit history, and my credit score is not great. Wild, right?
8
> "The Money 20, What 20-Somethings Want to Know About Money” is a simple, little Q&A book that answers money questions from 20-somethings. The format is like this article, but it covers a lot more topics.
> Perfect book for a young person to learn the basics about money management.
> Perfect book for a young person to learn the basics about money management.
1
Ron - Nice column. My thoughts:
1. Being able to define whether something is a want or a need is fundamentally important and we often slip up. But simply taking the time to stop and think about it may help. I may still purchase my want, but at least it was a thoughtful choice.
2. Live beneath your means. Don't fall into the trap of keeping up with others - it is a game you can't win in the long term.
3. Emergency fund, emergency fund, emergency fund.
4. Pay close attention to your big fixed expenses (e.g. housing/ car) as they can impact your finances much more significantly than a daily coffee habit.
5. Pay credit card in full every month, not simply minimum payment
6. Pay down debt as soon as possible.
7. Monitor your accounts on a regular basis to verify expenses are real and the account hasn't been hacked.
1. Being able to define whether something is a want or a need is fundamentally important and we often slip up. But simply taking the time to stop and think about it may help. I may still purchase my want, but at least it was a thoughtful choice.
2. Live beneath your means. Don't fall into the trap of keeping up with others - it is a game you can't win in the long term.
3. Emergency fund, emergency fund, emergency fund.
4. Pay close attention to your big fixed expenses (e.g. housing/ car) as they can impact your finances much more significantly than a daily coffee habit.
5. Pay credit card in full every month, not simply minimum payment
6. Pay down debt as soon as possible.
7. Monitor your accounts on a regular basis to verify expenses are real and the account hasn't been hacked.
9
If one uses a debit card, the merchant has put it's hand directly into your bank account. Always a dangerous thing. There is more protection for fraudulent use with credit cards, including the limit of one's liability and the deadline to contest fraudulent use. Use an ATM instead of a debit card, and CASH is king!
11
Rule #1 money makes money. Learn the value of compound interest.
I was fortunate when I retired I had a 401K, and a defined pension plan.
I could put the maximum 12% in the plan and the company matched 8%. I noticed immediately, the full 12% cost me $20 a week i take home pay because it lowered my earned income by enough to do that. I saw some of my fellow workers spend that much or more on beer each week, and then say they could not afford to contribute the whole 12%.
#2 get an IRA at a discount broker, buy a good stock. I would give stock advice but my favorite is Con Ed, what used to known at little old ladies stock. In other words do not try for the fast growing ones until you have money you feel comfortable risking.
Buy medical insurance. When you are young you think you are invincible. it only takes one accident to wipe you out. Stay healthy, what good is money if you cant enjoy it?
I am not wealthy, but my home and cars are paid for. We just spent 34 days in Spain, I used a Schwab debit card no fees. I meant I had to have the money in a Schwab bank account, so had to sell some equities to finance it.
Although it does cost, go see Europe, it will give you a perspective on the rest of the world, and make you aware of the financial possibilities available, it will help you get better jobs. A couple of years in the military will help you also, teaches good work habits and pays for school.
I was fortunate when I retired I had a 401K, and a defined pension plan.
I could put the maximum 12% in the plan and the company matched 8%. I noticed immediately, the full 12% cost me $20 a week i take home pay because it lowered my earned income by enough to do that. I saw some of my fellow workers spend that much or more on beer each week, and then say they could not afford to contribute the whole 12%.
#2 get an IRA at a discount broker, buy a good stock. I would give stock advice but my favorite is Con Ed, what used to known at little old ladies stock. In other words do not try for the fast growing ones until you have money you feel comfortable risking.
Buy medical insurance. When you are young you think you are invincible. it only takes one accident to wipe you out. Stay healthy, what good is money if you cant enjoy it?
I am not wealthy, but my home and cars are paid for. We just spent 34 days in Spain, I used a Schwab debit card no fees. I meant I had to have the money in a Schwab bank account, so had to sell some equities to finance it.
Although it does cost, go see Europe, it will give you a perspective on the rest of the world, and make you aware of the financial possibilities available, it will help you get better jobs. A couple of years in the military will help you also, teaches good work habits and pays for school.
