Moving this over from my Minyanville blog. I don't have time to keep up with it, so it's being archived, sadly. This one was written 3/22/11
I’m a 26-year-old who’s been working in Manhattan as a media planner for four years. I manage budgets for a living, so you would think I’d have a clue about how to manage my own money by now.
Not so much.
I’m only just beginning to realize that I’m not in college anymore. I can’t call my parents to ask if they can pay half of my rent, like I did at Penn State. Just a couple months ago, my cell phone bill was finally transferred from my mother’s name to mine. I realize it’s ridiculous that she paid my bill for that long, but I wasn’t going to bring it up before she did.
So now I’m 100% financially independent, and I have no idea what I’m doing. My head spins and I start dozing off when I try to learn about stocks, retirement funds, and social security.
Still, my goal for 2011 is to figure out some sort of long-term investment strategy for myself, so I’m building a financially stable future, instead of just working to pay rent. As I embark on this wild adventure and talk to financially smarter people, I will keep you posted, so you can learn along with me.
Let’s say you just graduated from college, or you started your first job (congrats on actually finding one), or maybe you’ve been working for a few years, but you’re barely living paycheck to paycheck. You feel like you don’t have the time or patience to invest, and you need every last cent to pay your rent, credit card bill, and college loans. You’re not alone.
I’m in the paycheck to paycheck boat, mostly because my rent is upwards of $1,000 a month in the New York City metro area. Once I pay rent, I’m almost drained for the following two weeks, so I use a credit card. Then with my next paycheck, I pay my credit card. If I happen to buy a trip to Vegas, an expensive birthday gift for my beloved boyfriend, or pay a huge heating bill, I’m in debt for another month. It’s like being in a hamster wheel, and it’s not like we can just hop off.
However, we’re about solutions, not whining, so I talked to Marc Bodinger, a 20-something associate at a financial research firm and self-professed finance aficionado (a rare breed).
“The 2008 financial crisis has demoralized young investors (our age group) to the point where they would rather go shopping then prepare for a future without social security and pensions.”
Yes, but it’s so much more fun to shop!
“Every day we don’t start preparing is a loss when we’re older.”
Scary stuff, Marc.
“In order to invest, you need to save.”
Yes, the first step we need to take toward our futures in a sunny, cushy retirement community in Florida or at least that huge wedding reception we’re throwing for ourselves in the next two to five years begins with saving and/or paying off debt. If we don’t save, we’ll never get off the hamster wheel. And the hamster wheel is not a good place, so you do want to have an exit strategy.
My friends always say, “I can’t afford to save, because I have so many bills!” But in reality, you can’t afford NOT to save.
1. If you have credit card debt or you just bought a fancy watch you couldn’t afford but just had to have, your first priority is to pay it off. And not with another credit card! Sense: that makes none. The interest you pay on these things is like flushing money down the toilet. Interest is how credit card companies stay in business; they want you to be in debt. It makes them rich. Do your best to get rid of your balance. Then if you need me to swing by and cut your credit cards for you, let me know.
2. For college loans, do your research and consolidate to make sure you’re paying the lowest amount of interest possible. The good thing is that college loans are tax deductible. Still, the sooner you can catch up, the better. And when you do catch up, try to stay afloat.
3. Start an Excel spreadsheet and budget your expenses. If you know you’re going to a bar tonight and will probably spend $100 on drinks, food, a cab, and more drinks for some random cute girl, make sure you set that money aside. Don’t worry about it later, just be honest with yourself and prepare. Make a solid effort to live within your means. What do you think our grandparents did before credit cards were invented? I’m guessing they didn’t spend hundreds of dollars on bottle service at a trendy club or buy the latest record player. They only bought what they could afford. A credit card isn’t money. It’s imaginary money. It doesn’t exist until you pay your bill with actual cash you’ve earned. If you’re spending more than you make, get a second job.
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| Credit cards = Imaginary money |
4. Have an emergency stash, a savings account, separate from your checking account. Don’t use it unless it’s actually an emergency, and spring break doesn’t count. Make it a point to put money in whenever you can (birthdays, bonuses, money you won in your office football pool etc.) You just never know what life is going to throw your way.
5. Invest in a 401(k) if your company offers one. The money goes in automatically pre-tax (you can even pretend it doesn’t exist), and usually the company matches a percentage of what you input. Any percentage you invest is better than nothing. Find out the max amount your company will match and aim for that. Or you can do a Roth IRA, with money that’s been taxed in your paycheck already. The max is $5K per year. You can also do a combination 401(k)/Roth IRA if you want to diversify and get fancy.
You’ll always have expenses, but saving, even if it’s only 3% in a 401(k) or 10% of each paycheck in a savings account to buy your first home, is extremely important, so no excuses.
“It’s difficult but it needs to be done because one day you’ll be 55 and you won’t have the time to play catch up. Saving a little everyday now will pay off,” Marc says.
Time is on our side for right now. We need to take advantage of being young and do everything we can for our near and distant futures. I don’t know about you, but I want to be sitting on the beach when I’m old, not in a cubicle.
