Financial Tips Every Young Adult Should Know


 

OLYMPUS DIGITAL CAMERABecause my son is a Boy Scout, I spend a night a week at a Boy Scout meeting, usually talking to the other parents or maybe playing a card or board game while the scouts work on their merit badges.  Each year some of the scouts graduate from high school and set off on their adult lives.

I do my best, particularly during their senior year, to get them on the right path financially in life.  Unfortunately, there is a lot of bad financial advice out there and many of the lessons learned from parents are bad lessons.  Many parents from middle class families teach their children to borrow lots of money to have what you want now and then worry about the consequences later.   Some teach their children to save, but few teach them to invest, so they end up losing a lot of money to inflation.

Here are some tips that I wish every young adult heading off to college, or just out into life knew, because many of the financial mistakes made during early adulthood affect us for our whole lives.

1.  Don’t take on debt to pay for things.  Many teenagers are taught that you must use debt to buy things from their parents, either purposefully or through the actions of their parents.  They see their parents buying new cars every few years, taking out a home equity loan to update the kitchen, or whipping out the credit card every time they need to buy something.   Using debt to pay for things will end up costing you twice as much for things than if you waited and paid cash.  This means you’ll have less of your income t spend on other things.

2.  Your choice of colleges is far less important than how you do and what you learn while you’re there.  Many teens think that they will be set for life if they make it into their dream school.  The truth is few employers really care about where you went to college – they want to see what you can do when you start working for them.  Virtually any college will have far more to learn than you will be able to absorb.  Choosing a college that won’t require student loans or expensive living arrangements will allow you to start to build wealth faster since you won’t leave college with a mountain of debt.

3.  Get into the 401k program from day one.  Every seven years or so that you are in the 401k program your account balance will double, assuming that you are invested mostly in stocks.  If you start at 20 but wait until you’re 27, you will have missed one of those doublings, meaning you’ll have half as much money at retirement.  Plus, you’ll miss out on seven years worth of company matches, which means you’re leaving money on the table.  You first question after “Where’s the restroom?” should be “How do I sign up for the 401k program?”

4.  Gather up $9,000-$12,000 as an emergency fund as fast as possible to stay out of credit card debt.  Most people don’t mean to get into credit card debt.  They just don’t have any savings and then something happens.  A car breaks down, the end up in the emergency room with a fracture, or their best friend let’s them know they are getting married in two weeks and they need to fly out.  They put these things on the credit card and then next thing they know, they are $10,000 in debt.  Keep an emergency supply of cash so you’ll be ready when things happen.  Then, save like a madman to build your emergency fund back up if you ever need to dip into it.

5.  It is easier to start saving from the start than it is to cut back.  When you first start at a job, it will seem like your paycheck is huge, but after a few years of adding on “necessities,” you’ll find that you’re spending every dime.  If you start right from the beginning putting away 10% or so into savings, then investing that money each time you have a few thousand dollars saved up (or just deposit directly into a mutual fund and buy shares with each paycheck), you’ll find it’s easy to save and you’ll never miss the money.  Plus, when you need to do something like replace a car, you’ll have cash to do so.  Which brings us to the next point….

6.  Buy used cars.  A car will  lose half of its value every four years.  This means that if you buy a $30,000 new car you’ll lose $15,000 over the next four years, or about $3750 per year.  If you buy a four year-old car, you’ll lose only about $7500 over that same four-year period, or $1875 per year.  That means you’ll have $7500 more in your investment account every four years if you buy used cars than you will if you buy new.  Do that for 20 years and you’ll have almost $40,000 more, even if you don’t invest.  Put the money you’re saving into stock mutual funds, and you could easily have $100 grand sitting around after that twenty years, just for driving a slightly older car.

Contact me at vtsioriginal@yahoo.com, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

A Response to the Me-ternity Leave Columnist


Are They Growing Up While You're on Your Phone?In her article in the New York Post,  “I Want to Have All of the Perks of Maternity Leave – Without Having Any Kids,”  Meghann Foye talks about how she felt it was unfair that new mothers get paid time off for maternity leave, while she and others who chose not to have children didn’t get the same.  She proposes that women (and maybe men) should get some time off for reflection that she calls “me-ternity leave.”

