The Money Mustache Community
General Discussion => Welcome and General Discussion => Topic started by: Malaysia41 on June 11, 2014, 09:27:19 AM
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Our extended family is meeting in the San Juan Islands for 5 days over the 4th of July. I offered to teach financial management / planning to the younger set (I'm 41, they are all young twenties). I've got so much to share I'm actually kind of scared I'll turn them off with TMI. I need to distill it down.
I could just send them to the MMM site, but I fear that it may spook them - they like shopping at Nordstrom and looking all fine and hawt and - yeah - they are early twenties. I can't lead with frugality.
A few ideas to lead with.. feedback please!
1. start with a riddle i just made up: "I'm an employee, I'm a coupon, I'm a vote. What am I?" (Answer: money)… the idea is quickly acknowledge what they are well aware of - $ as a coupon for shuz and services. Then go into the idea of putting $ to work for them (every dollar is an employee as MMM says). I figured out that at a 4%SWR, you need $3000 in the bank to finance a $10 / month spending habit. That may seem overwhelming (I have to save $3000 to get $10 a month???), but turn it around - if you shave $10 per month off of your spending - that is like $3k in the bank IMMEDIATELY. (then talk about using $ to vote for good biz practices, etc)
2. start with personal stories of financial ineptitude. Despite a money obsession since age 10 ( I used to lend $ to my older siblings at 10% interest compounded WEEKLY), and despite having earned a CFP whilst on maternity leave for shits and giggles in 2005, and despite having taken a biz minor in college(sidecar'ed to engineering degree), I have made some capital F foolish errors with my $. I could lead with these stories. (e.g. when my tech stocks went through roof I actually thought to myself - "sweet, I can start spending hundreds as if they were tens" doh! enter.. 2000 crash. or catching falling daggers in 2000 even as I was buying a house and needed the escrow $, or my mental process when buying shoes that I don't need, etc. on and on ).
3. start with fear: a talk about how our world is pretty much set up for business to take your $ at every opportunity. Big biz knows how you behave but do you? we'll discuss the concept of anchoring (behavioral econ), our relative thinking, our rationalizations, etc. Business knows we think this way and the system is geared to maximize the extraction of $ from us - as often as possible. We can talk about the Covey spheres of influence (focus on things you can do (like develop frugality chops, hang with people who don't money-shame you into following the status quo , widen your options , take non-standard career paths, be frugal most of the time, etc).
4. Why get badass with your money? For retirement? Shit no - you are twenty - that means nothing to you. For financial Independence? Maybe getting warmer - FI may be a little more interesting. How about this: freedom. fuck-off money. getting to spend your whole life for you - not as a wage slave. (note if you find a job you love OF COURSE it is okay to go for it - just make sure to build your FU stash so you can walk away whenever you want ).
5. throw down a challenge: anyone who gets to FI first gets a beer from her Aunt. Anyone who gets to FI before I did (I'm 41) gets (IDK I haven't thought of a reward - ideas?).
Oh and then there are the fundamentals - at which point I will begin to send them to MMM - e.g. 4% SWR, frugal vs cheap, $ made $10 at a time - basically all of the featured articles plus a few select ones peppered on top.
Anyway - I could REALLY use some advice. I love these ladies and I want to give them everything I can to equip them to go into this life with the skills to keep the $ they earn so that they can put it to work for them in whatever path they choose.
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Ooh, this is an opportunity. I'm old school, so I'd probably start with the key YMOYL idea: that every dollar you spend irrevocably takes away part of your life energy.
If you're (for example) buying $10 lunches while making $10/hr after taxes, you're essentially spending one hour working for no pay every day of the week.
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Two random thoughts: If you don't mind sharing your balance sheet, show them what you do and what you got. Do a Jeopardy game on finance with prizes from the family group.
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Ooh, this is an opportunity. I'm old school, so I'd probably start with the key YMOYL idea: that every dollar you spend irrevocably takes away part of your life energy.
If you're (for example) buying $10 lunches while making $10/hr after taxes, you're essentially spending one hour working for no pay every day of the week.
I love that concept...you hear all over the place the phrase "time is money" but the meaning never truly sinks in and you miss out that because that phrase is true, money is time
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5. throw down a challenge: anyone who gets to FI first gets a beer from her Aunt. Anyone who gets to FI before I did (I'm 41) gets (IDK I haven't thought of a reward - ideas?).
...They get to retire and be FI? What could you entice them with that would make them want FIRE more than FIRE itself?
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To me the biggest thing for people to understand is the magic of compounding interest and time...how it works for you when you save and how it works against you when you borrow.
That can be the story of the 20 y.o. who saves 5K a year for 10 years and then stops who has oodles more money at 65 that the person who started at 30 and saved until 65. (I forget the exact figures.) Or it could be the $40 blouse on sale which ends up cost $80 because of cc interest. Or the $5 a day on coffee which could turn into xxx if saved instead.
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Ooo fun! Did they request that you talk to them about financial management? I'm assuming that they don't know a whole bunch outside of: "saving $ is good", "start saving for retirement as soon as possible" and maybe even "it would be cool to invest but I have no idea how to start doing that/how to do it right"
I am a 20-something myself and I think you are underestimating how much 20-somethings care about retirement. They think it's decades away and are probably facing the idea that they will have to work until they are old as shit. You've got to start off by changing their outlook. Introduce them to the concept that a normal person does not have to work for three decades before retiring and being able to spend their time how they want. Give them an example of something possible for them. "If you make $XX,000/yr and save/invest 60% of your take home pay, surprisingly, you can retire in Y number of years." (Show them the attached graph.) Make sure they know that this can be done without winning the lottery and most importantly by setting themselves up with a lifestyle that will allow them to do this. This is the best time for them to start defining that lifestyle!
If that interests them, they will probably want to know what steps they can take now. You can talk about what to do with the money they want to save or invest. Investments can be in the form of paying off debts, owning a house, trading stocks, trading index funds. And make sure to mention that this is where their money has the potential to earn money at a faster rate than it would earn in a savings account, so saving is great, but they can do better still by doing other things with their money. Show them how to sign up for a Vanguard account.
There will probably be some who are less open to changing their lifestyle. Show them what they can do with their money they are willing to save. Down the road, once they start seeing their investments perform, they may be more likely to change their lifestyle to allow greater amounts of $ to be invested.
Hopefully you will hook a few of them and they will come back and ask you more questions. Just signing up for a Vanguard account should open up a whole bunch of questions from them. Wait to dig deeper until they really show interest in learning more.
MMM might be too much for them... unless you sell it to them the right way. The only reason I am willing to come back and read every single MMM article is because I was drawn to the site by the news article headline "I Retired When I Was 30" and that is still in the back of my mind every time I read a blog post. Make sure to let them know that this has already been done by real, middle class people and give them the link to the MMM blog to explore on their own.
Have fun and good luck! Let us know how it goes!
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Hey, my extended family is gathering in the San Juan Islands for the 4th! What island?
To go with your question, I wouldn't necessarily emphasize the "retirement" aspect so much as just the power that money in the bank gives. Might be early retirement, might be travel, might be working less or having the freedom to quit a job you hate even though you don't have another one lined up yet. These are all things that become possible when you learn to live below your means.
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I agree with Mary W and Kelladoo! I'd start by showing some compound interest charts and showing how money begets money if you save it early. That's what got me hooked into saving what I could.
Personally, I think the 4% withdrawal, x in the bank to afford y is a little more advanced and gets you in the weeds a bit (explaining SWR, how you get to 4%, the math behind it). That to me seems like the conversation if they get it and are enthused, but I wouldn't lead with it. Instead, I might show Shockingly Simple Math - save 50%, only work 17 years. Save a lot less, work forever.
Of your choices, I'd start with 4 and 3, and use sprinklings of 2 throughout that discussion. I'd show the simple math and compound interest charts (if you save x/month from 25-35 you'll end up with more money than the person who saves way more from 35-45 or whatever it is). And daydream with them - what would their ideal lives look like? How can they get there?
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Maybe dont start with it but if you showed them the math of if they invested 1k per year from when they were 15 to 25 years old to make the point that time will pass regardless if they are saving/investing or not. "you all remember when you were 15, well had you done this, now at 25 you would have xx and nearly half that is dollars you did not put in the account."
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2. start with personal stories of financial ineptitude. Despite a money obsession since age 10 ( I used to lend $ to my older siblings at 10% interest compounded WEEKLY), and despite having earned a CFP whilst on maternity leave for shits and giggles in 2005, and despite having taken a biz minor in college(sidecar'ed to engineering degree), I have made some capital F foolish errors with my $. I could lead with these stories. (e.g. when my tech stocks went through roof I actually thought to myself - "sweet, I can start spending hundreds as if they were tens" doh! enter.. 2000 crash. or catching falling daggers in 2000 even as I was buying a house and needed the escrow $, or my mental process when buying shoes that I don't need, etc. on and on ).
