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Want to be Free? Five Must-Dos for 20-Somethings (And Why We Envy You)

23 December 2013 No Comment


by Dan Danford, CFP®

Hey 20-something … Lots of 30-somethings, 40s and Baby Boomers out there envy you. Why? It’s not for the reasons you might think.

If you’re in your 20s, you are in a crucial stage of their life where decisions you make now will have a profound impact on where you’ll be as you enter your retirement years – which will truly sneak up more quickly than you realize. Actually, the decisions you make now will impact how you make plans to enjoy life at every decade. While it’s true that many life choices have more to do with the heart than the pocketbook, nearly all choices make some kind of impact on your financial freedom now … and in the future.

In many ways, you’re in a fortunate and enviable place because you do have time to act.
What should you know now for greater chances of financial freedom later on?

1. Adding on to your career knowledge? Be careful of prestige. Make your school and desired job match up now. It’s not too late if you feel like you’ve chosen a path that might leave you financially more limited than you’d like to be. A word of caution: Be sure if you change careers that the cost of the education path fits your projected income. A good local college may work well for some careers and not get you deep in debt. Other universities may benefit you down the road in salary if you’ve made a good match between career specialty and the unique offerings of a highly-ranked school. Think it through, and don’t make your decision based on prestige. (Lets you be saddled with debt that hampers your freedom now, and later). Who cares where your degree came from if you’re enjoying that dream retirement later on the beach?

2. Most of us learn about how to spend and save money from our parents. But guess what – many parents don’t know much about money. According to a Harris Interactive poll a few years ago, the average adult earns a C- when tested on basic economic and personal finance concepts. Seek out a good understanding of the basic facts on your own and realize that you are the individual responsible for your choices – regardless of what they’ve taught you (or didn’t teach you).

3. Here’s a concept to think about: How you spend is more important than how much you save. Notice I didn’t say how much you spend, but how you spend. Let’s say you take out a $2,500 loan to get that big LED television you’ve had your eye on. By the time it’s paid off, it will have cost you $3,336.60. Will that television be worth that much money in five years? Will it be worth anything? Hardly. Was it a smart investment? No. The same could be said of purchasing a new car and paying it off over five years. A $20,000 vehicle will cost you more than $23,000 after you’ve paid the interest. In five years, the car will have depreciated by more than $16,000.

We often suggest that people consider buying slightly-used autos or factory re-furbished electronic goods. You can save thousands of dollars when buying, without sacrificing quality or warranties. It’s an easy way to save big dollars without giving up the things you need or want.

4. Be smart about how you spend and how you borrow with one simple question. There are almost always better options than long-term loans on cars and household goods. Take an assessment of what you own, and what you spent for it, at the end of each year. Value is more important than cost, so ask yourself this question:  What do I really have to show for what I spent this year? If you get these big things like smart borrowing right, you won’t have to worry so much about the little things down the road.

5. Fact:  A 25-year old can be a millionaire by the time they’re 65 by investing $175 a month at 10 percent compound growth. If you’re not investing anything now for retirement, start today. Right now. It’s you who is responsible for taking steps toward retirement, so make a commitment now to make good decisions. It’ll be more than worth it from the peace of mind you get as the years collect and the reality that you can afford some of the plans you might be making.

The bottom line? The decisions we make regarding who we marry, who we hang out with and where we live are big indicators of where our financial future is headed – so start today in thinking about your life choices.
Thomas Edison said, “opportunity is missed by most because it is dressed in overalls and looks like work.” Don’t miss an opportunity to have a more solid financial future. As the C- score on the Harris Interactive poll would indicate, gathering knowledge now and bringing solid investment knowledge into the mix truly puts you ahead of what many others know about money.

Not to mention taking opportunities now puts you a big step closer to free. And that’s something many out there in different situations and demographics can be jealous of.

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