Finance for Young Adults
Content
Major Financial Issues as They Relate to Young Adults
Composed by Chris Bates
Issue #1: Social Security
What it is: When you get a job, you pay a payroll tax (about 12%) on the first $102,000 of your income. Your employers also pay a tax. The money from this tax funds the Federal Insurance Contributions Act (FICA), which funds Social Security. Retirement and disability benefits are paid out of this account. The Problem: Since 1983, FICA has been operating with a surplus, which means more money is paid by the payroll tax than there are people who are taking out money for retirement. However by 2017, this is expected to change to a deficit due to the retirement of the baby boomer generation, longer life expectancy, and lower fertility. There will be more people taking out retirement benefits than there will be people paying for it. By 2043, roughly around the time when we expect to retire, the Social Security fund will have been depleted.i, ii Possible Solutions: Here is a breakdown of where income is derived during retirement for an average citizen.iii Sources of Retirement Income Social Security Benefits 39% Pensions Savings & Investments Employment/Other 19% 16% 26%
So the proof is in the numbers. We need to begin adjusting these percentages if we anticipate Social Security not being there. This will frame the discussion for the remainder of this short paper.
Issue #2: Investing
What it is: Investing encompasses many financial activities, but in this specific context I will refer to investment as putting your money into the stock market.
Why? Whether you are trying to achieve financial independence early, or plan on living a philanthropic lifestyle, you ultimately need money to do so (if you live in the United States at least). Investing ensures that you can do these activities much longer after you officially retire (and often long before), and can help fund any of your future hobbies from traveling to giving to charitable causes. The Problem: Many young adults do not invest because either they have inherited a large amount of debt from school loans or they view investing as some high-level activity that only people with large amounts of money can do. Young adults are the most in need of professional financial help, and yet they are the least likely to get it. What to do: First you need cash. Everyone has cash—you just need a budget (see the next section on debt management). Next, follow these steps to setup an online brokerage account and start trading. 1) Look for an online brokerage agency with low commissions. Trading stocks costs money, but each brokerage has different fees. I use Scottrade. E-Trade and Ameritrade are also good. They charge about $7 per trade. 2) Incidentally you need cash to trade. Online brokerages have become popular for their low commissions, but they also allow you to trade with a very low amount of money, usually about $500.00. This may seem like a lot, but keep in mind that this amount will probably be less than one month’s worth of rent. It’s all about your priorities, and I prefer to invest my money to something that can give back. 3) So what do you do with this $500.00? There are many investing strategies out there, and you kind of have to adopt what fits your lifestyle and personality best. Are you a risk taker? If so, invest in stocks that fluctuate (usually smaller companies), but have potentially high returns (room for growth). Do you want something dependable? If so, invest in large corporations or commodities (like oil, coal, sugar, coffee, aluminum—things which people will ALWAYS need) Do you see potential in foreign markets? If so, invest in companies which have good products which people need and can afford (especially in the third world—or emerging—markets)
-
-
4) A distillation of the many articles that I have read over the years, points to the same investment strategy— diversification. Experts will tell you that 30 stocks is the minimum for diversification. I’m also a personal fan of David Swensen. He manages Yale’s $22 billion dollar endowment and shows how to break up your money into a portfolio of stocks ranging across multiple markets. Read the New York Times article about his strategy.iv 5) 30 stocks can obviously be costly, so what are your best options? Index funds, exchange traded funds, and mutual funds offer the best value for your money. You often pay a low minimum investment ($100 - $1000) and get access to a fund, which often has more than 10 stocks in its holdings and balanced among various sectors (financial, technology, retail, etc). 6) Why is diversification important? Because the market inevitably goes through bear movements (bear means lots of selling, bull means lots of buying) and possibly even a recession (a recession is technically negative GDP which hasn’t happened since 2001). To best protect yourself, don’t put all your eggs in one basket! But know there have been far more periods of expansion than recession. 7) I should also add that many people are hesitant to invest because they do not want to lose money. While this is certainly a possibility, young adults must pressure themselves to see investing as a long-term option. Besides, brokerages and the government enforce you to think this way. If you remove or change your investments sporadically, you will be penalized with fees! 8) Our economy has not been doing well and the stock market has been unstable at best. However, the best investors notice where opportunities lie in the face of great pessimism. There are undoubtedly many good deals in the stock market right now. 9) RESEARCH!!: Obviously I’m not a professional or an expert. But I do make the most of resources where I can find them. a. Morningstar, Vanguard Group, Charles Schwab Financial Planning, Fidelity, Yahoo-Finance How-To Guides, CNBC, thestreet.com b. Also before you invest, check out the companies. Look at their income statements and see if they actually make money (Yahoo-Finance). Use Wikipedia to see if they are involved in any
controversies. c. For what its worth, I have two pieces of advice. One, do not listen to Jim Cramer when it comes to finance (his strategies are short-term)! Two, be careful not to put your money in funds that are actively managed (primarily includes some mutual and exchange traded funds). They usually have higher costs and don’t pay off for young adults (we have little investment money anyways).
