Tuesday, October 9, 2007

What Advice Is Realistic for a 20-Something

An article caught my eye today on Yahoo!Finance that had been published in US News & World Report by Kimberly Palmer. In it Ramit Sethi, creator of the "I Will Teach You to Be Rich" blog discusses how most of the information out there on personal finance is written by "old, white men for old, white men," and too a point I may agree. (Maybe not quite so harshly.)

When I started reading about personal finance and investing I was 20 years old. My parents didn't sit me down and explain budgets, investing, or even shopping for groceries. Growing up, my mother had struggled as a single mom making ends meet. My father's frugality was often confused for being a cheapskate. He invested... with a full service broker and he collected as a business. Its interesting that there are two taboo topics that parents assume kids will learn, sex and personal finance. The sad thing is parents are often surprised when kids have difficulties tackling either one.

My mom helped me set up a savings account, but forgot to explain to me why earning a penny a month was beneficial. I couldn't see the big picture. I baffled my grandparents one year when I asked for stocks for Christmas. To their credit, I got 6 shares of Costco when it was at $12/share. That was the beginning, but there were a lot of bumps in the road to my education.

I agree with Famit Sethi, personal finance education is not one size fits all. Many books teach from the perspective of someone who has already graduated college, is married and possibly with family, and have a significant start on savings. They aren't taking into consideration purchasing the wardrobe for the new job, starting a discount / online brokerage account with a minimal amount to start, setting up a food pantry from scratch rather than relying on Taco Bell or McDonald's, or how to start out with the minimum and building your benefits as your budget allows.

My advice to someone starting out:
~ Do not rely on credit. It is a band-aid that will catch up to you quickly. Better to take your spare time, develop alternative means of income, and build your investment account. Get your shopping fix off of smart investment decisions.
~ Keep your roommates as long as you can. Not having to share a bathroom sounds like heaven, but all of the extra expenses will drain your budget quickly.
~ Take a cooking class and educate yourself on easy, healthy meals.
~ Cheap furniture is just that, CHEAP. Invest is better built pieces that will be around for a few years.
~ Challenge yourself with finding free meals served at community events. Combine entertainment and keep tabs on your grocery bill.
~ Don't get frustrated when your teller gives you funny looks. Make those deposits into your savings even if they are $5-$10. Its still a contribution to your savings.
~ Like cheap furniture, penny stocks are cheap for a reason. Make sure you research your investments before you jump into the world of Wall Street. That $3 stock won't look like such a bargain 5 years later when its still at $3.
~ 3-6 months of wages in an emergency fund is something to strive for but not a requirement. Don't be afraid to start small.
~ If someone tells you $500 isn't enough to do anything with. Walk away and don't believe them.
~ You are building your network everywhere. Make good first impressions to ensure future success.

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