4. Why get badass with your money? For retirement? Shit no - you are twenty - that means nothing to you. For financial Independence? Maybe getting warmer - FI may be a little more interesting. How about this: freedom. fuck-off money. getting to spend your whole life for you - not as a wage slave. (note if you find a job you love OF COURSE it is okay to go for it - just make sure to build your FU stash so you can walk away whenever you want ).
I'm 27, so probably the slightest bit older than your target audience.
2) Don't talk about the stock market collapsing on you. The fact that "Stocks always go up" is an advanced topic that you shouldn't touch until you have buy-in from them about this being a worthwhile idea.
4) My first question before EVERYTHING ELSE, would be: "What would you do for the rest of your life if you won the lottery and ended up pocketing $2 million after taxes?" Every person will have a different answer and that is ok. If someone says "I'd live like a movie star!" go through a budget with everyone to show that, no, you can't live like a movie star for your life with only $2 mil (note I said do a budget, do not derive the 4% rule b/c that shit is boring. Most people are willing to accept the 4% rule as fact if it comes from a CFP). Then rephrase your question to "Ok so really having $2mil in the bank means you get $80k/year to live off of without doing anything. So what would you want to do with your time? Volunteer? Skydive? Surf? Build houses? Climb mountains? Raise children full time? Garden? etc. Without this answer from each one of them, you will never get any buy-in and they'll be bored to tears.
Now that you know what each person dreams of, go through the examples of a 5% savings rate vs a 50% savings rate (get one year off per 20 years of work vs one year off per one year of work). Mention your concept of if you lower your expenses by $10/month, you lower the amount you need by $3000, but also show that $10/month that they are saving instead of spending compounds into about $1500 after 10 years at 5%. So by not spending, they help themselves in 2 ways, decreasing the amount they need to save, and increasing the amount they are saving.
Go through compounding with a spreadsheet. Describing it with a spreadsheet always makes it more real than a graph to the people I show. If credit card debt (or any other debt) is a problem for any of them, go through an example of minimum payments on a $400 TV and how much it will actually cost. Do the same thing with a car loan at 8%. Show that this shit gets expensive if you do it with debt.
Now, do the example of compounding 50% of an average salary and show how it takes 14 years for earnings to exceed expenses. You can use the Networthify calculator (http://networthify.com/calculator/earlyretirement) to run these calculations fast.
So now you have shown them that they can "do what they want for the rest of their life" (I would stay away from the terms "retire" and FIRE etc.) starting no later than 14 years from now.
Then if they are still with you, move on to how to invest what they save.
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Don't forget to ask them the question of what is the most important financial asset they all have that you don't (time).
good luck!
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2) Don't talk about the stock market collapsing on you. The fact that "Stocks always go up" is an advanced topic that you shouldn't touch until you have buy-in from them about this being a worthwhile idea.
I don't think it's that advanced of a concept. Stocks go up, stocks go down, stocks stay the same, and every which way at any given time, but the overall trend is continuously marching upwards. They need to understand that so they don't panic when the stocks dip, but also so they don't have the same folly and spend like crazy when their stocks are rushing up. That may be an important lesson to learn so they don't reward themselves with a new car just because their portfolio increased 30% in a given year. They need that 30% to weather the bad years - and it all works out to a SWR of 4%.
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Where to start you ask?
With the ONE concept that is the ultimate foundation to amassing a fortune: SPEND LESS THAN YOU EARN, period.
After that, it's all detail. How much less to spend than you earn (savings rate). What to do with the accumulated capital (investments). How to use, or more fundamentally, what is leverage and how can this tool be both your best friend and worst enemy at the same time. etc, etc, etc
Another thing: Talk about the foolishness of the YOLO concept as it relates to spending it all now, since "I might die tomorrow". For 20 somethings, the fact is most, nay, the vast majority will live a very long life.
http://www.ssa.gov/oact/STATS/table4c6.html
For 20 year old males, live expectancy is ANOTHER 56+ years (and nearly 9 out of 10 will make it another 40 years). Females, 61+ years (with 92% of 20 Y/O females making it another 40 years).
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4) My first question before EVERYTHING ELSE, would be: "What would you do for the rest of your life if you won the lottery and ended up pocketing $2 million after taxes?" Every person will have a different answer and that is ok. If someone says "I'd live like a movie star!" go through a budget with everyone to show that, no, you can't live like a movie star for your life with only $2 mil (note I said do a budget, do not derive the 4% rule b/c that shit is boring. Most people are willing to accept the 4% rule as fact if it comes from a CFP). Then rephrase your question to "Ok so really having $2mil in the bank means you get $80k/year to live off of without doing anything. So what would you want to do with your time? Volunteer? Skydive? Surf? Build houses? Climb mountains? Raise children full time? Garden? etc. Without this answer from each one of them, you will never get any buy-in and they'll be bored to tears.
+1
Talk first about WHY they want money (what it really represents for them and those values - looking good before others? Security? Stability? Freedom? Travel?) and then move into the nuts and bolts. I like the $2m example above.
Ask them when they think they can retire - and then ask what they would think if you told them you knew someone who retired at age 30.
Then once you've hooked them on wanting it, THEN talk nuts and bolts about how to get there. Being open with your finances will probably help make it concrete.
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Hey, my extended family is gathering in the San Juan Islands for the 4th! What island?
To go with your question, I wouldn't necessarily emphasize the "retirement" aspect so much as just the power that money in the bank gives. Might be early retirement, might be travel, might be working less or having the freedom to quit a job you hate even though you don't have another one lined up yet. These are all things that become possible when you learn to live below your means.
Lans - we will be at Roche Harbor on San Juan Island - THE BEST PLACE TO BE FOR THE 4th! You'll see our clan on the log roll, in the 5k run, the donut eating contest (my son won this 2 yrs ago - he swept the 6 and under category). We will be wearing the red shirts with our team name 'Bun's Terrors' ( my mom's nick name is Bun and my dad's name is Terry... the extended clan are the terrors :) . What island will you be on?
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As someone who does a bit of training, I would begin with an assessment of my audience. Here's a few questions I would ask:
- What do they want to learn?
- What do they already know?
- What concerns do they have about money?
I'm sure there's a few other good questions you can think of to ask them as well. Once you've gotten an idea of that, then you can design your lesson around it. People always skip the first step in training (Assess, Design, Develop, Implement, Evaluate) and jump right to the design. This thread is a nice little illustrations of that. :) Although, all great ideas.
Also, keep in mind their capacity for learning given the context when you're coming up with your lesson(s). They are, after all, 20 somethings in San Juan. That doesn't exactly make for the most conducive learning environment. :) My guess is that you'll want to be realistic in what you can impart while you're there. As others suggested, it may be enough to just plant a seed.
All that said, the law of 72, the 4% rule, and FIRE in general were all enough to blow my little mind, so those would likely be at the top of the list for content... depending on what feedback you get from them.
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I'm deeply moved by your thoughtful responses. From the twenty something perspectives to the teacher's view, from sharing what 'hooked you' to suggestions for keeping it simple - everything you've all written is useful and I'm already feeling more in control in coming up with a game plan. I will start with uncovering / posing questions. Then I will have ready all of your tips for deep dives / further discussion. Yes, much of these talks will be over dungeness crab, old bay seasoning and beer (good beer - I live in Malaysia and the beer here is CRAP. Can't wait to drink an Honest-to-God-Ale back in the Pacific NW!). Seriously - from the bottom of my heart I am grateful for your insights.
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Oh - and keep the advice coming - I'm continually checking this post - and I will update with the results after the 4th. I love these lil' 20-something buggers so much I hope they latch on to these ideas. May the MMM ethos work magic through me this 4th July week.
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Many good ideas on theory given already. I'm going to elaborate on kelladoo's "Show them how to sign up for a Vanguard account." In other words, help them with "sounds good and all that, but how do I actually ______?"
Will they have internet access? If so, you could walk them through signing up for - and arranging a payment into - their very own IRA (Traditional or Roth, as preferred). E.g., Vanguard 2060 Retirement Target (or whatever you prefer - I'd keep it as simple as possible for now).
Even better would be to walk them through signing up for (and/or increasing the contribution to) their own 401k.
Or making a principal payment on any high interest student loans. Etc.
Theory in competition with crabs and beer many not fare well. But real, tangible, actions - they will provide good reasons to celebrate with more crabs and beer!