Now I feel the eye roles from millions of parents out there and yes, she does appear to be that clueless.  While she seems to think that new mothers are home, sipping coffee in light-bathed sunrooms while reading the paper (having slept in until late morning) while their newborn child sleeps peacefully in a room down the hall, only waking periodically to coo and do cute baby things, mothers and dads can both attest that the weeks and months after having a new child are anything but peaceful.  Getting sleep 2-3 hours at a time, trying to cram food down during the brief moments you have, and always walking around with a little bit of spit-up on you shoulder (because it happens so often you no longer bother to change or even wipe it off) is not conducive to deep self-reflection.

And that’s where Ms. Foye really misses the whole point, probably precisely because she has not had kids herself.  In fact, she has it exactly backwards.  Once you have children, you go from worrying about yourself and yourself being the focus of your attention to the children being your focus.  You start to watch kid shows, read kid books, wake up at kid hours, (once they get old enough) go to kid movies, and take vacations where you look for kid activities.  I barely noticed the playgrounds at parks before I had kids but they became the focus of my life for many years.  Maternity (and paternity) leave isn’t about taking time away from work to focus on yourself and look at the direction of your life.  It is to figure out how you will need to change your routines now that you have someone in your life that will take your constant attention.

I remember just looking at other people in restaurants, just sitting there waiting, and thinking how wonderful it would be to just sit.  Looking back, I wish we had eaten out less and maybe just done take-out when we didn’t feel like cooking because going to restaurants was usually a terrible experience between fighting the children to stay in their seats and the inevitable rush to the parking lot with a screaming child just as the food arrives.  Actually, we used to fight over who got to cook most nights since it was a break from constantly addressing our childrens’ needs.

I remember thinking as I rocked my son late at night how after he had grown and was out of the house, I could start to do things again.  But then I realized that by the time that happened, I would not be wanting to do the same things.  I wasn’t gong to go to the dance clubs when I was fifty.  I wasn’t going to go play spend the weekend mountain biking with friends.  That part of my life had ended and a new part had begun.

I started to realize some other things about work as well.  I’m guessing (perhaps incorrectly) that Ms. Foye looks down her nose at women who stay home to raise the children.  I’m just guessing this given what she thinks maternity leave is like.  Really, raising children (for those who have the capability to do so) is one of the most important jobs there is.  We seem to lose sight of the fact that we go out and work to bring home money for our families.  It is like we have all decided that the people who leave the cave and hunt have the important role, such that everyone wants to go out and hunt.  But we forget that the whole reason we’re hunting is to take care of the children back at the cave.

Now I’m not saying that the mother needs to always be the one to stay home.  Really the decision is a combination of who has the better paying job and who has the capabilities to  do a good job raising the children because that is the more important and difficult job that many people are not suited to do.  In a year, few people will remember anything someone does at the office.  Certainly in twenty years almost everything will be forgotten and the presentations that were made will have been deleted.  But the children will continue to make an impact on the world, good or bad, and a big part of that impact is due to the work of the person who raised them.  We’re already seeing the impact on the world of children who were raised by no one.

Being the primary parent is also far harder than many jobs.  Now I’m not talking about people who stay home, but let the TV raise the children while they go on about their lives.  I’m talking about parents who spend the day taking care of the children, dressing them, teaching them, finding activities for them to do that expand their experience, correct them when they act inappropriately and encourage them when they do well.  It takes enormous patience, enormous energy, and enormous sacrifice to be a truly great parent.  There is nothing “me” about being a great parent – it takes giving totally of yourself.

But when you truly do, you start to realize how incredibly unimportant all of those other things that once filled your world really are.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

What do you think?  Please leave a comment?

Contact me at vtsioriginal@yahoo.com

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

So What Are You Doing by Raising the Minimum Wage?


McKiosk?
McKiosk?