Issue # 3- Savings and Debt Management
What it is: Plain and simple, savings is responsibility. Savings accounts can take many forms, some of which reward you more than a typical savings account at a bank. You cannot begin to save until you have addressed your debt. The Problem: Many young adults leave college with a certain amount of debt owed on student loans. However, the largest problem for young adults is the desire to live the lifestyle they were accustomed to at home—and can no longer afford it. Whether you have a large amount of cash from an inheritance or just a new job, it is important to scrutinize your spending habits. With rising inflation, such habits may not be financially sustainable. Managing Debt: The first step to managing debt is to know and understand exactly what kind of debt you have. Here is a brief summary v:
Installment (Mortgage, Car and Student loans) vs. Revolving Debt (Visa, Mastercard)
Installment Beginning Balance (principal) Interest Rate Years to Repay (amortizing schedule) Interest Cost $2,500 10% 4 $544 Revolving $2,500 18.5% 30* $6,500
*Paying 2% minimum monthly payment.
Sources and Costs of Debt
Source Banks and Credit Unions Type of Debt Personal, secured* Personal, unsecured** Mortgage Credit Card Mortgage Companies Department Stores Insurance Companies Mortgage Revolving Personal, unsecured Cost Low Moderate Low Low to High Low High High
Secured- Means that creditor can take away your possession if you fail to make payment (car loans) Unsecured- Means that creditor cannot take away your possessions if you fail to make payment (medical bills)vi
So the table above teaches a couple lessons. First, credit cards are expensive to own. You pay expensive interest fees for the convenience, and when used incorrectly, credit cards can be a nasty burden. Second, installment debt is a natural part of life. It is easy to factor into a budget and should be taken advantage of when possible. It makes good financial sense to take out a car loan, for example, even if you have the money to pay for it. You can invest the rest of that money in stocks and potentially earn a higher return than 10% (or whatever the installment loan interest rate is) and pay for the interest and even the principal. Managing Savings: The golden rule of savings is to embrace the Depression era philosophy—never spend more than you make. It is important to view savings as another expense, something that should be done before spending takes place! Just as with debt, it is easiest to save once you know what saving entails, and how long you want to save. Each has its own benefits! Know the terms:vii, viii, ix APY- Annual Percentage Yield – How much interest is paid to you for saving your money. Different banks have different APYs, so compare the benefits!
CD- Certificate of Deposit – Lets you put money into an account for a set period of time, and you are guaranteed a set interest for that entire time. The longer maturity of the CD, the more money you get! It is good to know how long you want your savings to be left alone here, because you will not have access to those funds until they reach their maturity date (unless you accept a penalty). Money Market (Funds and Deposits)- This is a broad term used to describe a general pooling of money that the global financial system uses. The government uses it to finance the public debt. What does it have to do with you? Money Market Funds are local municipal notes, treasury bills/securities, and mutual funds that you can invest in. However, these are not FDIC-insured and you can lose money, but they are safer than stocks. You invest in these with your brokerage account. With Money Market Deposits you simply open up an account at your local bank and deposit your money just like a regular savings account. The more money you deposit, the more interest you are paid. You can withdraw at any time, but there may be a limit to the number of times you can withdraw per a month. They are FDIC-insured and you are paid a higher rate than a normal savings account. Individual Retirement Accounts (IRA) and 401k x: Traditional IRA- This allows you to make tax deductable contributions, meaning that if you make $50,000 a year, and you make a maximum $2,000 contribution limit for that year, you will only be taxed on the $48,000 remaining. Now, you cannot put all your money in the account to avoid taxation! There are set contribution amountsxi. Since this is a retirement account, you can only withdraw the money after age 59, and all earnings on this account will be taxed. What does this mean? You can use your contributions to the IRA to invest in stocks, bonds, CD’s, etc, but you will be taxed on the profits made from such. Traditional IRAs are open to anyone of any income level.