2
" The downside of that is that you have to pick from whatever investments your employer offers "
There are some other downsides to 401(K) plans. The plans all charge management fees and the mutual funds offered also often have high fees. If there is no employer match, there is almost nothing to recommend a 401(k) plan other than how easy it is for you to feed money into the finance industry's cash machine.
In general, you are much better off putting your money in a Roth IRA, especially in your 20's. Money put in your Roth can be used as your emergency fund since you can take the principal out at any time without interest. With very little work, you can make contributions to the Roth as automatic as your 401(k) payroll deduction by setting up automatic deposits.
Saving money for the future is a good idea. But in your 20's most of your future is going to happen long before you retire. Locking up your savings for retirement doesn't really make much sense. Especially since most people will have more surplus income later in life after the kids are out of the house and college is paid for. The main loser in delaying retirement savings until then is the financial industry that grabs as much as 2% of people's retirement savings in fees every year. Which is why there is this constant mantra in the financial media about saving early and the "miracle" of compounding.
There are some other downsides to 401(K) plans. The plans all charge management fees and the mutual funds offered also often have high fees. If there is no employer match, there is almost nothing to recommend a 401(k) plan other than how easy it is for you to feed money into the finance industry's cash machine.
In general, you are much better off putting your money in a Roth IRA, especially in your 20's. Money put in your Roth can be used as your emergency fund since you can take the principal out at any time without interest. With very little work, you can make contributions to the Roth as automatic as your 401(k) payroll deduction by setting up automatic deposits.
Saving money for the future is a good idea. But in your 20's most of your future is going to happen long before you retire. Locking up your savings for retirement doesn't really make much sense. Especially since most people will have more surplus income later in life after the kids are out of the house and college is paid for. The main loser in delaying retirement savings until then is the financial industry that grabs as much as 2% of people's retirement savings in fees every year. Which is why there is this constant mantra in the financial media about saving early and the "miracle" of compounding.
2
"he answer generally involves doing things more than having things."
This is one of those repeated wisdom't people ought to ignore. What the studies showed was that grilling with a bunch of friends sitting around on your deck was more memorable than buying a grill. But you can't really do that without the grill, the deck and places for your friends to sit. The notion that you would be better off spending that money for meals at a restaurant with those friends was never really tested. I think the reality is that you are almost always better off investing in things you use than you are renting them for each experience. Of course spending money on something you never use is a waste of money. But spending money on things you will use over and over again to create memorable experiences is an investment.
This is one of those repeated wisdom't people ought to ignore. What the studies showed was that grilling with a bunch of friends sitting around on your deck was more memorable than buying a grill. But you can't really do that without the grill, the deck and places for your friends to sit. The notion that you would be better off spending that money for meals at a restaurant with those friends was never really tested. I think the reality is that you are almost always better off investing in things you use than you are renting them for each experience. Of course spending money on something you never use is a waste of money. But spending money on things you will use over and over again to create memorable experiences is an investment.
3
First, read "The Automatic Millionaire". Second, subscribe to one of the Motley Fool newsletters and start investing.
3
Good information! For those of us who are younger, but still have some of their income they can save, how much do you recommend putting away? It's hard to make a budget when you don't have any big purchases in mind in the future, but it feels a little reckless not to have one either.
3
Start here.....a free book written by Dr. Bill Bernstein, a noted and well-respected financial author. The advice is superb and many of the books can be found in your local public library. https://www.etf.com/docs/IfYouCan.pdf
Next, if you want to learn about investing --> visit the Bogleheads, located at www.bogleheads.org. The posters on there will blow the socks off of most "experts" that want you to pay them for mediocre advice. And it's all free......
Next, if you want to learn about investing --> visit the Bogleheads, located at www.bogleheads.org. The posters on there will blow the socks off of most "experts" that want you to pay them for mediocre advice. And it's all free......
It is time to teach these basics to all students as a requirement for a high school diploma. We send new adults out into the world without teaching them how to be adults about money.
43
I teach Freshman Seminar at a community college and for 2 short days a semester I give a financial literacy unit. It is terrifying what students do not know. TERRIFYING! Their parents have given them misinformation about money, credit and savings. The legacy of not understanding how money works is being constantly perpetuated.
