Author Topic: Help! Have agreed to teach $ to 20-somethings in our clan, where to start?  (Read 22642 times)

Bobberth

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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.

clifp

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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.


Malaysia41

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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!

Malaysia41

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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.
« Last Edit: June 16, 2014, 07:47:32 PM by Malaysia41 »

Malaysia41

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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?

MDM

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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.

iris lily

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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.

Malaysia41

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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. 

Melody

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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.

Malaysia41

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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.

NinetyFour

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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.

nawhite

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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).

Pegasus

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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

Malaysia41

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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)
« Last Edit: July 09, 2014, 09:16:52 AM by Malaysia41 »

Malaysia41

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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.
« Last Edit: July 09, 2014, 09:17:24 AM by Malaysia41 »

nawhite

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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?

Malaysia41

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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.

Malaysia41

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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.

Malaysia41

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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!

Malaysia41

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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.

nawhite

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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"

Malaysia41

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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.

Malaysia41

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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. 
« Last Edit: July 10, 2014, 03:01:43 PM by Malaysia41 »

Malaysia41

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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

:)

FIreDrill

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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.  ;)

Cinder

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Malaysia41

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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)).

Cinder

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I'd love to hear some of their responses !

Basenji

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Well done on the education. I'm going to use some of this for my nieces and nephews.

YeahNo

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Subscribed. A ton of good information here.

Debt Free in Alabama

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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.

Malaysia41

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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.




fmzip

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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

nawhite

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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.

MDM

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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.

fmzip

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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)
« Last Edit: August 22, 2014, 08:39:49 PM by fmzip »

MDM

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But the statement ... mentioned "perpetuity". Is that accurate?
Great question.  Unfortunately, as someone 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.