We have graduated another class of young people from high school and college. I want to focus upon the subject that most of us did not study formally and which is often caught only from our family experience, if even then. That is personal finance. Even for these new graduates, it is never too late to learn important financial principles that will make life easier and perhaps more rewarding in the long run.
Begin with a person’s broad viewpoint about the world as it relates to money. That is developed by family experience in our youth, but also by the economic climate existing between about ages 16 and 25.
Boomers grew up in a rising tide of affluence in the ’50s and ’60s so our attitude was primarily that the good times will last forever. Even with lots of competition, we started out spending and borrowing like there would be no bumps in the road.
Millennials on the other hand saw an overheating economy and housing market obliterated. If their parents did not lose their job and home, they know someone who did. Why buy a house when you might face foreclosure for no fault of your own?
Today’s Gen Z group was seeing a rising tide until The Virus closed down the world 17 months ago. But with government printing money for all, they may adopt an Alfred E. Neumann approach: What, me worry? It is a little too early to tell, but we indeed shall find out.
Good times and bad both come and go. What principles stand firm in and for all situations they will find themselves? Here is my offering for laying a firm foundation.
1. Know that no one owes you anything. You must contribute value to the world in order to receive money.
2. The more others value your contribution, the more you will be paid.
3. Learn to distinguish between needs and wants. (Plan to spend only 50 to 60 percent of your gross income.)
4. Learn to control your wants as early as possible.
5. Learn how you can create value that best fits your natural talents and desires.
6. Continuously study, and learn to improve your capability for creating value.
7. Learn how to accomplish No. 6 in the least expensive ways in both time and money.
8. Give at least 10 percent of your income to your church or charities.
9 Save an emergency fund of at least $1,000 (and then more).
10. Pay your taxes on time. (Plan to pay 20% of your income for Social Security and income taxes.)
11. Save 5 percent of your income in the form of disability income and other insurance premiums to protect you and your family.
12. Save 5 to10 percent more for long-term needs in a 401(k) plan, IRA or Roth IRA.
13. Pay off any necessary debt as quickly as possible.
14. People make money by labor and money makes money by investment.
15. Get a coach/financial adviser to help you as early as possible.
I have worked with people earning $200,000 a year who cannot live on it and those with $40,000 income who make it very well. Only you can choose whether to be fiscally healthy or not. You are not guaranteed a standard of living.
God created us to be creative/productive and help others whether we need income or not. As Mark Twain said, the two most important days of your life are the day you were born and the day you find out why.
(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations.)
Ron Finke is president of Stewardship Capital in Independence. He is a registered investment adviser. Reach him at rcfinke@stewcap.com.