Roth IRA- This allows you to make contributions that are not tax deductable (however, if you fall within a certain tax bracket, you can get tax credit). Why would you want this IRA? Because when you reach age 59, you can withdraw all the earnings completely tax-free. So if you use your contributions to invest in stocks, bonds, CD’s, etc., you will not be taxed on the profits. However, you have to
make less than $95,000 a year to contribute to this account (in any case, you can start out in a Roth and then convert to a Traditional IRA if you are lucky enough to make more than $95,000!). Usually this option is best for young adults, as you can also withdraw your contributions without penalty if you meet some minimal requirements xii.
401k- This is an employer-based plan that allows you to make taxdeductible contributions while also receiving a matching contribution by your employer! Lets say you make $40,000 a year and your employer matches 3% of your salary dollar for dollar when you make the maximum contribution. That is literally $1,200 of free money! It is essential that you ALWAYS, ALWAYS take advantage of a 401k if you are offered one! Each year that you do not participate is money lost. Even during periods of financial instability, your contributions will not only decrease your income taxes (because of the tax-deductible nature) but they will also add more money to your salary! FREE!
To summarize, it is best to save your money in case you are hit with a huge bill or you just want financial security. It is a good idea to have enough money for three months of financial independence, so analyze your bills and prepare accordingly. Where you save and how much you save is up to you, but the earlier you start the more that you will have when you retire because the interest compounds with each contribution. For example, Forbes ran an article with this scenarioxiii: A smart investor who begins funding his/her IRA at a younger age will always win the accumulation game. Consider a 21-yearold IRA owner who invests $4,000 per year to a traditional IRA until he/she is 65 (actual contribution will be $180,000). Assuming a 6% yield, the investor will accumulate $902,025 by age 65. Compare that to an older IRA investor who contributes $4,000 per year from age 40 until age 65 (actual contribution will be $104,000). The older IRA owner will accumulate $250,820. What a staggering difference time makes! Also, IT IS ESSENTIAL THAT YOU TAKE ADVANTAGE OF A 401 K and contribute the maximum amount!
Issue # 4: Inflation
What it is: Inflation is a surprisingly complicated phenomenon but generally has to do with the increase in prices over time due to more money being produced (I’m assuming because of a growing population). The Consumer Price Index (CPI) is often a figure of merit as it tracks the costs of goods after wages and standard of living have been factored. The Problem: Inflation has most recently become an issue because rising oil and food prices have cut consumer spending. This means that because your gas and grocery bills have been higher, you probably have less money to spend on going out. In addition, rising fuel prices are causing businesses to raise prices, without a rise in wages. Never before has it become so critical to budget your expenses xiv. What you can do: Obviously you cannot change the price of fuel or the prices of food. But you can budget your lifestyle accordingly, and it is up to you to decide what is most important. However, you have to take care of the essentials first, and it can be easy to overlook some of them especially if money is scarce xv. 1) Get Health Insurance. Join group plans, trade organizations, or shop around for individual plans. It is absolutely necessary to be covered, because when you need urgent care, you probably will not be able to afford it. 2) Get Disability Insurance. Life insurance is typically good to get if you have children, but statistically young adults are more at risk to get a disability in their early life, so this type of insurance makes sense. You typically get it from your employer. 3) Now that the essentials are covered, it is good to analyze your spending habits and see where your cash goes. Building a good credit history is essential to secure future loans, but you should probably keep a close eye on your expenses, even if financially covered. Credit cards make it easy to do this! When consumer prices rise, a vigilant account of expenses will help you balance your funds and prioritize. You don’t want to spend your money on expensive and “meaningless” things now, when it can impact your financial security later in life.