For those young adults wanting to know more in super easy sound bites, go to Khan Academy online; they teamed up with Bank of America and have a bunch of very short animated videos on a number of basic money topics. Without fail, every semester my students say the 2 day unit on money was their favorite. Who would have thought a debit card was different from a credit card?
For those young adults wanting to know more in super easy sound bites, go to Khan Academy online; they teamed up with Bank of America and have a bunch of very short animated videos on a number of basic money topics. Without fail, every semester my students say the 2 day unit on money was their favorite. Who would have thought a debit card was different from a credit card?
1
Parents should do this, but most parents are terrible with money and their children learn bad habits from them.
2
Yes, pay attention to money. It takes very little to get into trouble fast. THat new car, can be a good deal, or not. I got 1st new car at age 55, and it is great. I had to suffer older cars that while mostly ok, do take more maintenance and care. Luckily, my dad bought and sold used cars and worked on them. That house, bought my 1st house + rental house (came together) at 36. Real estate can be great or get you into trouble.
And please, record all expenses in a spreadsheet and create one of recurring expenses to see how much disposable income you have, hopefully you will have some. Not necessarily to budget but know where your money goes, then you can make some decisions, but until you know that you can't prioritize things.
And work at work, after work to increase skills, work on yourself emotionally and intellectually, and learn to love to make effort in all parts of your life. Good luck
And please, record all expenses in a spreadsheet and create one of recurring expenses to see how much disposable income you have, hopefully you will have some. Not necessarily to budget but know where your money goes, then you can make some decisions, but until you know that you can't prioritize things.
And work at work, after work to increase skills, work on yourself emotionally and intellectually, and learn to love to make effort in all parts of your life. Good luck
17
The Quicken software program can be faster and easier than a spreadsheet once you've used it for a bit. I know, not an app, but I'm not ready to put my financial life on my smartphone anyway. I do download my credit card and bank account transactions and then categorize them. (There are other similar programs out there.)
Side note: To keep down cost - and the learning curve for new features - I update every two years instead of annually.
Side note: To keep down cost - and the learning curve for new features - I update every two years instead of annually.
1
I'm 20 years old, and I am a HUGE fan of these new "smarter living" columns! This one answered so many questions I never even had articulated (what is refinancing a loan? Why the heck do my parents insist I open a credit card?). Thank you New York Times, and thank you Mr. Lieber!
9
Financial illiteracy in the U.S. Only in America and it is quite pathetic.
11
Yea Ron Lieber. I always learn one more thing after reading his articles.
5
When I was in grad school and just barely getting by, II made a habit of the following If it cost more than 25 cents, I waited a day and than decided if I really wanted or needed it. That was back in 1960.
Now, if it costs more than $2, I wait.
I also found that I was allergic to debt when I took out a 30 yr mortgage in 1980. Paid that off in 3 1/2 unpleasant years.
Yes, I have a couple of rewards CC's. But I've never paid a cent of interest on them.
Have never had any loans aside from the mortgage. So now I'm 798, and debt free, with about $1M in my pension fund, and $800K in assorted CD's, savings, etc. Still saving. (My savings in CD's, etc. are about as big as the total amount I was paid in salary over a lifetime of work.)
I've made many (about 40) European trips, have a huge library, and have done a lot of neat things. I highly recommend 'delayed gratification.'
Now, if it costs more than $2, I wait.
I also found that I was allergic to debt when I took out a 30 yr mortgage in 1980. Paid that off in 3 1/2 unpleasant years.
Yes, I have a couple of rewards CC's. But I've never paid a cent of interest on them.
Have never had any loans aside from the mortgage. So now I'm 798, and debt free, with about $1M in my pension fund, and $800K in assorted CD's, savings, etc. Still saving. (My savings in CD's, etc. are about as big as the total amount I was paid in salary over a lifetime of work.)
I've made many (about 40) European trips, have a huge library, and have done a lot of neat things. I highly recommend 'delayed gratification.'