Just guessing from your OP, but they might need some hand holding to get past the mechanics of investment. It would be a great service if you can enable them.
Alternatively, you could ask them to do the above on their own before July, then deal with theory (and any remaining practice items) when you are together.
One pre-work item they should all do: prepare a budget based on actual income and spending.
Good luck!
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I have lurked here for a while now, but had to register to put my two cents in on this one.
I am a 23 and only a year removed from graduation. I took a personal finance class my senior year and learned some valuable tools, but didn't get a whole lot from the class. I am odd due to being a math lover, number cruncher, and overall avid learner.
The first thing to do is check for understanding (as noted by someone else above). I was amazed by the general lack of knowledge even from a bunch of college students. Once you find that base, you know where to start the teaching process.
When it comes to lessons, a good one was getting paired with others in a group and preparing a family budget. You then get the number of kids and household income drawn from a hat and have to negotiate a monthly budget with your group deciding how to allocate for major categories of spending and savings rates. It is good way to teach budget preparation, as well as, working with others who have different financial ideas.
Good luck !
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No More Harvard Debt did a presentation on FI for 12 year olds:
http://nomoreharvarddebt.com/2014/01/29/teaching-a-debt-perspective-to-12-year-olds/
I did like it a lot.
I'd also hit them with shockingly simple math.
(http://www.mrmoneymustache.com/wp-content/uploads/2012/01/ere.jpg)
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
Many good ideas on theory given already. I'm going to elaborate on kelladoo's "Show them how to sign up for a Vanguard account." In other words, help them with "sounds good and all that, but how do I actually ______?"
Will they have internet access? If so, you could walk them through signing up for - and arranging a payment into - their very own IRA (Traditional or Roth, as preferred). E.g., Vanguard 2060 Retirement Target (or whatever you prefer - I'd keep it as simple as possible for now).
Even better would be to walk them through signing up for (and/or increasing the contribution to) their own 401k.
Or making a principal payment on any high interest student loans. Etc.
Every persuasive speech should end with a call to action. Even putting $5 per paycheck into the company 401k will get them started with saving for retirement. I do consider it a grand success that my roommate started contributing to her 401k up to the match and then, when she got a raise, INCREASED HER PERCENTAGE so that her take home was the same as before! Her mom thanked me for convincing my roommate to save for retirement.
I think it's a good contrast with how intense my own saving is. Last December, 80% (the largest percentage I can designate) of my monthly paycheck and year-end bonus went into my 401k. For the past few months, I've been putting in 77%. http://www.madfientist.com/front-loading/ Compared to that, siphoning off a few percentage points seems small. It's about framing.
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ch12, thanks for the link to the presentation for 12 year olds! Nice summary.
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I'd also hit them with shockingly simple math.
I'm 27 (also probably slightly older than your target), but the shockingly simple math post is what hooked me in the beginning, and I always go back to it when I need motivation.
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Can someone explain what the 1,2,3,4,6,10,15% lines represent on this chart, reread the original post and is not explained or I am still three shots of coffee low this AM. Are they withdrawal rates? Or some sort of percentile market failure probabilities? I understand the core concept -save more-retire non-linearly-earlier, but this chart has never been clear to me.
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So, what are your goals, to give a great talk?
Or to change the financial history of the next generation in your family?
If you want to have the next generation change/or improve/establish good financial habits - i.e. "behavior change" then one lecture isn't going to cut it, in fact, a lecture format will likely have no impact.
Imagine everyone in your country, community and family is fat. You give a lecture explaining how you cut calories and started to exercise and lost and maintained weight. However, those people like donuts and binge watching Netflix. After the lecture, many people may start eating veggies for a week, or they may buy them at the grocery store and watch them rot in the fridge. They will likely buy a bike with intentions of riding it, buy a tread mill for the same thing, or get a gym membership - but after a few weeks, with their busy schedules, they will go unused.
So you are up against two things: individual behavior change as well as community pressures. If you do not have a long term plan to address both of those, your lecture will have no impact, even if you are super charismatic and good at presentations, which is sounds like from the "spreadsheet" suggestions and such that the lecture will not be.
I would recommend that you make concept - financial independence/strength for the next generation of your family - a long term project in which they only participate in if they jump through hoops. For example - it MUST be practical - like a really fun hook, then they must have some sort of committment/investment on their part. So keep the intro talk very general and fun - the basic article that was in the news about retiring before 30 - then working only with those who want to do it on individual plans where they support one another. Some will fall off the bandwagon but that is OK. Some won't start at first, however, will see the success of others and want to join. You will need regular social support (this is why there are support groups for difficult things like lossing weight (Weight Watchers - people think it was successful for counting calories, but everyone knows you need to count calories, it is the weekly accountability and social support that defines it) and Alcoholics Anonymous.
Those young adults are like donut and Netflix addicts. To get them to give up their iPhones, foreign vacations, leased cars, eating out is going to be difficult. I would do things like start a competition:
1. Everyone joins some sort of investing portfolio of their individual choice, and have the competition be not who make the most profit, as that fluctuates, but who socks aways the most $$$ for the year while they learn about and explore the world of investing
2. Variations of educational and practical - do not teach any subject without doing the practical - i.e. don't teach about investing, help them to get started investing. In the U.S. we thing about teaching a lecture. You may want to get them with a 30 second hook on compound interest, but go the other way - get a group of them together who want to invest and have the group help each other.
The steps to behavior change are debated, but about seven steps. The first is awareness (most Americans are not aware of how stupid they are with money), the second is knowledge. Most people do not get past step #2, knowledge, despite good intentions to stop smoking, go on a diet, or get financially stable. You have five more steps to go through, and they are much harder that step #1 and #2.
I would also not leave the leadership to this to yourself. I would give them ideas and incentives for them to organize themselves and have you act as a motivator, advisor, catalyst, and partner. Only work with those who are interested. Don't worry about the others.
I wish so much that my family had done this with me. Beginning with helping me learn how to do my taxes when I started working. I even asked but I don't think they had the knowledge to do so. Having a mentor years ago would have helped, but I'm not complaining, just commending you for helping the next generation of your family.
If you set it up right they will come to you as the "maven". They will all be starting jobs and wondering if they should join the 401(k), buying new cars, getting mortgages, etc. over the next few years. If you set yourself up as the cool older relative who can help them with those things, then they will all be coming to you for advise.
What you are doing is amazing and I really commend you for it.
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Can someone explain what the 1,2,3,4,6,10,15% lines represent on this chart, reread the original post and is not explained or I am still three shots of coffee low this AM. Are they withdrawal rates? Or some sort of percentile market failure probabilities? I understand the core concept -save more-retire non-linearly-earlier, but this chart has never been clear to me.
They are return rates you get on your investment. Impossible to know how the stock market will perform, so you can see all the different case scenarios ranging from 1% returns to 15% returns.
For example if you get a 15% yearly return, and save 50% it looks like you will reach FI in 12 years. If you only get 1% return and save 50% it will take more like 28 years to reach FI.
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Can someone explain what the 1,2,3,4,6,10,15% lines represent on this chart, reread the original post and is not explained or I am still three shots of coffee low this AM. Are they withdrawal rates? Or some sort of percentile market failure probabilities? I understand the core concept -save more-retire non-linearly-earlier, but this chart has never been clear to me.
They are return rates you get on your investment. Impossible to know how the stock market will perform, so you can see all the different case scenarios ranging from 1% returns to 15% returns.
For example if you get a 15% yearly return, and save 50% it looks like you will reach FI in 12 years. If you only get 1% return and save 50% it will take more like 28 years to reach FI.
thanks - that makes total sense.
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All good ideas, but I will caution you. How much do they HAVE/EARN right now? I knew about all this stuff in my early 20s, but I was making about $11/hour at a professional job, paying rent and student loans (mine were MUCH MUCH lower than most of today's crowd, <$100/mo) and was struggling for grocery money. I didn't have a smartphone, my old school flip-phone was on my parents' plan, and I didn't have internet or cable. I did have a car payment then, but it was ~$125/mo for an old beater.
I would have loved to save loads of money, but I just barely made enough to cover my already mustachian lifestyle. 8 years later, I'm still at that same job, but making $18.99/hr...NOW I have enough money to start saving (plus student loans and car are paid off).
It's rough at that age when you really don't have the money. It's too easy to think, "I'm never going to have enough money to save like that" and give up, and quit living frugally. Plenty of people start using credit cards.
A strong support system, notions of frugality, and accountability for my spending are what got me through. I had a goal, there were people around me who knew my goal, and who I could tell "I saved X much," or "I didn't cave and buy X today."