Conclusions
The ideas presented in this document are common, well-known philosophies. Personal financial planning is a critical skill, especially for inexperienced young adults. Typically we have lots of debt, little cash, and many industries looking for another opportunity to take advantage of our inadequate knowledge. Therefore, knowing the options available, and the larger issues surrounding, will help us navigate a stable financial future. Investing involves risk, but a well-diversified portfolio that is maintained over 5, 10, or 15 years can help alleviate financial pressure brought on by having children, a depleting social security fund, a longer retirement, and increasing costs of goods. Taking the right steps now only enrich future benefits!
http://www.concordcoalition.org/issues/fedbudget/charts/slideshow071203WA/slid eshow071203WA/#
i ii iii iv
http://www.ssa.gov/OACT/TR/TR04/II_project.html#wp105724 http://finance.yahoo.com/how-to-guide/retirement/29029
http://www.nytimes.com/2008/02/17/business/17swensen.html?_r=1&ref=educa tion&oref=slogin
v vi vii
http://finance.yahoo.com/how-to-guide/personal-finance/18311 http://ezinearticles.com/?Secured-vs-Unsecured-Debt&id=542761
http://finance.yahoo.com/banking-budgeting/article/104400/Exclusive-2008-CDStudy
viii ix x xi xii xiii xiv
http://beginnersinvest.about.com/cs/banking/a/062501a.htm
http://financialplan.about.com/cs/saving/a/StashYourCash.htm http://beginnersinvest.about.com/od/retirementcenter/Retirement_Center.htm http://beginnersinvest.about.com/cs/iras/a/iracontribution.htm http://www.gofso.com/Premium/TS/fg/fg-Roth_IRA.html http://finance.yahoo.com/retirement/article/103071/Rev-Up-Your-IRA
http://www.marketwatch.com/news/story/consumers-feeling-full-effectsinflation/story.aspx?guid=%7BA75F9677-2C94-4159-B17A-4FFCFCFFE64F%7D
xv
http://finance.yahoo.com/how-to-guide/personal-finance/29245
Composed by Chris Bates
Issue #1: Social Security
What it is: When you get a job, you pay a payroll tax (about 12%) on the first $102,000 of your income. Your employers also pay a tax. The money from this tax funds the Federal Insurance Contributions Act (FICA), which funds Social Security. Retirement and disability benefits are paid out of this account. The Problem: Since 1983, FICA has been operating with a surplus, which means more money is paid by the payroll tax than there are people who are taking out money for retirement. However by 2017, this is expected to change to a deficit due to the retirement of the baby boomer generation, longer life expectancy, and lower fertility. There will be more people taking out retirement benefits than there will be people paying for it. By 2043, roughly around the time when we expect to retire, the Social Security fund will have been depleted.i, ii Possible Solutions: Here is a breakdown of where income is derived during retirement for an average citizen.iii Sources of Retirement Income Social Security Benefits 39% Pensions Savings & Investments Employment/Other 19% 16% 26%
So the proof is in the numbers. We need to begin adjusting these percentages if we anticipate Social Security not being there. This will frame the discussion for the remainder of this short paper.
Issue #2: Investing
What it is: Investing encompasses many financial activities, but in this specific context I will refer to investment as putting your money into the stock market.
