How best for a hard working 16 year old to make the best FI start? - Aussie

[Shelley]

My eldest daughter is 16. She started working weekends and school holidays 14 months ago. In this time she has banked $4200. At the moment she does between 9 and 14 hours on the weekend, double that in the holidays.

Next year she will be going to university and hopes to do around 20 hours a week. Her pay is casual, about $13.25 an hour on Saturday and somewhere around $15 an hour on Sunday. We intend to give her free room and board while she is doing full time study, plus we will pay for text books and perhaps train fares. She will pay everything else, after October 2018 when she turns 18. She already buys all her own clothes mostly, and all the stuff teenage girls have, but not much of it as she is a good little saver. We go to the charity shop for some things too.

We want to give her the best start we can, with a good stash. We will let them live home after graduating too, for room and board as a percentage of the cost of mortgage, electricity etc.

My question is, what is your best advice for how she should go about starting an independent life? If she were to have say $66,000 when she's ready to move out, how best to spend it to head towards FIRE? At this point she has no car and we are pushing for her to stay car free for at least the next four years while she is at university.

Note: university costs are not paid down till she reaches $54,869 pa and there is no interest.

[Linea_Norway]

The best thing for her is to not turn into a big spender og fall for buying expensive shoes and handbags. She should find it a fun challenge to find stuff that she needs second hand or on sale.
Otherwise, why shouldn't she be allowed to spend her own earned money on having a fun life and making friends for some years. She can easily catch up again when she starts working. The whole point is to not let her spend more than she is making from her own job and don't let her make credit card debth. If you plan to give her a pot of stash, you should perhaps hide it until she is an adult or give it a condition that it can only be used on buying a house. I think you shouldn't finance a car for her. Then we'll see if she wants to spend her own income on a car.

[Shelley]

We won't be giving her anything, stash or car, just advice and a chance to live at home saving. We have never given our kids cash they haven't earned and they've always been expected to pull their own weight. Yesterday my daughter was praised by her boss for her work ethic and attitude, still putting in the same energy after a ten hour shift!

My daughter wants to know the advice of those who have FIRE'd or are close, how best for her to get there. Her aim is to have a paid off house and car ASAP.

We don't stop her spending her money. In fact she has had completely free access to it via debit card and has spent around $700 I think on clothes and furniture for her room.

[Joel]

The biggest thing she can do at that age is choose the right major in college that will put her into a career that pays well.

[Mr Chin Stubble]

16 yr. old Retire? Maybe she might want to try working a few years first ;)

[Shelley]

She will be working for many years I'm sure. She has chosen a dual degree of Science and IT. At the moment she is planning on Earth Science, so perhaps something in mining.

How many people on here didn't find MMM till in their 30's? Or like us, in their 40's? Imagine you found this in your teens and had the drive and willpower to start then? This is my daughter. She has friends who've worked for twice as long, done twice as many hours and have $50 in the bank.

Her plan is currently to buy a secondhand car after university, to live home and continue to save after getting a job if possible. Then to buy a small apartment that needs work. Perhaps do the work using the cash and sell up and move on, or better to just put the cash into the actual purchase cost?

Don't make the mistake of thinking this is a normal teenage girl who spends her cash on makeup every week. She is more like a 25 year old when it comes to her finances.

[mjb]

It might be obvious, but to me, this is still the best introduction:

http://www.mrmoneymustache.com/2013/02/22/getting-rich-from-zero-to-hero-in-one-blog-post/

If she needs investment-specific advice (albeit would need some adjustment for non-US audiences):

https://www.etf.com/docs/IfYouCan.pdf

And investing combined with more life advice:

http://jlcollinsnh.com/2016/06/18/the-simple-path-to-wealth-is-now-published/

[Shelley]

Thank you MJB. She is still getting through the MMM posts, she started right back from post number 1 and I've read so many of them I've forgotten which to point out to her!

[OthalaFehu]

Don't forget to let her be a young adult and have some fun too. I think some of the best MMM wisdom comes from the perspective of having made mistakes in the past.

[SwordGuy]

1. Keep up her frugal ways.

2. Do not date people who are not responsible, thoughtful, goal-driven, kind-hearted adults. Period.  Promptly ditch them (politely) if they fail any of those tests.   

3. Don't get knocked up.

4. Avoid debt like the plague.   Doesn't mean don't take student loans IF ABSOLUTELY NEEDED in order to acquire MARKETABLE SKILLS that will PAY a salary APPROPRIATE to the amount of debt.

5. Research grants and scholarships and apply, apply, apply.   

6. As soon as she is employed after school (or sooner if she's got enough grants to turn a profit earlier!), start investing like MMM and JL Collins Stock Series suggest.

