Millennials and Money
By Jim Niehaus
()
About this ebook
Millennials and Money provides practical guidance for the current generation as they address both their day-to-day financial practices as well as longer term saving and investing. The underlying theme is that the reader can effectively manage their money without professional help if they are willing to put in a modest amount of time and adhere to some simple guidelines. In fact, the original working title was “On your Own”.
In the Prologue, the reader is told a tale of both a financially successful person and an unsuccessful person as they progress from their first job through old age. That theme is carried throughout the book as the two individuals are revisited at the end of each chapter and it is revealed how each addressed the topics covered.
The book provides and orderly progression from developing sound financial practices to understanding and implementing unique and successful investment strategies. The first half of the text deals with getting one’s financial house in order. While many of the subjects covered are common to most of the self-help financial books, the manner in which they are presented and many of the recommended actions are unique. The second half is dedicated to saving and investing. The emphasis here is on safe and sound investment plans that require minimal time on the part of the reader.
Also included are related savings and investing topics.
The investment section is truly unique. It is based on more than a decade of research by the author and has been time-tested over more than 60 years of market performance. The focus is on a simple method to nearly guarantee that the reader will never get caught in a serious bear market, while keeping their money growing in the market most of the time it is going up. The monitoring process recommended takes less than 30 minutes a month. The savings and investment section could easily be a book in itself, applicable to investors of all ages.
Rather than just throwing out advice, the author has put special emphasis on financial education. Useful financial tools are presented with enough practical examples to make them understandable. The use of spreadsheets and internet resources in financial planning is emphasized.
Millennials and Money, while targeting an audience in their 20’s and 30’s, is also a valuable resource for people of any age. Parents and grandparents will find it a comprehensive guide when discussing financial issues with their children and grandchildren. All readers will discover a unique offering in a large field of self-help finance books.
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Millennials and Money - Jim Niehaus
Millennials and Money
Jim Niehaus
Copyright © 2015 Jim Niehaus
All rights reserved.
This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this ebook with another person, please purchase an additional copy for each person you share it with. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then you should purchase your own copy. Thank you for respecting the hard work of this author.
Ebook formatting by www.ebooklaunch.com
Disclaimer
All financial decisions have inherent risks. The advice and recommendations provided herein are based on the research, experiences and opinions of the author. The reader is solely responsible for all results that he or she may achieve based on the implementation of any recommendations of the author.
Table of Contents
Acknowledgments
Dedication
Preface
Prologue: A Tale of Two Kiddies
Introduction
Section 1: Getting your Financial House in Order
Budgeting is Boring
Banking on it
Summary
All Charged Up
Just in Case
The e-world
Buying Stuff
Wheels
Section 2: Saving and Investing
Lower Math
The Tax Man Cometh
Striking it Rich!
Investment Plans
Pros and cons of Plan Two
Pros and Cons of Plan Three
Where the Heart Is
Higher Education
Down the Road
Acknowledgments
Thanks to friends and family for comments on early drafts and to my wife Marlene for patiently awaiting the completion of this work for over a decade. Special thanks are due to Colette Weeks for editing. Without her help this book would be much longer with little added information.
Dedication
This collection of financial ideas is dedicated to my children, Heather and Chad, who are already on the right track financially and to Sophie and Oscar, their children, who will prosper as they learn from their parents.
Preface
Millennials and Money provides practical guidance for the current generation as they address both their day-to-day financial decisions as well as longer term saving and investing. The book provides an orderly progression from developing sound financial practices to understanding and implementing unique and successful investment strategies. Along the way, readers are provided practical instruction in the use and understanding of financial tools and terms. The text also follows both a successful and an unsuccessful person, contrasting how each approaches the topics in each chapter. Millennials and Money, while targeting an audience in their 20’s and 30’s, is also a valuable investment resource for people of any age. Parents and grandparents will find it to be a comprehensive guide for discussing finance with their children and grandchildren. All readers will discover a unique offering in a large field of self-help finance books.