Why? Whether you are trying to achieve financial independence early, or plan on living a philanthropic lifestyle, you ultimately need money to do so (if you live in the United States at least). Investing ensures that you can do these activities much longer after you officially retire (and often long before), and can help fund any of your future hobbies from traveling to giving to charitable causes. The Problem: Many young adults do not invest because either they have inherited a large amount of debt from school loans or they view investing as some high-level activity that only people with large amounts of money can do. Young adults are the most in need of professional financial help, and yet they are the least likely to get it. What to do: First you need cash. Everyone has cash—you just need a budget (see the next section on debt management). Next, follow these steps to setup an online brokerage account and start trading. 1) Look for an online brokerage agency with low commissions. Trading stocks costs money, but each brokerage has different fees. I use Scottrade. E-Trade and Ameritrade are also good. They charge about $7 per trade. 2) Incidentally you need cash to trade. Online brokerages have become popular for their low commissions, but they also allow you to trade with a very low amount of money, usually about $500.00. This may seem like a lot, but keep in mind that this amount will probably be less than one month’s worth of rent. It’s all about your priorities, and I prefer to invest my money to something that can give back. 3) So what do you do with this $500.00? There are many investing strategies out there, and you kind of have to adopt what fits your lifestyle and personality best. Are you a risk taker? If so, invest in stocks that fluctuate (usually smaller companies), but have potentially high returns (room for growth). Do you want something dependable? If so, invest in large corporations or commodities (like oil, coal, sugar, coffee, aluminum—things which people will ALWAYS need) Do you see potential in foreign markets? If so, invest in companies which have good products which people need and can afford (especially in the third world—or emerging—markets)
-
-
4) A distillation of the many articles that I have read over the years, points to the same investment strategy— diversification. Experts will tell you that 30 stocks is the minimum for diversification. I’m also a personal fan of David Swensen. He manages Yale’s $22 billion dollar endowment and shows how to break up your money into a portfolio of stocks ranging across multiple markets. Read the New York Times article about his strategy.iv 5) 30 stocks can obviously be costly, so what are your best options? Index funds, exchange traded funds, and mutual funds offer the best value for your money. You often pay a low minimum investment ($100 - $1000) and get access to a fund, which often has more than 10 stocks in its holdings and balanced among various sectors (financial, technology, retail, etc). 6) Why is diversification important? Because the market inevitably goes through bear movements (bear means lots of selling, bull means lots of buying) and possibly even a recession (a recession is technically negative GDP which hasn’t happened since 2001). To best protect yourself, don’t put all your eggs in one basket! But know there have been far more periods of expansion than recession. 7) I should also add that many people are hesitant to invest because they do not want to lose money. While this is certainly a possibility, young adults must pressure themselves to see investing as a long-term option. Besides, brokerages and the government enforce you to think this way. If you remove or change your investments sporadically, you will be penalized with fees! 8) Our economy has not been doing well and the stock market has been unstable at best. However, the best investors notice where opportunities lie in the face of great pessimism. There are undoubtedly many good deals in the stock market right now. 9) RESEARCH!!: Obviously I’m not a professional or an expert. But I do make the most of resources where I can find them. a. Morningstar, Vanguard Group, Charles Schwab Financial Planning, Fidelity, Yahoo-Finance How-To Guides, CNBC, thestreet.com b. Also before you invest, check out the companies. Look at their income statements and see if they actually make money (Yahoo-Finance). Use Wikipedia to see if they are involved in any
controversies. c. For what its worth, I have two pieces of advice. One, do not listen to Jim Cramer when it comes to finance (his strategies are short-term)! Two, be careful not to put your money in funds that are actively managed (primarily includes some mutual and exchange traded funds). They usually have higher costs and don’t pay off for young adults (we have little investment money anyways).
Issue # 3- Savings and Debt Management
What it is: Plain and simple, savings is responsibility. Savings accounts can take many forms, some of which reward you more than a typical savings account at a bank. You cannot begin to save until you have addressed your debt. The Problem: Many young adults leave college with a certain amount of debt owed on student loans. However, the largest problem for young adults is the desire to live the lifestyle they were accustomed to at home—and can no longer afford it. Whether you have a large amount of cash from an inheritance or just a new job, it is important to scrutinize your spending habits. With rising inflation, such habits may not be financially sustainable. Managing Debt: The first step to managing debt is to know and understand exactly what kind of debt you have. Here is a brief summary v:
Installment (Mortgage, Car and Student loans) vs. Revolving Debt (Visa, Mastercard)
Installment Beginning Balance (principal) Interest Rate Years to Repay (amortizing schedule) Interest Cost $2,500 10% 4 $544 Revolving $2,500 18.5% 30* $6,500
*Paying 2% minimum monthly payment.