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I really hope you're able to come back and do a follow-up post on how these sessions were received.
I really think that any personal finance "school" is incomplete without a discussion of the social aspect. Who their friends are and what is considered "normal" among their peers will have an impact on their future.
And the impact of their choice of relationship partners/future spouses cannot be understated. Good luck!
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How competitive are they, and how often do you all get together?
As a conclusion, I would offer up a contest of sorts, as I agree with the great suggestions from PPs on competition. How many can track their spending for the whole year (or until you next meet)? How many can reduce spending by 5%? 10%? More? How many opened retirement savings, or started putting money in every month? How many save at least 25% of their income? Or whatever. You could even form them into mini-groups of 2 or 3 that will help each other along.
In my family, "bragging rights" would be reward enough, but you could also offer more concrete rewards if you wanted. "Financial bad ass" t-shirts or something. This gives them a call to action at the end.
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Is extrinsic motivation really the goal here? Personally, if I were saving to win some family competition, I wouldn't last. I'd save for like 5 years tops and then I'd fall off the wagon when I realized it was just some "stupid family competition." The best you'd get out of them long term would be to stay debt free and maybe do a standard retirement savings rate.
Intrinsic motivation is the only way to make a generational change in your family. Each person needs to know why they personally are saving/cutting spending/investing. Be it to live an awesome FIRE, to give millions to their children, to take ridiculous vacations every year, or to donate tons to a charity they care about, they need to know their own motivation. This is the same thing as trying to get a spouse on board with mustacianism. If the spouse doesn't have their own reasoning for going through with it, they wont no matter how much you encourage them.
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How competitive are they, and how often do you all get together?
As a conclusion, I would offer up a contest of sorts, as I agree with the great suggestions from PPs on competition. How many can track their spending for the whole year (or until you next meet)? How many can reduce spending by 5%? 10%? More? How many opened retirement savings, or started putting money in every month? How many save at least 25% of their income? Or whatever. You could even form them into mini-groups of 2 or 3 that will help each other along.
In my family, "bragging rights" would be reward enough, but you could also offer more concrete rewards if you wanted. "Financial bad ass" t-shirts or something. This gives them a call to action at the end.
+1 Love it!
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One thing that helps me as a relative young'un is calculating the dollar amount I need to save now in order to retire one day earlier. Obviously to do this you need to make a few large assumptions: the age at which you'd otherwise retire, average rate of return, and your final salary. But given that, you can easily calculate backwards how much you should save today to quit work one day earlier. For me, with my assumptions, it's about $25. So that gives me a rough but concrete time trade-off for each dollar spent, which helps me prioritize.
Of course this works best if they already have full-time jobs that they don't absolutely love :)
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This may be a bit beyond where they are, unless they already hold jobs and pay rent, etc. But I wish someone had explained to me how to "save" properly. Instead of looking at short term goals first, ie that trip to vt to visit friends, a new blouse, you have to look at long term goals first, then work backwards.
#1 spend less than you earn, on your basic living necessities.
#2 put money toward retirement first, the longest-term goal
#3 then think about other big, long-term life goals like home ownership
#4 then think about shorter term life's goals, like travel, or owning a car
#5 nope, you probably don't have much left over for buying expensive clothes and buying drinks at the bar every night. That's ok. You'll have all the other stuff that's really important to you, while your friends look on in amazed jealousy.
I'd never recommend this approach with teens or college students, but for a twenty-something young adult who is out of school, I don't think it's too crazy. I'm 27 and saw the light around age 25, after already using the time before then to make a few big mistakes. Better early than too late!
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All good ideas, but I will caution you. How much do they HAVE/EARN right now? I knew about all this stuff in my early 20s, but I was making about $11/hour at a professional job, paying rent and student loans (mine were MUCH MUCH lower than most of today's crowd, <$100/mo) and was struggling for grocery money. I didn't have a smartphone, my old school flip-phone was on my parents' plan, and I didn't have internet or cable. I did have a car payment then, but it was ~$125/mo for an old beater.
A strong support system, notions of frugality, and accountability for my spending are what got me through. I had a goal, there were people around me who knew my goal, and who I could tell "I saved X much," or "I didn't cave and buy X today."
Your salary then would be close to the salary I would've had if I'd become a bilingual youth counselor for at risk kids like I could've. I was pretty close. It was a fork in the road. Even with a meager starting salary, it's still possible to save $5. And using foot-in-the-door is a good tactic when it comes to impecunious youths.
http://en.wikipedia.org/wiki/Foot-in-the-door_technique
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I would tread very carefully here if I were you. Do they want you to talk about their finances? Did they ask or did someone else?
If they asked, that's bloody fantastic! If not, you want to go in slow. They are adults with their own money and priorities and won't appreciate being told what to do.
Anyway, if I were you I would probably talk to them not about retirement (as that seems so far away we can't really relate to it (Im 24)) but about having control over their money so that they can achieve anything they want to. Like buy a house young. Travel the world. Start a business etc etc etc. You could mention early retirement as an example. Having enough money to be in control of the lifestyle they want to live- you could even ask them what they want to achieve in the next few years?
The example of investing for 10 years and then leaving it to tick along is a great one. Also show them the simple math. Teach them how to use credit cards correctly. Show them what a budget looks like- this is something people NEVER learn unless a family member shows them. I know because it's part of my job. All these young kids are finishing college and being tossed out into the real world with very little practical common knowledge because these things are not taught at home. And that's where you come in :-)
Good luck, I hope it goes well! Let us know how they react :-)
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Issue #1: Basic, basic question: Did these 20-somethings ask for help/instruction on this subject, or did you and some of the other adults decide they need it?
Here's the thing, if I were a 20-something anticipating getting together with my same-aged cousins on a Caribbean island, sitting down with my uncle to talk about retirement would not score high on my list of interests. I might be extremely interested in the topic (and in my early 20s I was actively reading everything I could concerning money management, frugality, investing), but I wouldn't welcome a forced lesson during a vacation.
I don't deny for a moment that the lessons are needed -- but I question the timing. Instead, I suggest that you set up a private online blog to be shared between you and these 20-somethings. This would allow you to share good information and articles with them, and it would allow them to ask questions. Also, it will allow them to do it at their own pace and on their own timetable. I suspect your message would be better received under such circumstances.
If you move forward with these plans, I would include retirement as a topic -- but one of several topics. A young 20-something is going to be more interested in his immediate needs: Emergency fund, buying a house, preparing to support a family. At that age, I was more concerned about frugal living, making every dollar count, and ways to live on less than I earned -- so I could save and so I could live a better lifestyle. Retirement should be considered along with these things. I was concerned about retirement savings by my mid-20s.
Issue #2: If you wait 'til age 20, it's much, much too late.
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I think first you need to think at the emergency fund level, planning for expected expenses (eventually x will need to be replaced, that isn't really an emergency - this can even be a frivolous item)
then talk about FU money
FI is going to be a pipe dream for most of them right now, and it's really just an extension of FU money.
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Is it possible for you to ask them some "pre-assessment" questions ahead of time to see where they are regarding financial literacy or even financial status? Gathering that information a couple weeks ahead of time might help you tailor your talk.
It's a little late, but I wonder if you could ask them to, between now and the 4th of July, to keep track of every penny they earn and every penny they spend. Then you could discuss the consequences of these spending habits.
And I like the idea of a contest of some sort after the gathering. Or perhaps you could offer some financial incentive for them to save X amount or X percent during the next year.
I also like the idea of hitting on the rule of 72. And showing how compound interest can be one's friend (when saving) or one's enemy (CC debt).
Hope it goes well!
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Can someone explain what the 1,2,3,4,6,10,15% lines represent on this chart, reread the original post and is not explained or I am still three shots of coffee low this AM. Are they withdrawal rates? Or some sort of percentile market failure probabilities? I understand the core concept -save more-retire non-linearly-earlier, but this chart has never been clear to me.
The chart shows how many years you will need to work (before having enough $ to retire) based on % saved. If I recall the chart correctly, you work 40 years at 15% savings and it gets longer for each lower percentage with the lowest percentages saved showing off-the-chart number of years worked.
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I've been thinking more about this question since yesterday. I realized if there was one thing that should have been explained to me earlier in my life, it would be compound interest. Posters are saying it's above their head and it may indeed be, but (still) no one in my family has ever explained it to me, and that seems like a major oversight for any young person facing retirement down the line with no fall-back of social security.
Perhaps having them figure out a small number that they could reasonably save each month, even if it's $50, and plug it in to a calculator. You could explain some of the basic assumptions that go into the calculator, the, let them run different numbers to see what time can do with their money. Then tell them how they can do it, starting now, as soon as they get a first paycheck! Open an IRA, put money in just like a bank account, and watch the magic happen.