Prologue
A Tale of Two Kiddies
Josh
Josh was excited. Here he was, newly graduated from college. He had been offered a full-time position working at an electronics firm in his field, electrical engineering. The annual salary astonished him, particularly when he compared it to the meager sums he earned during summers while attending school. It was the best of times.
Josh moved to Denver and found a cool apartment. The rent seemed a little high, but not too bad considering his seemingly huge salary. He made friends easily and entertained them all, often picking up the tab on one of the three credit cards he qualified for after settling in to his new job. The minimum monthly payments on the cards hardly put a dent in his paycheck, even after he traded up from the four-year-old Mustang he had while in college. The new 4Runner, financed for five years, seemed more suited to his lifestyle, which now included skiing and backpacking as well as driving to work.
Josh figured he had 30 or 40 years to save his money, and it made more sense to enjoy life while he was young.
After a year in his new job, he got a good raise, but sensed something was wrong. His three credit cards were maxed out, and he was late for his rent a few times. He simply ran out of money and had to wait for the next paycheck. Two months later, he was not only a month behind on his rent, but a few days past due on his six-month car insurance bill.
He hated to do it, but he called his dad. Josh explained that it was just a little mix-up, and he just needed a short-term loan of $1,000. Josh promised he’d do a better job of managing his money.
A year later, after two more loans from home, Josh did improve. He paid down nearly a third of the $14,000 he owed on his credit cards and had enough available credit on two of them to make ends meet. The raises kept coming, and he married his girlfriend, Jill.
Josh and Jill moved into a newer, bigger apartment and spent nearly every weekend enjoying their love of the outdoors. They took three pricey vacations that first year, and traded in Jill’s old beater on a new Lexus, financing it for five years.
The following year, Jill was laid off from her advertising job, but they seemed to make it from paycheck to paycheck, though the credit card debt had grown again. After three months, Jill found another job, and they decided to celebrate and look for their first house. They settled on a four-bedroom beauty in a trendy new development in South Jefferson County, and after applying to four different lenders, landed a 30-year loan about 1 percent higher than the going rate. The past history of late payments and high credit card debt concerned the lender, but the bank agreed to the loan, only requiring a 5 percent down payment. The other requirement was that Josh and Jill carry private mortgage insurance, which only added about $100 a month to their monthly payment.
Ten years later, Josh and Jill were miserable. It seemed they had the finest home and cars, having moved up twice, but they still had only a few thousand dollars of savings and still lived from paycheck to paycheck. Right then and there, they cleaned up their act and began to pay down their credit cards and a few months later, Josh started contributing to his company’s 401(k) savings plan.
Time flies. It seemed just like yesterday that Josh and Jill got married. They were now in their 50s, had raised two children and were looking forward to retirement. Especially inviting was the potential to travel and revisit their favorite parts of the world. They decided they would retire early and paid a visit to a financial planner to see how soon they could swing it.
Josh was devastated. The planner, after reviewing their debt and savings, as well as Josh’s company retirement plan, politely explained that he should work for at least 10 more years and that Jill would have to go back to work during that period if it was really that important to retire at all. He also suggested that they sell their home and move into a smaller place a little farther out, or consider renting again, if retirement was really a goal. The second mortgages they had taken out to fund their children’s college educations added to their financial burden. It was the worst of times.
The couple did everything the planner suggested and 15 years later retirement finally did come. Josh and Jill decided to continue to live in their smaller house, but travel was out of the question. Even though their savings had grown to over $100,000, they could hardly make ends meet. They lived meagerly into old age, bitter at the world. How could the vice president of engineering from a well-known firm retire and end up so destitute?
Mary
Mary was relieved. After six job interviews and five rejections, she had landed an entry-level job at an advertising firm. Although the pay was less than she thought she’d make as a college graduate, it was still more than she made working summers and doing odd jobs at school.
It was exciting to ponder her new life in Denver and the chance to see Jill again. She and Jill had been roommates while freshmen at college and had remained great friends. Jill moved back to Denver after graduation and, like Mary, had found an advertising job at a different firm.
