NO MORE MAC ‘N’ CHEESE!
The Real-World Guide to Managing Your Money for 20-Somethings
Lise Andreana, CFP
Self-Counsel Press
(a division of)
International Self-Counsel Press Ltd.
USA Canada
Copyright © 2012
International Self-Counsel Press
All rights reserved.
Introduction
“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.”
Ayn Rand
* Read this book if you arrive home to find a FOR SALE sign on the lawn and your parents gleefully tell you they have decided to downsize to a condo and have listed the contents of your bedroom on Kijiji!
* Read this book if you are a high achiever between the ages of 17 and 29 and are looking for solid tips to secure your future happiness and financial well-being.
If you are a young adult who has recently left home, or is considering leaving the family home, this book is for you. This book is designed to help you make smart decisions with money now and through the next decade. In the next few days, months, and years, you will be making financial decisions that will define your future relationship with money. Whether you decide to go it alone or choose a life partner, this is the decade which will take you from the family basement into your first apartment, when you’ll establish a career, balance a budget, set short-term to midterm financial goals, purchase a vehicle, and perhaps even buy your first home.
This book will help you plan your postsecondary education, begin a career, move from the family home, and find a financial coach to help you along the way. You will learn to set goals for the next decade, create an inventory of your assets and skills, and place a value on your career and the hidden benefits that can put thousands of dollars in your pocket. You will learn to build a budget, show your money who is boss, learn the difference between smart debt and dumb debt, and find tips for investing your savings. You will also receive tips for making your first real estate investment.
It is my observation that even a very small financial success at this stage of your life can multiply into solid financial security in the future. Did you know that just $100 a month in savings could grow to $56,251[1] over the next 20 years? What would you do with $56,000? If you wanted to make a down payment on a home in year ten, how much would your savings be worth? $19,854!
Note that mistakes made at this stage can take years to reverse. Debt incurred now to buy those new jeans or the latest video game can stay on your credit card for years in the form of outrageously high interest rate charges. Let’s say you buy those jeans on your credit card for $60 and only pay the interest for the next 20 years: Your jeans will cost you in excess of $325!
This book is designed to help you make the smart choice each and every time. The chapters are laid out so you can read the book from cover to cover, or you can pick and choose the topics of interest to you on any given day. Feel free to jump ahead to the topic which interests you the most.
Having a financial plan allows you to be strategic. Financial planning is a systematic methodology for making decisions which bring you closer to your goals. Your goals will be unique to you; the methodology for achieving your goals, however, has been well developed over time.
There are three simple steps you can take right now to help you secure the future happiness and the financial security you want:
1. Read this book.
2. Use the enclosed exercises to develop a strategy for achieving your goals — then implement your unique strategy.
3. Review your goals and the progress you have made often to ensure you are on track. Revise your goals and actions as required.
I wish you the best of luck as you set out on the road to financial success!
1. Assuming 7 percent rate of return
1
The Difference in Finances between the Baby Boomers and Gen Y
* Read this if you are tired of hearing complaints about your generation’s ability to grow up.
* Read this if you wonder what the difference is between your parent’s generation and yours.
Things are different today, and as a young adult, you may be starting your financial life plan later than your parents did. Many in your generation have delayed adulthood by five to seven years, compared to your parents’ generation. The advantage for your generation is that you are better educated and often have the financial support of your families as you enter your career years. By carefully selecting educational goals, following a prudent course of action, avoiding debt where possible, and making a wise career choice, you will be well on your way to financial security.
1. The Evolution of Personal Finances
There appears to be a growing trend for young adults to stay in the family home longer and to return several times before finally launching on their own. How will delayed adulthood affect a person’s future financial well-being?
As a financial advisor for the past 15 years, I have helped more than 1,200 clients. During that time I have had the privilege to work with retirees raised during the 1930s and 1940s, professional Boomers born during the 1950s and 1960s, and young professionals born during the 1970s and 1980s.
It has become clear to me that each year, today’s “new young adult” seems to be farther and farther removed from the common-sense, prudent money principles exercised by clients who grew up during earlier and simpler times ranging from 1940 to 1965. Why is it that clients who raised families in a single-paycheck environment, earned less, had fewer resources, and were less educated, managed to pay off debt while still in their 40s? They saved more, spent prudently, and lived within their means to achieve financial well-being in time to retire. What has changed?
For those of you born after 1985, your parents are “ancient history.” As far as you are concerned, they might as well be talking about the Big Bang theory! A little history lesson may be in order since much of the information we hold to be true about financial security, creating wealth, and retirement planning is based on the baby boom generation. Bear with me; upon examination you will find out why the rules that worked for the Boomer generation will not work for you. The following example gives an insight into why there is a difference between the generations’ financial management.
Cassie has just turned 25 and will graduate next spring from her local university, with a major in journalism. She has been listening to her parents go on and on about how it was when they were growing up in the 1960s and 1970s. They tell her, “By the time we had reached the age of 25 we had already married and bought our first home.”
Cassie is beginning to feel like a failure for being so far behind. Like many young adults, she still lives at home with her parents, has $20,000 in student debt like so many students[1], has yet to land a full-time job, and is a long way from finding the person she wants to marry. Rather than