7. Delay lifestyle enhancement by 1 to 3 years after school.  Example:  Able to live on $15,000, but now taking home $30,000.  Don't inflate lifestyle to $27,000+.  Instead, leave the lifestyle at $15,000 for 3 years.   That $15,000 invested in Vanguard's VTSAX for 43,42 and 41 years respectively would, at age 65, result in $772,000 in today's dollars.    That means she would be set for a standard retirement if she just avoided being stupid with her money afterwards.  I suspect the first 6 steps alone would easily put her in the 90th or better percentile for retirees at the standard retirement age.
(According to http://www.shnugi.com/retirement-account-value-percentile-calculator/?min_age=65&max_age=65&retqliq=772000, it's the 94th percentile.)

8. Follow the FIRE advice to retire even earlier.


***

Out of curiosity, I ran the above calculator for someone who is 65 and has no savings.   51st percentile.  According to that website, 51% of people age 65 have LESS THAN ZERO retirement savings.  Scary stuff.

[HappierAtHome]

Sounds like you've instilled great values in her.

Graduating uni with $66k will be huge for her. If she wants a 'traditional' life (home ownership, marriage, kids etc) then that is an excellent start to a house deposit, right? Or if she's more interested in FIREing as young as possible, traveling the world and/or a life filled with freedom and few material possessions, invest it in index funds. Either way she'll be off to a cracking start :-)

[MDM]

My eldest daughter is 16. She started working weekends and school holidays 14 months ago. In this time she has banked $4200.

Open a custodial Roth IRA instead of banking?

See Where to start a child's Roth IRA with very low income?

[Drifterrider]

The best way to start is to PAY YOURSELF FIRST. Always, in all ways.

[HappierAtHome]

You might want to put 'Australia' in the title if you don't want suggestions that are US-specific :-)

[marty998]

2. Do not date people who are not responsible, thoughtful, goal-driven, kind-hearted adults. Period.  Promptly ditch them (politely) if they fail any of those tests.   

Ahh you crack me up. When I was a boy her age, these were precisely the sort of guys teen girls were NOT chasing after.

Their mums loved me, and said what a nice boy I was. Which made it even worse :P

[Prairie Stash]

Age doesn't matter much, the steps are the same, why would it be different for 1 20 vs. 40 year old? Get money, invest money, wait till you have enough; it's all the same for everyone. Although not common its also not uncommon for teenagers to have money from inheritances or work (you may regularly hear of child actors, they're the literal poster children of early retirement). 

In Canada I would open an investment account (not a tax free account) and start investing. I would sell and do capital gains harvesting annually, in low income years its valuable to realize capital gains; in Canada they're tax free if you're low income (low income individuals are tax free no matter the income source).

As she's 16 there's likely some guardianship signatures needed. Also make sure the money is clearly hers, at tax time you don't want the tax man attributing gains to your account. Don't invest through your personal accounts, take the extra step to get it in her name.

[Mr Chin Stubble]

2. Do not date people who are not responsible, thoughtful, goal-driven, kind-hearted adults. Period.  Promptly ditch them (politely) if they fail any of those tests.   



***

That one is too funny and not at all realistic. That is a laudable goal until she meets the "bad-boy" who plays by his own rules and needs a "loan" because his giant sized TV stopped working and he "needs" a new one. LOL.

[GT]

From the Australian Investing Thread, http://forum.mrmoneymustache.com/investor-alley/australian-investing-thread/msg1338976/#msg1338976

The latest version:
AUSTRALIA

WHAT           
0. Pay the minimum required on all debts.
1. Establish an emergency fund to your satisfaction.  See https://www.bogleheads.org/wiki/Emergency_fund.  Use your mortgage offset account OR use springy debt http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/  .       
2. Pay off any debts with interest rates above your mortgage rate (if you have one)
3. Put money into your PPOR mortgage offset account (if you have one).           
4. If your taxable income is less than $51,021 (before salary sacrifice) consider contributing $1000 per year to superannuation to get the Government co-contribution.
5. Pay off any debts above the return you can get on your investments.
6. If you taxable income is more than $37,000 optimise Salary Sacrifice into Superannuation - you need to work this out individually, because how much depends on at what age you will ER, how much is already inside/outside superannuation, and your marginal tax rate.
7. Invest any extra into low cost index funds (long term investments - 10 years) or high interest accounts (short term - 2 or 3 years).           
           