33
I should add that the 'wait a day' becomes an ingrown habit and automatic. It's just a way to control impulse buying. I don't need a budget, and don't spend time agonizing over things. I also don't have to pay a financial advisor to manage (or mismanage) my finances. I don't spend my time clipping coupons, or doing the other things I've been 'advised' to do. I suppose that if I were a real capitalist, I'd have done better. But money isn't and hasn't been the great goal in life for me. There was a period just before I retired in 2006 when I was severely overworked (100+ hrs/week) when I simply didn't have time to keep track of what was in my checking account. I was then appalled to see that it had grown to about $180K.
OK. This won't work for everyone, but it's an incredibly simple way to manage one's own money and still enjoy life.
OK. This won't work for everyone, but it's an incredibly simple way to manage one's own money and still enjoy life.
2
The Boy Scouts of America have a merit badge, Personal Management, that covers 99% of the topic, and is intended for under 18 individuals.
https://meritbadge.org/wiki/index.php/Personal_Management
Too bad it isn't a required course or seminar in high school.
https://meritbadge.org/wiki/index.php/Personal_Management
Too bad it isn't a required course or seminar in high school.
20
Here's my problem with your problem. You make the assumption that because we live in a defacto "Capitalist" country, we all want to become capitalists. Truth is, I think Capitalism takes a special type of human, maybe even a subhuman like Trump. The rest of us don't want to be bothered with "money grubbing" or other things humans don't naturally do. Of course, the laws of this country force us to do otherwise. We not only have to find our place in the world, but we also have to self-finance whatever it is that we want to do in this life. That turns us into money-grubbing capitalists because we need the money to do the things we were meant to do, but first we have to get the money to pay for the education, to work the internships, and then to start up your own company so that you can afford to pay back your student loans and get a chance to travel, like you always wanted but had to be a money-grubbing capitalist to get there.
Is it fair that in this country only Capitalists get to have all the perks?
Is it fair that in this country only Capitalists get to have all the perks?
9
It's good not to be complacent about capitalism, it is also good not to be too idealistic and more realistic about the true nature of the world. In the real world you need money for food, clothing, shelter and health care. Without money you die younger, live sicker, have poor housing, don't eat regularly, maybe homeless and live your life at the whims of changing government policies. Unfortunately right now these are the mainstream not off the grid realities in the US, maybe someday things will be different and better. I am not holding my breath, I'm saving. I want to eat properly, and not worry if I become ill in my old age.
1
Yes.
Funny, looking at the history of Homo sapiens sapiens, it would seem that working for a return that meets the basic needs has always been the norm. Before it might have included stockpiling surplus grain for rough times, but money stores a lot better/longer. Just because finance is complex doesn't make it unnatural. I would argue rock climbing, taking vacations and laying on a beach (for example) is less natural than saving.
Look, it's very simple. YOU believe that the paper you have in your pocket has value. It used to, it doesn't now. YOU believe that the numbers that are in your checking account, savings account, investments, etc., represent something real. They don't. There is not enough wealth in the entire world to pay everyone if we asked for gold and silver in exchange for the paper and numbers on the balance sheets. That's how it works, then you die.
5
Well, we went off the gold standard some time ago. So I am uncertain of your point.
In some ways its good that a large part of the population will crash and burn financially. After all, if everybody is rich, everybody is poor. Those who have got it right can look forward to much lower prices for the things they will need in the future, because there will be fewer people with money around to bid things up.
2
The Millionaire Next Door was a book that helped me stop spending and save more- Paid off the mortgage in under 15 years, because the biggest loan shark is your mortgage bank, saving over 160K in interest.
Also, saved $20-40.00/week in a jar every Friday for the year's vacation.
If you live with what you have instead of always upgrading, you have so much more money, and if you give up a restaurant meal every week or once a month and put that money towards something, you'll be in better shape.
Instant gratification/shopping/looking at what others have is the downfall.
Also, saved $20-40.00/week in a jar every Friday for the year's vacation.
If you live with what you have instead of always upgrading, you have so much more money, and if you give up a restaurant meal every week or once a month and put that money towards something, you'll be in better shape.
Instant gratification/shopping/looking at what others have is the downfall.
