Isn’t being young a fun time in your life? There are numerous reasons why people always say “Man, if I was only young again I would do this “thing” or go to that “place,” but now that I’m too old I can’t do it anymore.” Whenever someone that is older than you says that statement, you should write it down and see if you should go out there and do it. Experiencing things and going to new places is a great way to develop your mind, body and soul. Remember that having a “NO” attitude will end up making you a person that will have numerous regrets in the future. And how can you directly link this perception on life into your finances? Take risks that older people do not have the ability to take. I’ve spoken to numerous twenty year olds about finance and they sound more conservative than fifty year olds that read AARP magazines.
One thing that did please me is the fact that some twenty year olds really do have some financial sense, but are taking the extremely slow and steady approach to money. With interest rates getting cut on a near monthly basis, that savings account and CD won’t look so attractive pretty soon. Are there still conservative investment vehicles out there that won’t open you to a mound of risk? Sure there are, but you still have to do your homework to find them. What’s a few hours of homework if you can retire 10-20 years earlier? If someone told you to do a certain activity every week and that you would retire earlier with a lot more money, wouldn’t you want to know what it is? Well, it’s not a secret and people have been doing it for a very long time. Invest now, let your money compound, and spend it later.
I had a conversation with a particular friend that has accumulated a small fortune for a 25 year old guy. He has about $60,000 in a CD yielding about 4.5% which will be available for withdrawal in a few months. Here’s some more background about my friend: He is looking to purchase a home and a new car in the next year or two and wants to put a nice down payment on both items. What do you think he should be doing with this money? I told him that he is investing like a 50 year old about to purchase their second home. He is a smart individual with a great education (he has an MBA from a great university) and is currently making a big move in his career. With all these tangible and intangible assets he posses, he should be a bigger risk taker.
First, let’s tackle him wanting to purchase a house in the next couple of years. He says he wants to put down a sizable down payment because that’s what his parents told him to do. Well times have certainly changed. In those times, people lived in their first house for more than ten years. That’s incredibly hard to do with the ever changing job market forcing you to relocate on a drop of a dime (especially in your early career). I told him to put less money down and try to find a mortgage that will suit his needs for the next seven to ten years. Why so long if they won’t be living in that house for an extended period of time? Because padding your risk with a few more years will be more beneficial in long run. Heck, I would tell him to only get 30 year fixed rate mortgages for the rest of his if he wants to be extremely conservative. This will allow him to put less money down and keep money in his pocket to invest in different things. He can also put the money that he saved on his house into purchasing his new car.
His $60,000 has a lot of potential if he used the money in a correct way. I actually told him he has too much savings! You don’t run into an individual like this every day. His money is tied up in savings and not in a retirement account. All the interest he receives is still being taxed. I told him to open a Roth IRA and immediately max it out. What type of investments should be in his Roth? I told him that index funds are his best bet. If it was me, I would find five to six companies that pay a good dividend and let it ride. I always love going to my investment account statements and seeing a nice fat dividend that will be reinvested. It’s a beautiful thing.
No matter what your financial position might be. Always remember that you are only young once and that you should live for the present and invest for the future. Do not limit your present day fun for the dreams of doing it in the future. Because in the future do you want to be the person that says “God, I wish I could be young again so I could have done that” or do you want to be the person that traveled around the world? Be Christopher Columbus he was a bad a$$.
Comments(1)