WHY           
0. Don't get yourself into trouble.           
1. Give yourself at least enough buffer to avoid worries about paying bills.
2.& 3. Because it's untaxed, the effective return on a mortgage offset account is likely to be the highest percent return you can get on your money           
4. When the government is giving you money - take it.
5. It's better to pay off expensive debt than to invest.
6. Salary sacrifice is taxed at 15% as it goes into superannuation and people on low incomes have a lower tax rate. You will need other money to last you between when you retire and when you are eligible for superannuation. However superannuation tax rates are low.           
7. Because earnings, even if taxed, are beneficial. If you are saving for the short term (eg. a house deposit whether PPOR or IP), you want to be absolutely sure that you will get back what you saved, but longer term savings are better off in an index fund.

Note: This assumes that you are employed. If you are a business, make sure that you put the 9.5% superannuation guarantee for yourself because if the business fails, you will at least have that money in old age.

So using the above as a guide, suggestions are (and as she's not taking on any debt because she's an MMM/Shelley disciple):

1. Establish an Emergency Fund, an amount she's comfortable with to cover for any possible emergency she might have, it should increase over time as her needs change, i.e. moves out, has to pay own rent and so on.
4. Get free money from the government for adding extra cash into Super (yeah sure, she's not going to need it for another 50 years, but free cash is free cash).
7. Save cash in an online bank account (they generally pay more interest) and then when she has a decent amount buy into a Vanguard (or similar) managed fund (minimum of $5k buy in) which she can add to on a weekly basis, or save $5-10K and buy into a Vanguard ETF each time she has $5-10K.

When she graduates she will be earning more that $37K so can:

6. drop extra cash into her Super.
7. keep topping this up.  If her Managed Fund or ETF's reach $100K she can flip it over into a Vanguard Wholesale Managed Fund - This one's a bit iffy, looks like Vanguard have now upped their buy in to $500K but a number of people have bought in with lower amounts before, just make the call to Vanguard at the time.

Her options than can be to take some of her money from 7 and buy a car and/or have a deposit for a flat/house.

[Shelley]

Excellent GT, this is what I was looking for!

[GT]

Forgot to mention, your daughters Super, which she should have (HostPlus is one of the most cost effective), will probably have defaulted on creation of the account to have insurances deducted that she doesn't need.  Death & TPD are ones you look at when you have a family to support and Income protection is needed when you've got debts to pay (she doesn't and won't if she keeps to the MM/Shelley way of life).  So get her to take a look and do what she can to cancel those as they suck her balance dry for no reason, they can be added back in when her life changes.

[Dropbear]

Some Aussie-specific ideas in case she's thinking about uni (whether or not higher education interests her is another matter altogether), but I don't know how up to date these ideas are:

- Even though HECS is a low-interest loan, paying the cost of uni upfront should invite a decent discount, and then you don't chalk up a HECS debt at all.  A summer seasonal job can provide a good kick-start for each year of uni expenses such as these.

- Research the Centrelink rules for youth allowance.

- Research alternatives for living at uni.  Some universities have an "International House" college with about 50/50 Aussies and internationals, so these are amazing places to broaden one's horizons.

All that said, make sure she doesn't spend too much time working and not enough time living and being young.  There appears to be a lot of teens that are caught up in the consumerist trap of having to work to afford their mobile phone bills!

And good luck to her!  She'll certainly have time on her side, so she might like to look up MMM threads about career breaks, sabbaticals, and the like...  The calculated finding was that a break from work would delay your anticipated FIRE date, but only by about as much as the time you took off work - the total time needed to work before FIRE is about the same either way.

[SwordGuy]

2. Do not date people who are not responsible, thoughtful, goal-driven, kind-hearted adults. Period.  Promptly ditch them (politely) if they fail any of those tests.   

Ahh you crack me up. When I was a boy her age, these were precisely the sort of guys teen girls were NOT chasing after.

Their mums loved me, and said what a nice boy I was. Which made it even worse :P

You are right.  Most of the girls (and boys) were goobers who were clueless about what they were doing.

So, here's the deal.   

We aren't talking about an average teen.  We're talking about a teen that's showing signs of advanced maturity, independence, and with a good work ethic.   That's the kind of young lady who already has some sense, so it's advice that's far more likely to be listened to.

But here's something that young ladies like that REALLY need to know.   These comments are based upon a lifetime of enjoying the company of charming, intelligent, competent, and lovely women -- who sadly (and wrongly) believe they are not really attractive.

It took a number of years but I finally figured out why.

When they were in high school and even in college guys didn't flock around them like they did for the bimbettes.  So they drew the wrong conclusion that they weren't attractive.

The reality is that they were so much smarter and capable than the boys their age - and so much more mature - that the guys knew they weren't in the girl's league.  They self-selected out.   