36
Good advice on not messing around with reward cards if you don't pay off your balance every month. Also, hidden in the light grey type on some offers is that there is a yearly fee for the card even if you don't use it. The offers sound tempting but often they are not good for your particular lifestyle. The SouthWest card has a yearly fee of 100 dollars. The rewards are in mileage so if you don't fly South West a few times a year it isn't a good deal. Chase Ink is pretty good with no yearly fee and cash rewards of 50.00 for every 5,000 points.
5
Rewards cards exist that don't have yearly fees and have pretty good benefits (Costco's Visa card is an example; you do have to be a Costco member but even a single person can save money joining if they have sensible spending patterns. Fidelity's Visa is the same thing and a good reason to have a Roth IRA at Fidelity--see Ron's comment about what to do if your foolish employer doesn't offer a 401(k).) The big thing is to treat it more like a debit card and to pay the total balance off every month no matter what.
3
I don't understand why anyone would have a rewards card that gave you anything other than cash.
[Ihave to confess that I do have one - a Visa card that pays off in coupons for a certain clothing/outdoors retailer and gives more rewards for purchases from that retailer - but the coupons are effectively cash since I buy much of my clothing online from that source.]
[Ihave to confess that I do have one - a Visa card that pays off in coupons for a certain clothing/outdoors retailer and gives more rewards for purchases from that retailer - but the coupons are effectively cash since I buy much of my clothing online from that source.]
1
Have you covered concrete steps for preparing college-bound seniors who are only familiar with cash on how to manage debit cards tied to a bank account? I would like to teach them to use software like Quicken or MS Money by entering transactions daily and reconciling to the bank by using the bank's app on at least a weekly basis. Any other advice?
4
Beth, before you consider Quicken, I'd suggest you spend a bit of time reading reviews of Quicken software over at Amazon. I've been using Quicken since 2003 and stopped upgrading after their 2011 version because of the numerous bugs and feature losses that continue to plague their releases year after year. What was an awesome package has lost much of its convenience and utility. My son just started with You Need a Budget (YNAB), so I can't report on it yet.
I started tracking expenses with a pencil and engineering paper back in the late 80s.(Found I could not account for $300/month in pocket money! Promptly fixed that and started an IRA.) Excel was an amazing leap forward in ability to track with much less effort. When Quicken came along, and would automatically update everything? Nirvana! Well, it can't seem to do that any longer with 100% accuracy, as well as keeping budget categories and balances straight for a surprisingly large number of users, so I'm back to manually entering everything into my 2011 Quicken.
If you are successful in encouraging your senior to track his/her finances in college, it will be a great step ahead in the adult life to follow -- good luck!
I started tracking expenses with a pencil and engineering paper back in the late 80s.(Found I could not account for $300/month in pocket money! Promptly fixed that and started an IRA.) Excel was an amazing leap forward in ability to track with much less effort. When Quicken came along, and would automatically update everything? Nirvana! Well, it can't seem to do that any longer with 100% accuracy, as well as keeping budget categories and balances straight for a surprisingly large number of users, so I'm back to manually entering everything into my 2011 Quicken.
If you are successful in encouraging your senior to track his/her finances in college, it will be a great step ahead in the adult life to follow -- good luck!
11
Laughing, I am also using 2011 with no updates. I really only use it for the ledgers: I have every bank account, credit account, mortgage, and retirement savings account on it and reconcile everything continuously. One of the benefits of this is the opportunity to catch any unrecognized authorizations or charges immediately; there are other benefits of course.
I also use it occasionally to compare period-over-period spending by category with the reports function; that is always interesting! While I don't record what I use cash for, I do record every credit card purchase and bank (mostly checking) account payment including category.
I also use it occasionally to compare period-over-period spending by category with the reports function; that is always interesting! While I don't record what I use cash for, I do record every credit card purchase and bank (mostly checking) account payment including category.
4
Dudes, money means math. Bummer.
4
Oh, yes. Remember when well meaning adults told you that most people never do algebra after college? Those people don't understand compound interest because exponents scared them when they were 13 years old. They grossly misunderstand how much that car, house, vacation, etc... costs. They don't even know how much paint to buy to cover the walls of a room of a certain size or how much irrigation tubing you need to water a tree whose branches cover a circle of about 4 feet.