I really don't know if it would work if they're not in that place mentally to think ahead... I think we all reach that place at different times. But the idea of making money without doing anything should appeal to most people.
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Can someone explain what the 1,2,3,4,6,10,15% lines represent on this chart, reread the original post and is not explained or I am still three shots of coffee low this AM. Are they withdrawal rates? Or some sort of percentile market failure probabilities? I understand the core concept -save more-retire non-linearly-earlier, but this chart has never been clear to me.
The chart shows how many years you will need to work (before having enough $ to retire) based on % saved. If I recall the chart correctly, you work 40 years at 15% savings and it gets longer for each lower percentage with the lowest percentages saved showing off-the-chart number of years worked.
way off base. the x-axis is your savings rate. The graph lines he was talking about refer to your annual return on investment. If you earn 15% on your investments every year you will obviously have a very different graph (and FIRE date) than if you only get 1% return on your investments.
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Can someone explain what the 1,2,3,4,6,10,15% lines represent on this chart, reread the original post and is not explained or I am still three shots of coffee low this AM. Are they withdrawal rates? Or some sort of percentile market failure probabilities? I understand the core concept -save more-retire non-linearly-earlier, but this chart has never been clear to me.
The chart shows how many years you will need to work (before having enough $ to retire) based on % saved. If I recall the chart correctly, you work 40 years at 15% savings and it gets longer for each lower percentage with the lowest percentages saved showing off-the-chart number of years worked.
Nah, the savings rate is in the X axis (Y axis is working years). I think the different lines on the graph are withdrawal rates. If you want to have a 1% withdrawal rate, you need a bigger stash to make that happen in the same amount of time (higher savings rate).
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I assume the under 20 set has asked you to do this? In that case, I'd send out an email askign them for questions. This will help you get a sense of their current stage and their interests.
Don't start with the MMM stuff unless they are fairly advanced. Too extreme. People have to get some basics under control first before MMM talk becomes plausible or interesting. They may be living paycheque to paycheque and need basics. They may be amassing money and need help with investing. Tailor your talk as needed.
Some of the basics I think are key are (very JD Roth inspired)
- spend less than you earn. If you don't know how much you currently spend or earn, you better fix that problem.
- no one cares about your money more than you. Learn to manage it yourself.
- Debt = no. Just don't do it.
- Be critical before you follow the herd. This can often apply to things like buying houses, investing, lifestyle inflation, etc.
- When cutting expenses, know your "big 3" and work on them first. (Usually housing, transportation, and food).
- Investing, compound interest, etc is powerful stuff. Learn the basics and put it to work for you now.
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Can someone explain what the 1,2,3,4,6,10,15% lines represent on this chart, reread the original post and is not explained or I am still three shots of coffee low this AM. Are they withdrawal rates? Or some sort of percentile market failure probabilities? I understand the core concept -save more-retire non-linearly-earlier, but this chart has never been clear to me.
The chart shows how many years you will need to work (before having enough $ to retire) based on % saved. If I recall the chart correctly, you work 40 years at 15% savings and it gets longer for each lower percentage with the lowest percentages saved showing off-the-chart number of years worked.
Nah, the savings rate is in the X axis (Y axis is working years). I think the different lines on the graph are withdrawal rates. If you want to have a 1% withdrawal rate, you need a bigger stash to make that happen in the same amount of time (higher savings rate).
I reworked the original plot, it shows years to fire vs savings rate at different market rates of return with constant 4% withdrawal rate.
plots are in a new thread
http://forum.mrmoneymustache.com/welcome-to-the-forum/fire-plot-for-given-withdrawle-rate-savings-rate-and-market-return/#new (http://forum.mrmoneymustache.com/welcome-to-the-forum/fire-plot-for-given-withdrawle-rate-savings-rate-and-market-return/#new)
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I really like blanblah's idea of having them present some of the concepts or give then some application (running some numbers on their own). "Only what the learner creates is learned" is a principle I have use in designing training programs. If they have to generate something, the concept will sink in WAY more than just listening to someone "present".
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Update:
We have a facebook group set up for the get-together. This is where the conversation started. Admittedly I started it, but it was predicated on hearing one of them complain that she'd never been taught anything about finances ( even though I KNOW she knows concepts like the rule of 72 - I drilled them into her brain). The other two seem really eager. And now, my sister and mom have asked to get in on the convo too :).
Thank you for your wisdom so far. Considering what you've posted, I have requested the three tweny-somethings (and sister) do the following:
1. create an account on mint.com, enter in financial accounts + put in a budget.
2. download mint app to phone and, if they are feeling totally fired up, track expenses from now til 4th July.
3. pose questions for discussion in the FB closed group.
At Roche, I plan to start with the $2M question (If you won lottery $2M ... etc ) and in doing so get an idea for what their goals are (this is an easy over-beer-n-crab convo).
I agree with many of you: their motivation needs to come from within them; I need to understand what they want before I go into any graphs or rules of thumb. At that point, those who are interested can deep dive with me into compound interest and FIRE charts, my story, MMM story, etc. We can discuss as much as they like, as long as they like, and I will encourage them to continue conversation after vacation -online - between us or in user forums such as this - and find FIRE oriented people to surround themselves with when they get back home.
I've been thinking a lot lately about intentions. They are powerful. When I'm unsure of what direction to take, it is often instructive to check in with what my intentions truly are. In yoga, it is customary to state an intention at the start of practice, something like joy, creativity, authenticity, wisdom, connection, action, etc. I find these feelings creep into my life afterward. Lately, a yoga teacher explained that intentions are not specific goals but rather how we wish to experience life. I like that. Maybe, sometime during the week of the 4th, we can take a step back from finances and discuss their intentions overall, not just what to do with a $2M windfall but how they want to experience life. Getting their $ in order is just a first tactical step. I want to do everything I can to help them get themselves past that first step and on to living life the way they wish to experience it.
I will keep updating. Thanks again.
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I really like blanblah's idea of having them present some of the concepts or give then some application (running some numbers on their own). "Only what the learner creates is learned" is a principle I have use in designing training programs. If they have to generate something, the concept will sink in WAY more than just listening to someone "present".
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A lot of good ideas.
I would ask if any of them want to retire at 35. That may shock them, and they may not have ever considered ER but it might get them thinking. Of course they may not have sufficient income to retire at 35, but it's a way of opening up the conversation - do you really want to work your life away until you are old and gray? Even people with modest incomes could get out of the rat race much earlier than usual if they do the right things. Even if they aren't interested in ER they may see what their money can do if managed well.
Keep the fb page open after the reunion so the discussion can continue.
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First of all, go in knowing that they don't care. They don't care about saving, retiring, investing-everything you care about, they don't. If they were interested, they would be searching it out and doing it already. Your job is to try and make them care and get them to DO something. They won't remember anything you say but if you have them DO something, they might remember something that will kick in at some point.
What I would highly suggest doing is start off with what I call, "A million $ or a penny and a promise'. Tell them you will give them $1million right now. Ask them what they would do with $1 million. Give them time to think/share. Then tell them you will give them the $1 million or you will give them a penny! (have a handful of bright shiny pennies in your pocket) You will give them a penny and a promise, you promise to give them 1 penny today (pick one person to hand the pennies to) and double that to 2 pennies tomorrow. Then double again to 4 pennies and keep doubling for 31 days as July has 31 days. See who will take which choice. At this point it would be great to have a powerpoint or computer/tablet to run through the numbers but if not, print the numbers out on paper or have flash cards. Start showing the doubling. Point out the end of each week. It takes 1 week to get to 64 cents. That day 16 is half way through and you're only up to $300. At different points, ask them if anybody wants to change their mind. Day 24 with only a week left is $83k which is impressive, but it's no million bucks. Then slow down at day 28 when it breaks $1 million. Then go through the last 3 days and that you end up with over $10 million (be aware that if anybody is super math literate, you actually end up with over $21 million but I doubt anybody is that aware but it's good to know going in). For a last slide, have all the days and amounts listed, I like 2 columns personally. This gives you a chance to point out the 'work' that is involved in doing this-on Day 16 you have done half of the 'work' but have gotten very little reward-but that $10 million isn't possible if you don't put in that beginning 'work'.
I have found that this is a great opening as your audience will be involved, they get to dream about all the things they would do with easy money and then they get to see how much more you can do when you have your money working for you. They also have now DONE something that they will be able to remember and take with them. It is a great opening about saving & investing. Which then leads to spending less than than you make. And you can also take the example and flip it around: what happens if you have debt and are paying interest instead of receiving interest and how much more it adds up to be.