Sources and Costs of Debt
Source Banks and Credit Unions Type of Debt Personal, secured* Personal, unsecured** Mortgage Credit Card Mortgage Companies Department Stores Insurance Companies Mortgage Revolving Personal, unsecured Cost Low Moderate Low Low to High Low High High
Secured- Means that creditor can take away your possession if you fail to make payment (car loans) Unsecured- Means that creditor cannot take away your possessions if you fail to make payment (medical bills)vi
So the table above teaches a couple lessons. First, credit cards are expensive to own. You pay expensive interest fees for the convenience, and when used incorrectly, credit cards can be a nasty burden. Second, installment debt is a natural part of life. It is easy to factor into a budget and should be taken advantage of when possible. It makes good financial sense to take out a car loan, for example, even if you have the money to pay for it. You can invest the rest of that money in stocks and potentially earn a higher return than 10% (or whatever the installment loan interest rate is) and pay for the interest and even the principal. Managing Savings: The golden rule of savings is to embrace the Depression era philosophy—never spend more than you make. It is important to view savings as another expense, something that should be done before spending takes place! Just as with debt, it is easiest to save once you know what saving entails, and how long you want to save. Each has its own benefits! Know the terms:vii, viii, ix APY- Annual Percentage Yield – How much interest is paid to you for saving your money. Different banks have different APYs, so compare the benefits!
CD- Certificate of Deposit – Lets you put money into an account for a set period of time, and you are guaranteed a set interest for that entire time. The longer maturity of the CD, the more money you get! It is good to know how long you want your savings to be left alone here, because you will not have access to those funds until they reach their maturity date (unless you accept a penalty). Money Market (Funds and Deposits)- This is a broad term used to describe a general pooling of money that the global financial system uses. The government uses it to finance the public debt. What does it have to do with you? Money Market Funds are local municipal notes, treasury bills/securities, and mutual funds that you can invest in. However, these are not FDIC-insured and you can lose money, but they are safer than stocks. You invest in these with your brokerage account. With Money Market Deposits you simply open up an account at your local bank and deposit your money just like a regular savings account. The more money you deposit, the more interest you are paid. You can withdraw at any time, but there may be a limit to the number of times you can withdraw per a month. They are FDIC-insured and you are paid a higher rate than a normal savings account. Individual Retirement Accounts (IRA) and 401k x: Traditional IRA- This allows you to make tax deductable contributions, meaning that if you make $50,000 a year, and you make a maximum $2,000 contribution limit for that year, you will only be taxed on the $48,000 remaining. Now, you cannot put all your money in the account to avoid taxation! There are set contribution amountsxi. Since this is a retirement account, you can only withdraw the money after age 59, and all earnings on this account will be taxed. What does this mean? You can use your contributions to the IRA to invest in stocks, bonds, CD’s, etc, but you will be taxed on the profits made from such. Traditional IRAs are open to anyone of any income level.
Roth IRA- This allows you to make contributions that are not tax deductable (however, if you fall within a certain tax bracket, you can get tax credit). Why would you want this IRA? Because when you reach age 59, you can withdraw all the earnings completely tax-free. So if you use your contributions to invest in stocks, bonds, CD’s, etc., you will not be taxed on the profits. However, you have to
make less than $95,000 a year to contribute to this account (in any case, you can start out in a Roth and then convert to a Traditional IRA if you are lucky enough to make more than $95,000!). Usually this option is best for young adults, as you can also withdraw your contributions without penalty if you meet some minimal requirements xii.
401k- This is an employer-based plan that allows you to make taxdeductible contributions while also receiving a matching contribution by your employer! Lets say you make $40,000 a year and your employer matches 3% of your salary dollar for dollar when you make the maximum contribution. That is literally $1,200 of free money! It is essential that you ALWAYS, ALWAYS take advantage of a 401k if you are offered one! Each year that you do not participate is money lost. Even during periods of financial instability, your contributions will not only decrease your income taxes (because of the tax-deductible nature) but they will also add more money to your salary! FREE!