3
When I began going to college, my father sat me down with the NY Times Sunday financial section. Together, we went through what it all meant. Mutual Funds, stocks, bonds. He also gave me a book: "A Random Walk Down Wall Street." In the paper last week a headline stated that Hedge Funds are being trounced by the indices. That news did not surprise me! However, I was surprised that so many pension funds, run by professionals, dark the hedge fund cool-aid. Then again, pension pros may be more than a little corrupt since legislation was only passed last year making financial advisors fiduciary to the client. What took so long?
He also said, "If you are buying something on credit, it means you can't afford it!" Of course, this was regarding everyday purchases. Houses usually need to be purchased on credit.
I feel this material could be addressed in a high school education as a required course. Could go a long way to clearing up so much confusion. One big confusion that is made very often is equating national debt with personal debt! When YOU start issuing your own currency and lending it out, the two would finally be somewhat related!
He also said, "If you are buying something on credit, it means you can't afford it!" Of course, this was regarding everyday purchases. Houses usually need to be purchased on credit.
I feel this material could be addressed in a high school education as a required course. Could go a long way to clearing up so much confusion. One big confusion that is made very often is equating national debt with personal debt! When YOU start issuing your own currency and lending it out, the two would finally be somewhat related!
21
On credit card v. debit card, credit card usage is covered by federal law and the card issuer has certain obligations toward the cardholder when disagreements with merchants or fraudulent charges are made. With a debit card, you're stuck with the bank's customer agreement.
24
I would agree with you there, but with the caveat that if you can't simultaneously pay your credit card bill for that purchase that needs protection (electronics, trips, probably not your soy latte), then you can't afford it. That's what I was told anyway... not that I learned that lesson soon enough.
4
You have a choice of using your debit card in either debit or credit mode. Debit is when you enter a pin and credit is when you sign (if the total is over a minimal amount). I use my debit card in credit mode and it's my understanding this transaction then falls under coverage by federal law noted above. Plus it's nominally safer...someone can't get my pin.
2
The American educational system is failing if a 29 year college graduate really has such a abysmal knowledge of finance. Everyone coming out of high school should know everything answered in this column.
21
I disagree. Society has no obligation to educate our children on such things. The parents and the person have failed. At least this individual has sought to rectify his past mistakes......
9
But they don't.... so what shall we do about that?
1
There are two political parties that disagree on this, Sue. One wants to do it FOR the parents while raising our taxes to pay for it. The other believes that kids can suffer from their parents' failures and wants their parents to have more money to put food on the table.
1
Start with “Personal Finance for Dummies” and “Mutual Funds for Dummies” by Eric Tyson. Then read “The Millionaire Next Door.” These three books will provide a GREAT foundation. Unfortunately, most Americans would rather sit in front of the TV set watching hours and hours of junk. But, if you’re willing to invest a few weekends of time reading these well written and even entertaining/funny, at times, books, especially at a young age, it will yield huge rewards for a lifetime… if you change your financial ways accordingly, that is.
19
Grubbing after money can change the way a person thinks. Do you really have such a low opinion of most Americans, or is that your money talking?
2
@Bart: Do you have an objection to the concept of saving some money so that you don't have to retire in poverty or work till you drop dead?
Or are you expecting to be supported after your retirement in the lifestyle to which you're accustomed? Nice plan, if one can arrange it...
Or are you expecting to be supported after your retirement in the lifestyle to which you're accustomed? Nice plan, if one can arrange it...
8
@ Bart
Yeah, let those horrible money-grubbing people pay for the roads and sewers and, of course, pay for my medical care and support me when I am too old to work.
Yeah, let those horrible money-grubbing people pay for the roads and sewers and, of course, pay for my medical care and support me when I am too old to work.
1
When you are in your twenties, SAVE UNTIL IT HURTS. Every expensive latte or drink you buy can be put into savings. If your employer matches your contribution, put aside part of your paycheck so it's automatic. I was making very low money in my twenties and my father nagged me into 401k contributions. It has compounded into a nice nest egg. You probably don't want to do it now, you want to put it off, but NOW is when you should start. There's great information online to educate yourself financially, including from the US Government. Just Google 'government, financial education.' Don't end up in your forties wondering what happened to the years and all the money.
57
And don't borrow against that 401K! It is not a bank account.