I did this exact presentation last month at my daughter's career day as I only had 15 minutes for each session and I knew any lecture would be a failure. I had 3rd, 4th & 5th graders talking about saving money afterward! I even had some tell me that they liked my presentation the best and there was a firefighter there with his equipment! Not to toot my own horn, but that's pretty bad-ass to beat out a firefighter with something like saving.
I taught HS Personal Finance classes for 6 years and have been a financial planner for the last 7 years. So let me reiterate this-THEY DON'T CARE! It's your job to try to make them care and to plant a seed in their mind that with grow and be ready for them when they are. For some it may be that trip, for some, it may take awhile longer.
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I think I'd really focus on the benefits Financial independence which to me is freedom. Perhaps print out the EPIC FU Money stories thread and pass it around.
Just saving 10% less than you earn means in only 5 years you have 6+ months of saving. It is hell of a lot easier to quit a really bad job if you have 6 month reserve than if you are living paycheck to paycheck. It also allows you the freedom to make smarter long term decision. E.g. being able to afford a newer used car, than pouring money into keeping your old beater alive.
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First of all, go in knowing that they don't care. They don't care about saving, retiring, investing-everything you care about, they don't. If they were interested, they would be searching it out and doing it already. Your job is to try and make them care and get them to DO something. They won't remember anything you say but if you have them DO something, they might remember something that will kick in at some point.
What I would highly suggest doing is start off with what I call, "A million $ or a penny and a promise'. Tell them you will give them $1million right now. Ask them what they would do with $1 million. Give them time to think/share. Then tell them you will give them the $1 million or you will give them a penny! (have a handful of bright shiny pennies in your pocket) You will give them a penny and a promise, you promise to give them 1 penny today (pick one person to hand the pennies to) and double that to 2 pennies tomorrow. Then double again to 4 pennies and keep doubling for 31 days as July has 31 days. See who will take which choice. At this point it would be great to have a powerpoint or computer/tablet to run through the numbers but if not, print the numbers out on paper or have flash cards. Start showing the doubling. Point out the end of each week. It takes 1 week to get to 64 cents. That day 16 is half way through and you're only up to $300. At different points, ask them if anybody wants to change their mind. Day 24 with only a week left is $83k which is impressive, but it's no million bucks. Then slow down at day 28 when it breaks $1 million. Then go through the last 3 days and that you end up with over $10 million (be aware that if anybody is super math literate, you actually end up with over $21 million but I doubt anybody is that aware but it's good to know going in). For a last slide, have all the days and amounts listed, I like 2 columns personally. This gives you a chance to point out the 'work' that is involved in doing this-on Day 16 you have done half of the 'work' but have gotten very little reward-but that $10 million isn't possible if you don't put in that beginning 'work'.
I have found that this is a great opening as your audience will be involved, they get to dream about all the things they would do with easy money and then they get to see how much more you can do when you have your money working for you. They also have now DONE something that they will be able to remember and take with them. It is a great opening about saving & investing. Which then leads to spending less than than you make. And you can also take the example and flip it around: what happens if you have debt and are paying interest instead of receiving interest and how much more it adds up to be.
I did this exact presentation last month at my daughter's career day as I only had 15 minutes for each session and I knew any lecture would be a failure. I had 3rd, 4th & 5th graders talking about saving money afterward! I even had some tell me that they liked my presentation the best and there was a firefighter there with his equipment! Not to toot my own horn, but that's pretty bad-ass to beat out a firefighter with something like saving.
I taught HS Personal Finance classes for 6 years and have been a financial planner for the last 7 years. So let me reiterate this-THEY DON'T CARE! It's your job to try to make them care and to plant a seed in their mind that with grow and be ready for them when they are. For some it may be that trip, for some, it may take awhile longer.
My 9th grade math teacher - Mr. Wells - did this exact scenario with us (A penny or a million). I remember it just pulled the rug out from under me. I will absolutely do this!
As for them not caring - I must admit the reason I abstain from laying down the lessons with them is that I imagine it will fall on deaf ears and in the end just annoy them. As a result, I've held back too much (shame on me). Thank you for reminding me of the Mr. Wells math trick. I will USE this!
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I've been trying to put myself into their headspace. Imagining I CARE about retiring early and that I am twenty today and know what my future 41 year old self will know, I realized I would probably fire up a spreadsheet and start modeling scenarios to help me come up with a plan. So, imagining I'm twenty this is what I came up with.
NOTE #1: this spreadsheet is NOT for leading with. It is in my back pocket for a deep dive later. I realize there are lots of modeling programs online but I like to roll my own.
NOTE #2: Like any model, it is based on approximations and assumptions. It loosely models the 'shockingly simple math of early retirement' (those #s served as my debug sanity checkers) but for example a savings rate of 10% = 48 years working not 51. But I think that is okay.
https://docs.google.com/spreadsheet/ccc?key=0AlczQAfVOq5DdFkwbm91YmpBbmNVaXkydzQxbHM1eVE&usp=sharing
If you take a look and edit the blue cells, tell me if it is clear? How do you like the green red highlights for Pass / Fail and the chart (as you adjust #s)? I think it is pretty dramatic when you get to an inflection point and a tiny savings difference or budget reduction turns the spreadsheet from doom to an early retirement party.
REQUEST: IF you want to just edit blue cells use the tab 'FIRE-simple math'. However, if you want to monkey around with the inner workings please save a copy of the spreadsheet on your own storage space before doing so.
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So a lot of people are saying to have them open a vanguard account but my understanding is that they need $3000 to do that (most vanguard funds require $3k min purchase). I'm guessing they don't have $3k on hand. I'm willing to kick them a $100 match for starting an account, but, well, not $3k. What about a ROTH IRA on sharebuilder?
On sharebuilder they can set up a periodic purchase of VTI ETF which is $3.95 per trade.
If I get a referral bonus I'll kick that amount to them as well.
What are some better options here if they have say, $200-$500 to invest at the start?
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So a lot of people are saying to have them open a vanguard account but my understanding is that they need $3000 to do that (most vanguard funds require $3k min purchase). I'm guessing they don't have $3k on hand. ... What are some better options here if they have say, $200-$500 to invest at the start?
They could do a 2060 Retirement Fund at Vanguard for $1000. See https://investor.vanguard.com/what-we-offer/iras/traditional-iras-and-roth-iras.
If they don't have $1K to invest, the first thing they need to do is earn/save enough to get there. They should have that much in an emergency fund at the very least.
Will their employers allow them to designate more than one bank for payroll deposit? Some do. If so, they could designate "most" into their normal checking account, and "some" into an online savings (Ally, GE Capital, local credit unions, etc.) account that is a little bit harder to access. That's just one way to enforce savings, if said enforcement is currently the #1 priority.
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Ooh, this is an opportunity. I'm old school, so I'd probably start with the key YMOYL idea: that every dollar you spend irrevocably takes away part of your life energy.
If you're (for example) buying $10 lunches while making $10/hr after taxes, you're essentially spending one hour working for no pay every day of the week.
Beautiful, this is the core of it.
OP so sorry that your clan is spendy. My biggest influence for frugality is my family and especially my cousins, but also those values were shared by my aunts, uncles. I'll never forget going back to my home town and running into my cousin--also from another state--in the Goodwill store! haha. Also my other cousin, a multiple-millionaire now, shops Goodwill's color days where you get half price on red things on the "red" day and etc.
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Many of you have recommended YMOYL. In an attempt to practice what I will soon be preaching (frugality) - I plan to check a copy out from the Bellingham library so we can bring it with us Roche harbor. We can take turns reading it - after all 5 days at Roche usually entails quite a lot of reading / get-away-from-everybody-and-be-alone-for-a while / time.
I'm ruminating on these lessons a lot. I've set an intention to go with the flow and not force it. Thankfully you all have given me lots of great nuggets to bring into the conversation as it makes sense. I want to be like Abe Lincoln and tell apt anecdotes at the right time to make a point, not like a droning teacher who goes on and on totally unaware of the eye-rolling.
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Money is just a way of achieving goals. So ask them about their goals and then tailor your discussion to that.
For example:
Funding university studies
Starting a Business
Buying a House
Buying a Car
Renting your first apartment
Getting your first credit card/using it responsibly
International Travel
These are all issues that will likely impact 20-somethings, so if you can tie your discussion back to these issues you will have their attention.
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So a lot of people are saying to have them open a vanguard account but my understanding is that they need $3000 to do that (most vanguard funds require $3k min purchase). I'm guessing they don't have $3k on hand. ... What are some better options here if they have say, $200-$500 to invest at the start?