To summarize, it is best to save your money in case you are hit with a huge bill or you just want financial security. It is a good idea to have enough money for three months of financial independence, so analyze your bills and prepare accordingly. Where you save and how much you save is up to you, but the earlier you start the more that you will have when you retire because the interest compounds with each contribution. For example, Forbes ran an article with this scenarioxiii: A smart investor who begins funding his/her IRA at a younger age will always win the accumulation game. Consider a 21-yearold IRA owner who invests $4,000 per year to a traditional IRA until he/she is 65 (actual contribution will be $180,000). Assuming a 6% yield, the investor will accumulate $902,025 by age 65. Compare that to an older IRA investor who contributes $4,000 per year from age 40 until age 65 (actual contribution will be $104,000). The older IRA owner will accumulate $250,820. What a staggering difference time makes! Also, IT IS ESSENTIAL THAT YOU TAKE ADVANTAGE OF A 401 K and contribute the maximum amount!
Issue # 4: Inflation
What it is: Inflation is a surprisingly complicated phenomenon but generally has to do with the increase in prices over time due to more money being produced (I’m assuming because of a growing population). The Consumer Price Index (CPI) is often a figure of merit as it tracks the costs of goods after wages and standard of living have been factored. The Problem: Inflation has most recently become an issue because rising oil and food prices have cut consumer spending. This means that because your gas and grocery bills have been higher, you probably have less money to spend on going out. In addition, rising fuel prices are causing businesses to raise prices, without a rise in wages. Never before has it become so critical to budget your expenses xiv. What you can do: Obviously you cannot change the price of fuel or the prices of food. But you can budget your lifestyle accordingly, and it is up to you to decide what is most important. However, you have to take care of the essentials first, and it can be easy to overlook some of them especially if money is scarce xv. 1) Get Health Insurance. Join group plans, trade organizations, or shop around for individual plans. It is absolutely necessary to be covered, because when you need urgent care, you probably will not be able to afford it. 2) Get Disability Insurance. Life insurance is typically good to get if you have children, but statistically young adults are more at risk to get a disability in their early life, so this type of insurance makes sense. You typically get it from your employer. 3) Now that the essentials are covered, it is good to analyze your spending habits and see where your cash goes. Building a good credit history is essential to secure future loans, but you should probably keep a close eye on your expenses, even if financially covered. Credit cards make it easy to do this! When consumer prices rise, a vigilant account of expenses will help you balance your funds and prioritize. You don’t want to spend your money on expensive and “meaningless” things now, when it can impact your financial security later in life.
Conclusions
The ideas presented in this document are common, well-known philosophies. Personal financial planning is a critical skill, especially for inexperienced young adults. Typically we have lots of debt, little cash, and many industries looking for another opportunity to take advantage of our inadequate knowledge. Therefore, knowing the options available, and the larger issues surrounding, will help us navigate a stable financial future. Investing involves risk, but a well-diversified portfolio that is maintained over 5, 10, or 15 years can help alleviate financial pressure brought on by having children, a depleting social security fund, a longer retirement, and increasing costs of goods. Taking the right steps now only enrich future benefits!
http://www.concordcoalition.org/issues/fedbudget/charts/slideshow071203WA/slid eshow071203WA/#
i ii iii iv
http://www.ssa.gov/OACT/TR/TR04/II_project.html#wp105724 http://finance.yahoo.com/how-to-guide/retirement/29029
http://www.nytimes.com/2008/02/17/business/17swensen.html?_r=1&ref=educa tion&oref=slogin
v vi vii
http://finance.yahoo.com/how-to-guide/personal-finance/18311 http://ezinearticles.com/?Secured-vs-Unsecured-Debt&id=542761
http://finance.yahoo.com/banking-budgeting/article/104400/Exclusive-2008-CDStudy
viii ix x xi xii xiii xiv
http://beginnersinvest.about.com/cs/banking/a/062501a.htm
http://financialplan.about.com/cs/saving/a/StashYourCash.htm http://beginnersinvest.about.com/od/retirementcenter/Retirement_Center.htm http://beginnersinvest.about.com/cs/iras/a/iracontribution.htm http://www.gofso.com/Premium/TS/fg/fg-Roth_IRA.html http://finance.yahoo.com/retirement/article/103071/Rev-Up-Your-IRA
http://www.marketwatch.com/news/story/consumers-feeling-full-effectsinflation/story.aspx?guid=%7BA75F9677-2C94-4159-B17A-4FFCFCFFE64F%7D
xv
http://finance.yahoo.com/how-to-guide/personal-finance/29245
