How explain investing and retirement to someone

[MgoSam]

A good friend of mine is moving back into town. She admits she hasn't saved much thus far in life, she's around my age (27) but wants to get better at it and wants to understand everything about it.

I promised to explain as much as I can when she is here because over the phone doesn't work as well. In the meantime I did email her MMM's Start Here article to give her something to mull over and basically my advice is to invest in Vanguard's index funds (after explaining what mutual funds are, and what the difference between active and index is), and I'll talk about IRA and Roth IRA, but anything else I should talk about?

Oh, and I talked about living frugally. She does a pretty fair job as far as I can tell, but I can ask more questions when I can.

[Jeremy E.]

Teach her how the tax code works, meaning the standard deduction and the different tax brackets. Let her know that putting as much money into her tax advantaged accounts is very important. Make sure she reads the following post before ever considering to buy a house
http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/
Before she finds an apartment to rent, I find it a good idea to check with the electricity company to see what the average electric bill has been in the passed year, and what the highest month was(as well as checking the normal details of the apartment). If she reads the MMM posts, everything else will be covered in time, otherwise you'll have a lot more work to do to teach her. Warning, some people like to be consumerist suckas and get a temper when you talk about "frugality." But if she's willing to listen, then more power to you, good luck!

[solon]

I think you should start with the basics. Spend a long time conversing about the why. Why should she save? What is the reason or reasons? Is "not having to work" a good goal? This is the missing piece in so much financial advice.

If you can paint a picture of one day not having to work, and what she might do with her time instead, I think you'll have better luck. Maybe she would like to travel, maybe she would like to work with homeless youth, maybe she would like to start a philanthropic foundation. The possibilities are endless when you don't HAVE to work.

If you start with the technicals, you'll lose her.

[Exflyboy]

^^^^This!!!

You have to want to make a life change... For most people the idea of never having to work again is so far off that they can't imagine it, especially when you casually drop "$1MM" and they have a boatload of CC debt.

[MgoSam]

Thanks everyone! Glad to have some great advice. When I met this friend a year ago she kinda ignored the fact that I am investing and hoping to retire, but after a year of working for a bad employer, and seeing that I am making progress towards retiring, she is willing to listen.

I'm going to go easy on the frugal part, but still want her to know the basics of investing. I figure that once she conceptualizes the concept of 'compound interest,' she will get on the wagon somewhat...at least put some money in now so that it has decades to grow.

[MgoSam]

Fellas,

I got some good news. I showed MMM's "Start Here" post and she absolutely loved it and said that she's reading more of his posts. The description of savings and frugality as freedom has struck a cord with her.

[solon]

Sweet mother of awesome sauce!