Dollars and Sense
The other day, a conversation with some coworkers turned to the topic of professional athletes and money. Apparently rookies in the NFL are required to attend a week-long financial management seminar. It makes sense; they’re fresh out of college, suddenly making boatloads of money, and they’re in jobs that could be end in severe injury at any moment. If anyone needs advice about smart investing, saving, and spending, it’s them.
The truth, though, is that we all need that kind of advice. Money isn’t an easy thing. We know we need it; we like having it; and most of us like spending it. Get more complicated than that, and a lot of us are lost.
Let me get more specific: I get lost when money matters get complicated.
Money is an odd topic for me. I have a visceral dislike of the entire concept. Weird, right? It’s such a necessary thing in the world. Having money is a good thing. Why would it make me arch my back and bare my teeth? A large part of the problem is that I just don’t get it. I know I’m a smart person, able to grasp a lot of complex concepts. And yet, somehow, money concepts elude my grasp. Interest? Stocks and bonds? This whole financial crisis that’s going on? That whooshing sound is those things flying over my head. It’s a frustrating feeling!
I do understand enough to get by. How much money I have in the bank — that’s easy. Credit cards? I try not to use them, but when I do I get that I need to pay them off the amount. I have my bills, including student loan payments, automatically withdrawn from my checking account so I don’t have to worry. I can even put together a budget!
Working from said budget, though, that’s a harder thing. I’ve been trying to do that this summer. My goal is to be able to save money each month, then turn around and use that money to pay down my student loans. If I can pay just a few hundred dollars more each month, I can pay off the loans many years earlier than if I only pay the minimum. That’s motivation! It’s harder than I expected, though. I spend more on non-essentials every month than I knew. Entertainment, restaurants, cash, miscellaneous purchases — they all add up, and quickly. Saving even an extra hundred a month requires curbing my impulse spending more than I realized it would. It’s an interesting exercise. Which is more important to me: instant gratification (buying that DVD set) or long-term payoffs? Obviously the latter should be — but it’s hard to keep my eye on that!
Looking farther ahead is even more challenging. I’m 27 years old; retirement is a long time away! And yet, I know I have to save for it. I am, amazingly enough. I have a 401k through work, and I also have some money invested separately. The latter took me a long time to finally set up; I had the money waiting to be invested, I just had no clue what to do with it. I was so intimidated by just the investment company’s website that I was paralyzed. I finally called my dad, who is my financial guru — he knows this stuff, and he enjoys it. He walked me through what I needed to do with my money, just like he’d helped me with my 401k. I don’t know what I’d have done without his help. I seriously wasn’t capable of figuring it out on my own. That’s not a good feeling.
I know there are financial management classes out there for people like me. Something like that should probably be required in high school or college, so that we don’t get out into the real world without some of that vital knowledge. On the other hand, it’s hard to care or even truly grasp some things until you’re faced with them in reality. But then what do you do, if you’re not prepared? I’m lucky to have my dad around to ask for help; not everyone has that kind of support. I don’t know — maybe the lack of good education on finances is part of why we’re having so many financial troubles as a society these days. I can’t speak to that. All I can do is work on is my own issues with the subject. I’ll leave the rest to the experts.
I try to do budgeting and saving. Unless I seriously take money on payday and put it in a hidey-hole, I won’t save it. And I cashed in my retirement when I was 23… not knowing I could roll it over.
Having people take a money management class would be helpful. Add in a “How to write a resume”, “How to do Interviews” and “How to dress professionally”… those classes would be awesome.
I get part of my paycheck automatically deposited to my savings account, in addition to my 401k, so that helps me out! Anything that doesn’t require me to think about it or do anything helps.
Agreed! Those would be really helpful. They teach us math and english, but they leave out most of the practical skills we need to succeed in the real world. Some schools offer those things, but as extras instead of requirements or regular classes. A general “professional skills” class would really be helpful.
You learn a lot in 59 years on this earth. Much by trial and error, a bit more by observation. There are some basic truths in life tho. In the Army, I learned KISS, keep it simple, stupid! In investing, this means stick with 4 basic index funds, a S&P 500 fund, an broad foreign fund (EAFE), a small cap fund , and a bond fund. Don’t expect to beat the market, most pros cannot, so don’t try, easy as that.
Spend less than you earn. As you have found out, most people know what they earn, but few fully understand what they spend. Most people have 3 pots of expenses. 1- Fixed expenses, must pays like housing, transportation, clothing and not much else! 2- Variable expenses, like food (mac-n-cheese vs restaurants), phone (basic service vs smart phone), entertainment (free TV vs cable), and 3- Discretionary expenses, like Lattes, bottled water, tablet computers, travel, concerts, and anything else not absolutely required to work and live.
Most young people screw up thinking the discretionary stuff is must have, due to peer pressure, marketing, and just plain old desire. If you don’t need it for the basics, like shelter, clothing, transportation to work, EVERYTHING else should be on the table to be cut back on.
I should write a book! Hope this helps…