They could do a 2060 Retirement Fund at Vanguard for $1000. See https://investor.vanguard.com/what-we-offer/iras/traditional-iras-and-roth-iras.
Thanks - I'm all set to walk them through Vanguard. I plan to offer to match 25 cents on the dollar up to $100 out of my pocket into a vanguard fund in (probably) a ROTH IRA. It would shrink the minimum investment from $1000 to $900 for them.
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I'm not crazy I like the idea of posing the "What would you do with 1 million dollars?" question. To me, this perpetuates the idea that you can only be "rich" if you have a huge amount of money. Only if you win the lottery will things work out.
To me, it has been eye-opening to see that even with relatively small amounts of money (and TIME), one can get "rich".
Just my relatively little 2 cents.
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I'm not crazy I like the idea of posing the "What would you do with 1 million dollars?" question. To me, this perpetuates the idea that you can only be "rich" if you have a huge amount of money. Only if you win the lottery will things work out.
To me, it has been eye-opening to see that even with relatively small amounts of money (and TIME), one can get "rich".
Just my relatively little 2 cents.
The point wasn't to show that you have to be rich. The point was to show "what would you do if money didn't matter anymore?" Many people have never taken the time to think about what they would do if they didn't have to work for money and it is educational to gain that piece of self-knowledge. Without it, most people (see: spouses) can't get behind mustachianism/ER.
I plan to offer to match 25 cents on the dollar up to $100 out of my pocket into a vanguard fund in (probably) a ROTH IRA. It would shrink the minimum investment from $1000 to $900 for them.
The Roth is almost guaranteed to be the better choice for them if they are planning a long career or wont pull money out of the account until 59.5 but only because they are so young. Because they are so young, the advantage of no taxes on the gains (which will probably be 2-3x the principle by the time they withdraw) probably outweighs the benefits of getting out of high taxes now (and even that assumes that they pay more in taxes now than they will in retirement which often isn't true for 20-somethings).
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If starting from scratch, a few common sense financial pointers spring to mind:
Never carry a credit card balance or use payday lenders
Show them how to create and manage to a budget
Rather than push them toward Mustacianism, you could just point out some strategies on saving money and offer the site as a resource
Start saving for retirement early and if your employer offers a 401k to put in enough to get the full match
Invest In Index funds with low expense ratios
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It's the morning of July 5th and I'm sitting in the hotel lobby. Wow the sun comes up early here. I'd forgotten about that.
One of the 'twenty-somethings' is my 20 year old daughter who I've raised (w/DH) since 6. She's lived on her own/with her mother on and off for the past two years while in first 2 yrs college. The other two in the clan are my nieces (20 and 24).
Some background: over last 2 yrs daughter has accidentally claimed herself as dependent. We worked it out but it upset her. At one point,exasperated, she nearly screamed into the phone, "No one ever taught me this stuff!" and then listed financial management skills she lacked going into college. I felt badly thinking, "really? I haven't taught her financial stuff?" Oh shit.
So, I offered to teach her over skype. She agreed. Over the next few months, for one reason or another, the call never happened. So, knowing we'd have a week together with the wider clan, I volunteered over our FB group to share Fin planning to all the kids during our week together. My nieces expressed interest as did daughter (and sister and mother :) ).
So it is our week together now at Roche Harbor. July 3rd I didn't bring it up. July 4th we talked $ only a few times as we are waiting for the 24yo to arrive. Here is what we discussed:
1. I showed them a copy of 'Your Money or Your Life', (my dad (he's awesome) checked a copy out from the local library last week. I said the MMM forum recommendation for 'YMoYL'. I offered it as reading material.
2. We did penny or million. You know who picked 'a penny'? My daughter. :). She said she had read a Chinese proverb about a farmer who could have a million grains of rice or one (doubling# of grains everyday for a year). She figured it was the same situation. :) :) :).
3. I shared some of my story: e.g. after paying off debt, early on into my job-out-of-college, retirement seemed far away and abstract. Lifestyle inflation began. If I'd known to set FI as my very specific goal back then, we'd either have much more $ in investments today or have retired earlier. Also mentioned FU / KMA $.
4. In the cockpit of parent's boat over beers, I listened and asked questions about their financial habits & situation. This is when I found out about my niece's obsession with savings and details on my daughter's recent car purchase, among other bits of info.
(modified to make more concise)
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Oh.. and the other niece arrives this afternoon. So, for today, I'm going to lay off on the FIRE talk for now, unless asked. I can't help but obsess over how to talk with my daughter. But I do know I need to listen more than talk.
So last night, before the fireworks, I did more listening/uncovering. She had recommended a book about the Bosnian war and I asked her for the title again so I could put it in my phone and check it out at library in 2 weeks. Then I asked her why she liked it. She is so sharp and passionate when talking about something she cares about. It came down to being interested in human behavior - getting past judging whole groups and getting into why individuals make decisions (sounds an awful lot like behavioral economics). She is pursuing a history degree and thinks she wants to be a history prof, but isn't 100% sure. I think that is the natural default path from her vantage point. I suggested maybe to consider widening options and take a fresh look. She asked if we could do that together. So not a 100% success at listening only - but I tried.
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Congratulations on working on communicating with your daughter! It seems to be doing some good. Any other updates on how the conversation went? Any takeaways they got at the end of the weekend?
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We did the penny or a million with my 24 yr old neice. She became obsessed with proving that 31 days = $21M.
This is her math. Off to dinner - will report the rest later.
(http://)
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The flu is rolling through us one at a time. It started with me 3 days ago and now my sister and daughter are very sick. Poor guys - they were MISERABLE last night.
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Unexpected twist: my sister is really interested. She's fired up about $10 = $3000 (every $10/month expense requires $3k in the bank to finance in perpetuity). She listed expenses and we identified low hanging fruit: cable bill, personal care. My daughter listened in, commenting on how to save $ :). In end we identified about $300 per month my sister could easily cut out of her expenses. That is like $90k in the bank right there!
Later, she gave me a hand written-out balance sheet. Big take-away: her 3 pieces of real estate are under-utilized. Good news: Her assets are enough to live on - if she can get her expenses down (and optimize investments) she could be set.
As it is, she's in a full time job she kind-of hates, and what is it funding? $160 per month cable that she never watches, and misc expenses on stuff she doesn't need. She feels stuck in the job for medical benefits, and was freaking thrilled to learn that if she keeps her income DOWN next year, subsidized ACA is available! She even likes the idea of framing food in terms of cost rather than calories. She can hardly believe we budget $10 per day per person in our family. She wants to try that. Wow. Just wow.
Last night, roasting marshmallows for s'mores, my sister looked at me wide eyed, "I am obsessing over the fact that $10 is $3000." :)
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Unexpected twist: my sister is really interested. She's fired up about $10 = $3000 (every $10/month expense requires $3k in the bank to finance in perpetuity). She listed expenses and we identified low hanging fruit: cable bill, personal care. My daughter listened in, commenting on how to save $ :). In end we identified about $300 per month my sister could easily cut out of her expenses. That is like $90k in the bank right there!
Later, she gave me a hand written-out balance sheet. Big take-away: her 3 pieces of real estate are under-utilized. Good news: Her assets are enough to live on - if she can get her expenses down (and optimize investments) she could be set.
As it is, she's in a full time job she kind-of hates, and what is it funding? $160 per month cable that she never watches, and misc expenses on stuff she doesn't need. She feels stuck in the job for medical benefits, and was freaking thrilled to learn that if she keeps her income DOWN next year, subsidized ACA is available! She even likes the idea of framing food in terms of cost rather than calories. She can hardly believe we budget $10 per day per person in our family. She wants to try that. Wow. Just wow.
Last night, roasting marshmallows for s'mores, my sister looked at me wide eyed, "I am obsessing over the fact that $10 is $3000." :)
You have hit a home run with this. I'm taking mental notes about communication skills that will get the point across without leaving the audience feeling lectured or discouraged. Great job on your part; keep it up!
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Yesterday we left Roche. We took the 10:50am ferry from Friday Harbor to Anacortes and headed for Bellingham. In transit and in Bellingham, my poor daughter was miserable with the flu. She cycled between sleep and moaning (actually she suppressed the moaning but I sensed her pain). Within a few minutes of arriving, she was asleep in her bed, warm with the last throes of her fever. Ugh.
The rest of us lunched on the back patio at my mom's house in B'ham. Gorgeous - full sun 79 degrees clear skies, looking over Bellingham bay - perfection - I miss this place, can you tell? Seriously the PNW is like a magical dream everyday. It was just an hour before my nieces had to leave so I brought up finances. I asked what they would do with $2M. Both said they'd put $1M into their ROTH IRAs (one already has one, the other will set one up soon). They went on and on about how they'd invest. They would pay off all outstanding bills and put aside a few thousand for upcoming bills.