It really seems simple.  People need more money, so you just require that they get paid more.  You say that it costs about a $15 per hour job to live in the city, so you raise the minimum wage to $15 per hour.  Of course why stop at $15 per hour?  Why not just raise the minimum wage up to $100 per hour so that they could live in style and pay lots in taxes?

Obviously people know that you can’t just raise wages to $100 per hour.  The business would need to raise prices dramatically to pay those high wages.  But even raising wages from $7.50 to $15 per hour has a similar effect, although more subtle.  You can’t just arbitrarily raise wages because the person who is making $7.50 per hour isn’t producing enough to earn more.

You see, everyone who is earning a salary is actually engaged in a bartering transaction with everyone else in the economy.  They perform some task or make some product and then trade the value they create for something else they want. Maybe a McDonald’s worker in NYC enters orders into the cash register for ten minutes and trades that service to a farmer in Nebraska that grows an ear of corn he eats that night.

Of course he doesn’t actually meet with the farmer in Nebraska.  The farmer in Nebraska takes his corn to market somewhere in Nebraska and trades the corn for cash.  The McDonald’s worker goes to his boss at the end of the pay-period and collects a check.  There are several transactions that take place between people to connect the McDonald’s worker who wants an ear of corn with the farmer who grows it.  Cash just makes it easier to trade since the McDonald’s worker doesn’t need to make several trades himself to finally get the ear of corn he wants.

Now let’s say that you just raise the wages of the McDonald’s worker to $15 per hour since that’s what he needs to pay for things.  Now the farmer needs to trade two ears of corn for the same ten minute period of order taking.  He needs to do twice the work to get the same thing in return.

Now the price of an ear of corn compared to the amount of time spent pushing buttons on the cash register isn’t arrived at arbitrarily.  It is based on how much the farmer must earn after he has paid for all of his expenses to motivate him to go through all of the trouble to grow the corn in the first place.  If he is not paid enough, he may decide to stay in bed a few more hours.  He may decide to plant 50 acres instead of 100.  He may decide to trade his corn overseas where he can receive more per ear.  He may decide to do something else rather than grow corn. Or he may decide to just grow crops for his family and stop trading.  When any of these things happen, the amount of corn available declines, so now even though the McDonald’s worker earns enough to buy two ears of corn each time that he works for 10 minutes, he may go to the grocery store and find there is no corn to buy.

Note that Venezuelans a few years ago decided to vote in a government that went out to the farmers and demand they charge less for their crops.  In fact, they even went so far as to chase the farmers off of their land and give the land to squatters who were supposed to use the land to grow crops and feed themselves.  Because the squatters didn’t know how to farm, plus they probably lacked the drive and work ethic that the farmers had, the country went from one that was an exporter of food, meaning that they grew more than they needed to feed their people, into one where the people are starving.

And it extends beyond food into toilet paper, medical supplies, gasoline, and even electrical power.  There is a shortage of everything.  Today it was announced that state workers would only work for two days a week to save power and women are advised to not blow dry their hair.  Of course, the capital, where the ruling class live, has first dibs on electric power and they aren’t experiencing the same kind of blackouts that they are seeing other parts of the country.  The rulers in Socialist societies always take care of themselves first.

Now there is another possibility and that is that the farmer will simply raise his prices and require more money in exchange for each ear of corn.  In that case you soon end up with the McDonald’s worker making $15 per hour but needing $30 per hour to have enough to live on.  He may earn more per hour numerically but he still gets the same amount of value per hour of work because that is what the service he provides is worth.

The only way to improve the life of the McDonald’s worker is for him to learn new skills that will allow him to produce more per hour.  He can then get a higher salary without forcing someone else to pay him more than he is worth.  Millions of people do this during their lifetimes, starting from a minimum wage job but using that job to learn and develop skills and experience so that they can get that next job and that next one.  Maybe they even start a company and generate even more money, eventually becoming a wealthy person.  The trouble is that some people want to stay in that same job, doing a minimal amount, taking on the minimal level of responsibilities, and using a minimum amount of skills but get paid enough to support a family.  That is just not a sustainable plan.

Got an investing question? Please send it to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

What do you think?  Please leave a comment?

Contact me at vtsioriginal@yahoo.com

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.