That's actually a good thing because it keeps the young ladies from wasting a lot of time with immature goobers.

But if they believe it's because they aren't attractive, they'll grasp at any slimeball who mistreats them and hang on for dear life.

So, if you have a daughter who has all these admirable qualities, let her know that as she gets a bit older she'll find the right kind of guys who really appreciate her for the quality individual she is.

Hope that helps someone.

[Linea_Norway]

2. Do not date people who are not responsible, thoughtful, goal-driven, kind-hearted adults. Period.  Promptly ditch them (politely) if they fail any of those tests.   

Ahh you crack me up. When I was a boy her age, these were precisely the sort of guys teen girls were NOT chasing after.

Their mums loved me, and said what a nice boy I was. Which made it even worse :P

You are right.  Most of the girls (and boys) were goobers who were clueless about what they were doing.

So, here's the deal.   

We aren't talking about an average teen.  We're talking about a teen that's showing signs of advanced maturity, independence, and with a good work ethic.   That's the kind of young lady who already has some sense, so it's advice that's far more likely to be listened to.

But here's something that young ladies like that REALLY need to know.   These comments are based upon a lifetime of enjoying the company of charming, intelligent, competent, and lovely women -- who sadly (and wrongly) believe they are not really attractive.

It took a number of years but I finally figured out why.

When they were in high school and even in college guys didn't flock around them like they did for the bimbettes.  So they drew the wrong conclusion that they weren't attractive.

The reality is that they were so much smarter and capable than the boys their age - and so much more mature - that the guys knew they weren't in the girl's league.  They self-selected out.   

That's actually a good thing because it keeps the young ladies from wasting a lot of time with immature goobers.

But if they believe it's because they aren't attractive, they'll grasp at any slimeball who mistreats them and hang on for dear life.

So, if you have a daughter who has all these admirable qualities, let her know that as she gets a bit older she'll find the right kind of guys who really appreciate her for the quality individual she is.

Hope that helps someone.

I think these are very wise words, SwordGuy.
I guess I was also such a girl, way more intelligent than average and not very interested in the things some other girls were interested in. And yes, it is worth waiting for the right person to move in with. Of course, try dating with nice guys, but really look if they have the same values that you have before you commit.

I remember my first boyfriend. He was very handsome and a really nice guy. But I heard the BF's father say that the BF's mother didn't need to work. He seemed to think it was insulting to think a women would need to work. Also the BF wasn't very bright and didn't expect me to do some serious study. He just expected me to do some one year course and then go work. He was also religious, which I am not. After some time I felt that he was not really my kind of person and broke the relationship.
My DH now is quite different. He is more intelligent than myself, has quite similar political ideas and non religious ideas and grew up in a very emancipated (and frugal) family. He has turned out to be a good match so far (soon 25 years together).

[Shelley]

You are right.  Most of the girls (and boys) were goobers who were clueless about what they were doing.

So, here's the deal.   

We aren't talking about an average teen.  We're talking about a teen that's showing signs of advanced maturity, independence, and with a good work ethic.   That's the kind of young lady who already has some sense, so it's advice that's far more likely to be listened to.

But here's something that young ladies like that REALLY need to know.   These comments are based upon a lifetime of enjoying the company of charming, intelligent, competent, and lovely women -- who sadly (and wrongly) believe they are not really attractive.

It took a number of years but I finally figured out why.

When they were in high school and even in college guys didn't flock around them like they did for the bimbettes.  So they drew the wrong conclusion that they weren't attractive.

The reality is that they were so much smarter and capable than the boys their age - and so much more mature - that the guys knew they weren't in the girl's league.  They self-selected out.   

That's actually a good thing because it keeps the young ladies from wasting a lot of time with immature goobers.

But if they believe it's because they aren't attractive, they'll grasp at any slimeball who mistreats them and hang on for dear life.

So, if you have a daughter who has all these admirable qualities, let her know that as she gets a bit older she'll find the right kind of guys who really appreciate her for the quality individual she is.

Hope that helps someone.

You are exactly right, you've captured exactly who she is. And the boy stuff, all her friends have or have had boyfriends, they chose to do tafe subjects at school to get to be around boys as it's an all girls school. My daughter couldn't care less. She just figures she will get on with life and it'll happen.

She is strong, independent, enjoys Scouts and camping and knows how to budget already. Some day some guy will be very very lucky to meet her.

[Linea_Norway]

She is strong, independent, enjoys Scouts and camping and knows how to budget already. Some day some guy will be very very lucky to meet her.

Camping is a good habit. Not many of the adults that I know do that. But it saves lots of money compared to living in a hotel in the holidays.