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Last year at my job, the “Young Professionals” group organized a seminar and invited a financial advisor to speak to us. He was from Merrill Lynch and had previously worked at the company I’m at now. He came to speak to us about what he does, why he loves his job and how his services can help us prepare for our future. Some things he mentioned were saving for a down payment on a house, retirement, etc.
He began by saying how he loved his job because it allowed him to be able to help people of all ages prepare for retirement or any other major event they were planning for. He talked about how proud he was that he could make a direct positive impact on family’s lives by showing them what exactly they should be doing with their money.
The guy said one of the major things people don’t do is track their finances. And you guessed it, he asked us to raise our hands if we did. I kid you not out of around 250-300 people in the room, only me and two other people raised their hands. I was like is this for real??
I really couldn’t believe literally about 1% of the room was tracking their finances. How do you make sure you’re not overspending to make rent every month, how are you gonna make sure you have enough to save for retirement or a down payment on a house!?
There was an awkward silence and then nervous laughter from everyone because you could see the guy couldn’t believe it was actually that many. Also watching the reactions of everyone in the room was pretty funny since they were all looking at each other like “oh no, should I have been doing this the whole time?”
So the guy went on speaking and about 10 minutes later eventually asked who knows how much they contribute to their 401k, if they’re putting their savings into a 401k or a Roth 401k and if they’re maximizing the company matching plan. And on top of that all in one breath he also asked if anyone had a separate brokerage account they’re saving and investing with.
I’ll never forget I was the only one who raised their hand for all 4 questions. It literally got to the point where I felt embarrassed to raise my hand!! Everyone kept looking at me, and I could hear them saying “Oh my God how does he do that, how do you even know what to do??” I also heard someone say they have no idea how much they spend each month and have no idea how much they’re contributing to their 401k. She also had no idea what the difference is between a 401k and a Roth 401k. But that’s for another post.
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Then I thought wait why am I the one getting embarrassed here!? They’re the ones who should be! But it was such a huge number of people who weren’t following basic rules to grow your nest egg, it felt like I was the outcast!
That was a weird experience, let me tell you.
I mean sure, I was living at home at the time, so I was able to maximize the 401k plan. But even so, dear lord I still do all three a year later now that I moved out and manage to save over 30% of my salary with the matching plan. Thanks to my company 401k contribution, I am able to save an additional 7% than if I had not taken advantage. This is why it’s so important to check with HR and find out what the deal is with your 401k plan if you are fortunate enough to have one. This is free money on the table!! Don’t be too lazy to even contribute up to the matching limit.
Guys, it’s insane so many people in their 20’s throw away the opportunity to save and invest. These are the golden years to solely worry about yourself. Take these years to either invest in yourself to learn more or to make your money grow. My bread and butter is index funds, looking for great companies, and sticking with it for the long-term. I’m still learning about real estate so until I feel comfortable enough to write a post about that, you can check out the podcast Real Estate Investing with Grant Cardone in my recommendations page.
But let’s be real, the only reason we work at these jobs we hate or at best don’t mind, is because we need money. What’s the point in making that hard-earned money if you aren’t gonna invest it?
Yea it feels great to live in the moment and all, but after you buy things you want but don’t really need and continuously go on lavish vacations you can’t really afford, do you really feel any different? Is it really worth it? Are you that much happier?
Or would it have been better to finally start delaying gratification and prepare for the real world? Maybe you want to get married or start a family soon. Maybe you want to buy a house in a few years or need to start thinking about opening a college fund for your future baby if you’re already married.
If you want to do any of that, you need to forget about living in the now. You need to put yourself first and start saving for retirement above all else. Do you want to become a burden to your family when you’re in your 60’s and beyond because you didn’t take advantage of compound interest in your 20’s? Of course not.
The greatest asset you have is that time is on your side. Your 20’s and 30’s are the years to take advantage of compound interest.
Oh yea before I forget, the financial advisor also mentioned how they provide you with a customized allocation between stocks, cash and bonds. That’s completely wrong, I don’t care what anybody says. Bonds are a terrible investment and that’s the truth.
It’s completely irrational to be invested in bonds even at an old age. All you’re doing with that cash is exposing it to inflation. You’re not protecting the downside, you’re wasting your money away. Nobody knows when the market is gonna go up or down and that’s okay.
If you’re 65 and older and invested in bonds, let’s be real, you didn’t save enough when you were younger or are spending WAY too much in your retirement to be able to handle a bear market, financially speaking. Emotionally and psychologically, that’s a whole different issue I can get into another time.
My mom told me my grandpa took his money out of stocks during the financial crisis and put half in bonds and half in cash. I felt really bad because that’s literally the dumbest thing you can do. Obviously, it’s one thing to say that and another to experience it. Which is why I highly advise you to practice getting in the habit to structure your mind to associate a bear market with opportunity rather than panic.
Within 4 years of the market bottoming out, the S&P 500 index was at an all-time high. As bad as bear markets are, they don’t last very long in the grand scheme of things. It’s better to do nothing at all. You can never predict when the market will go down, but you have to stay in the game if you want to reap the rewards.
Oh and the other reason to not use bonds is because you have years ahead of you to invest. Even if you’re 40 and live until you’re 90, you still have more than half of your life ahead of you. You most likely didn’t even think about saving for retirement until you were in your twenties if at all, and at 40 that’s 20 years. HALF of your life where you did nothing to invest, and think how long that was.
If you can bear the psychological warfare a bear market will put you through, you’ll be fine. It hardly makes a difference on your net worth in the grand scheme of things. That’s why it pays to be patient and have a long-term view. Don’t check your investments every day, you’ll go crazy.
Give yourself a greater window of opportunity by saving more and investing sooner. There’s no rush, so keep investing your money in index funds. If you’re confident enough, choose an industry and a great company you know well and do your research to choose that company. Don’t pick it just because you think the stock is due to shoot up or read something ridiculous on Seeking Alpha.
Okay, so that was a little bit of a rant, but the point is don’t just take some advisor’s word for it. Nobody’s going to take care of your lawn better than you, and that especially goes for your money. Invest in yourself before you invest in stocks and index funds above all else. A great way to start is with the books I recommend.
Ways to get started:
- Invest in yourself and get some books if you haven’t already
- Pay yourself first: open a savings account to separate spending money from short term payments you may need like rent
- Check your monthly spending and see how you’re using your money
- Download the Coffee Habit Worksheet in the sidebar: calculate how those “insignificant” purchases all saved and invested over 40 years can add to your retirement fund
If you don’t trust yourself with a savings account, try the envelope method
It’s a popular savings method where you literally store cash in an envelope or physical container for specific expenses you need to pay for later on. It could be for rent, groceries, cable, whatever other monthly payments you may have.
It’s just an alternative to the savings account by having a physical location you put your money in, so you don’t go into your savings account on your phone, transfer it to checking and spend it. Not that I’ve done that or anything…
You can also go online to Mint or download their app on your smartphone. That will help you see where you can cut back on expenses, create budgets, etc. A little more in depth than the Coffee Habit worksheet.
What experiences have you run into like this? Were you the one who wasn’t saving enough?
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