Wow, they have an overwhelming investment ethic! Kudos to my sister and bro-in-law. They have taught these ladies a lot about investing and instilled an appreciation for the importance of investing.
So then I probed in their income plans / spending. This is where they have more to learn. If they ever join the MMM forum (which I recommended), I will leave it to them to share these questions and details.
In the end, they apprehended SWR, calculating for me how much they'd need in bank to live off of $2k, and $3k per month ($600k, $900k). I threw down a challenge, "whoever reaches FI before me (before they turn 41), I will buy them a drink in Roche Harbor." Their eyes lit up.
"Uh, Tante, Luna" my 24 yr old niece asked, "how about we meet somewhere in another country?"
My other niece offered, "how about Italy?"
I jumped in, "Ooooh - how about Rome!?"
Everyone agreed. So, Rome it is. If they get to be FI by 41, we will be clinking wine glasses in Rome. Love them.
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I asked what they would do with $2M. Both said they'd put $1M into their ROTH IRAs (one already has one, the other will set one up soon). They went on and on about how they'd invest. They would pay off all outstanding bills and put aside a few thousand for upcoming bills.
First off, awesome job all around. Sounds like you did a great job with your chats and had an awesome time on vacation.
I have 2 questions though:
1) Why would someone put $1M into a Roth IRA? After the $5500/year, isn't the rest just treated as a taxable account?
2) When you asked what they would do with $2M were you asking financially or metaphorically as in "what would you do with your life if money didn't matter anymore?" Sounds like they had good answers to "what should one do financially?" but I'd be more interested in the metaphorical answer. That is what gives someone the motivation to start this quest and lower expenses. Most people don't get riled up about "Oh, if I have $2M i can put it in my IRA and that would be AWESOME!" Most people think more like "now that money question is dealt with, I can do what I really want, and that is way more AWESOME than that stupid job I've been doing"
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I asked what they would do with $2M. Both said they'd put $1M into their ROTH IRAs (one already has one, the other will set one up soon). They went on and on about how they'd invest. They would pay off all outstanding bills and put aside a few thousand for upcoming bills.
First off, awesome job all around. Sounds like you did a great job with your chats and had an awesome time on vacation.
I have 2 questions though:
1) Why would someone put $1M into a Roth IRA? After the $5500/year, isn't the rest just treated as a taxable account?
2) When you asked what they would do with $2M were you asking financially or metaphorically as in "what would you do with your life if money didn't matter anymore?" Sounds like they had good answers to "what should one do financially?" but I'd be more interested in the metaphorical answer. That is what gives someone the motivation to start this quest and lower expenses. Most people don't get riled up about "Oh, if I have $2M i can put it in my IRA and that would be AWESOME!" Most people think more like "now that money question is dealt with, I can do what I really want, and that is way more AWESOME than that stupid job I've been doing"
Yes my question was meant to get at what they want to do with their life. I was surprised by the Roth IRA answer. What it tells me is that their first instinct is to invest (which is great), but it also tells me they don't understand the details about a Roth IRA (e.g. yearly contribution limits). I didn't want this to turn into Roth IRA 101 training, however, so I moved them into telling me about their career aspirations, income expectations and expense expectations.
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I'm waiting for my departing flight at SeaTac reflecting on the Roche Harbor experience. After my daughter recovered somewhat from the flu yesterday, we had a few 1:1s about the financial concepts (what would you do w $2M / 4% SWR / lifestyle inflation / career). I'll leave it to her to post details. Overall, here is my summary:
What the twenty-somethings seemed to have learned:
1. FIRE = 4%SWR / (~$600k for $2k / mo, $900k for $3k/mo)
2. MMM will be a resource for saving, budgeting, frugal ideas
3. Avoid debt (e.g. don't take on debt for grad school)
4. This is just the start of the conversation - we plan to skype and set up a FB group for future convo's.
5. FIRE before 41 and their aunt will buy them a drink in Rome.
What I learned:
1. They are all way more inspired by early retirement than I would've thought
2. Each in their own way has more of a running start grasping financial concepts than I would've guessed
3. I'm REALLY hoping they kick my ass and I can buy them ALL drinks in Rome ~2034
4. Can't wait to talk more with my sister about getting her all set in FI.
Thank you to everyone in this forum for advising how to approach these conversations. I don't think they would have gone nearly this well without you.
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sweet - my daughter just PM'ed me a budgeting question. I copied it over to our FB group *and* to MMM:
http://forum.mrmoneymustache.com/ask-a-mustachian/minimizing-costs-on-razors
:)
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Great job on facilitating the discussion! Sounds like you opened their eyes to a lot of possibilities and I hope you will be buying them a drink in Rome one day. ;)
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One great place to look for info....
http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-and-a-simple-path-to-wealth/
and of course
http://jlcollinsnh.com/stock-series/
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Thanks Cinder. I posted the link to our closed facebook group where 5 of us discuss finances (the group is called Beviamo a Roma - because I will buy a drink in Rome for any of them who retire before I did (41)).
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I'd love to hear some of their responses !
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Well done on the education. I'm going to use some of this for my nieces and nephews.
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Subscribed. A ton of good information here.
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Dave Ramsey's 7 baby steps is what I'm doing in a simliar situation.
Very straightforward.
MMM helps refine one's philosophy to a razor's edge.....and Dave's process is a great starting point to help them get on the right path to start.
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I'd love to hear some of their responses !
Two of them 'liked' the link, and one commented, "I like this. Very straightforward."
Of course I know that it is easy for a twenty year old to placate her 41 yr old aunt with such answers, but, I think they are sincere. They all got really fired up by the idea of meeting in Rome for a drink, *and* they all got excited by the prospect that all they need to accumulate is $600k in invested assets to have F-U / KMA $.
So, I think the likes and the comments are sincere.
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Unexpected twist: my sister is really interested. She's fired up about $10 = $3000 (every $10/month expense requires $3k in the bank to finance in perpetuity). ......
Last night, roasting marshmallows for s'mores, my sister looked at me wide eyed, "I am obsessing over the fact that $10 is $3000." :)
Can you expand on the math behind this please?
Thanks
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Unexpected twist: my sister is really interested. She's fired up about $10 = $3000 (every $10/month expense requires $3k in the bank to finance in perpetuity). ......
Last night, roasting marshmallows for s'mores, my sister looked at me wide eyed, "I am obsessing over the fact that $10 is $3000." :)
Can you expand on the math behind this please?
Thanks
It's derived from the fact that a 4% Safe Withdrawl Rate (SWR) means you need 25 times annual expenses saved.
So $10/month is the same as $120/year. $120 X 25 = $3000.
So if you are withdrawing 4% of your balance per year, you need $3000 in the bank to fund $10 per month in expenses.
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Unexpected twist: my sister is really interested. She's fired up about $10 = $3000 (every $10/month expense requires $3k in the bank to finance in perpetuity). ......
Last night, roasting marshmallows for s'mores, my sister looked at me wide eyed, "I am obsessing over the fact that $10 is $3000." :)
Can you expand on the math behind this please?
Thanks
It assumes the Trinity study 4% Safe Withdrawal Rate: $3000 * 4%/yr = $120/yr = $10/mo.
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Unexpected twist: my sister is really interested. She's fired up about $10 = $3000 (every $10/month expense requires $3k in the bank to finance in perpetuity). ......
Last night, roasting marshmallows for s'mores, my sister looked at me wide eyed, "I am obsessing over the fact that $10 is $3000." :)
Can you expand on the math behind this please?
Thanks
It assumes the Trinity study 4% Safe Withdrawal Rate: $3000 * 4%/yr = $120/yr = $10/mo.
Thanks,
But the statement below mentioned "perpetuity". Is that accurate?
http://en.wikipedia.org/wiki/Trinity_study
Unexpected twist: my sister is really interested. She's fired up about $10 = $3000 (every $10/month expense requires $3k in the bank to finance in perpetuity)
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But the statement ... mentioned "perpetuity". Is that accurate?
Great question. Unfortunately, as someone (http://www.larry.denenberg.com/predictions.html) once said, "It is difficult to make predictions, especially about the future."
There is no law of nature that guarantees 4% as a Safe Withdrawal Rate - not for 30 years and not for perpetuity. Even the Trinity study allowed for exhaustion of the principal in its definition of success for a 30 year time length.
But, for a quick rule of thumb aphorism, "every $10/month expense requires $3k in the bank" is very defensible.