Mary arrived in Denver and after considering several apartments chose a nice one that she could easily afford. Her Honda had served her well through college, and she decided to hang on to it for a couple more years.
One credit card seemed to be enough for Mary. She charged as much as she thought she could pay off each month. Mary later learned that her employer had a 401(k) and that she was eligible to contribute up to 6 percent of her gross salary and that the company would match her contribution with company stock. She signed up for the full 6 percent.
After a few months Mary looked over her bills and prepared a simple budget that would allow her to save, while still not cramping her lifestyle. She arranged for direct deposits to her savings account each pay period. Because she only looked at her net paycheck, she never missed the money going into savings. When Mary received a raise after her first year, she found she could save a little of that too. She found great freedom in having some savings to draw on at the bank whenever big expenses came due like her car insurance or the nice vacations she planned. She also found that after about eight months, her working savings account had grown to the point that she could move some of the money into a brokerage account and still have enough to cover periodic major expenses.
Mary had lots of friends but especially enjoyed being with Jill and her new friend Josh. Not long after Jill met Josh, she began seeing Bill. It was pretty exciting when she and Bill married a year later. They continued to see their best friends Josh and Jill, who also married about the same time they did.
Bill had a decent job, working as a paramedic. Mary continued to save about 10 percent of her salary, and Bill contributed to an IRA.
Mary marveled at Jill’s new house. She guessed that Josh and Jill must have a lot more money than she and Bill. She had no idea that their incomes were about the same. Mary and Bill did buy a new 4Runner, putting 20 percent down from their savings and financing the balance for three years. They held onto the Honda as a second car.
Two years later, Bill and Mary bought their first home, a nice three-bedroom in a new development. While it wasn’t as flashy as Josh and Jill’s, it was really nice and suited them fine. They were able to get the best financing around, going for a 15-year loan. With their great credit history and the 20 percent down payment, it seemed that they had their pick of the best deals around.
Mary and Bill started planning in earnest for their retirement while still in their 30s. They set an objective to retire at 55, even though they weren’t sure they would really want to retire then.
Mary and Bill had two children and opened college savings accounts soon after each child was born. They made monthly deposits into the college accounts and raised their contribution whenever either of them got a raise.
Mary was pleased when they moved up to a really nice four-bedroom house in a great part of Denver.
About the time their first daughter went off to college, Mary reviewed their financial plan and decided they could retire comfortably whenever wanted. Their savings had grown well beyond what they had expected. It also felt good knowing that college was fully funded for both kids. Three years later, at age 56, Mary and Bill retired. Mary retired as manager of advertising. Bill was working part-time as a paramedic instructor when he retired a month after Mary gave her notice. They had well over a million dollars in savings.
They continued to see Jill and Josh, though usually only on weekends, since their friends always seemed too exhausted from long hours at work during the week. Josh was promoted to vice president of engineering, and they were excited for both him and Jill.
Bill and Mary stayed in their home, now paid for, and also rented vacation homes in Arizona and Europe when the spirit moved them. While they had traveled to a number of places around the world while they worked, they enjoyed seeing so many others in retirement. They continued to ski and enjoy the outdoors and lived happily into old age, leaving a sizable estate when they passed away.
****
Introduction
The idea for this book originated while I was still working, and my two children were entering college. My initial plan was to create a simple manual to help my kids get off to a good start with their financial life, as they began to live away from home.
My own early experiences with finances had been all too typical. I managed things pretty well as long as I was a struggling college student barely getting by with summer jobs, part-time work, student loans and support from my parents.
Things changed once I landed the first real
job after college. The starting salary was $12,000, and the year was 1971. That seems puny by today’s standards, but not only was it above average for a starting salary at the time, it was more than twice as much as I ever made during any year in college.
I was fresh out of Vietnam and newly married to Marlene, and we were living in southern California. We really enjoyed the first year of our new life together and lived from paycheck to paycheck, running up some credit card debt in the process. We also treated our friends and visitors, usually picking up the tab on our credit cards. It was not unusual for us to go through all