This is a guest post by Dave, is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
I have a 23 year-old reletive I have tried to help out with financial planning in the past (it was not unsolicited). For her 21st birthday (as she was graduating college) I gave her a copy of “The Wealthy Barber” and explained that it had changed the way I had looked at money, and hoped that she would read it and get something out of it.
A few months later I asked if she liked the book, and was told that she didn’t think it was possible to do the things described and she got lost about 4 chapters in. I questioned her extensively (we were vacationing together at the time) and found that she really had no interest in personal finance and is sort of taking the “it’ll all work out in the end” approach to her money matters. Getting frustrated, but realizing she was losing interest, I gave her the following advice.
Stay out of Debt: To me, this is the most important thing that a new graduate can do. Debt is a shackle that takes away your freedom and flexibility. I told her to pay cash for everything, then she would know that she could afford the things she wanted to buy. She is not the type of person that is checking her bank account every day, so by paying cash there is no credit card debt being racked up that will have to be paid later.
Keep living like a Student: As a student, she was living in cheap, shared accommodation. In order to get her student loan paid off, I told her to keep living like this, and pay off her student loans. I had great success carrying this out, I paid off over $20,000 in student loans and paid cash for a car over an 18-month period with no real change in my lifestyle.
Build up savings: I explained to her, that at this point she probably has no financial goals (which was correct), but at some point she would. If she continued to live below her means for an extended period of time and stayed out of debt, there should be some significant savings built up. I told her not to worry about where to put the money, just keep accumulating it. At some point there will be something large she will want to buy – a car, a house, maybe pay for a large wedding where a savings account full of money will come in handy.
Boiled down, my advice was don’t get stuck – don’t put yourself in a financial situation where you are forced to work. Keep your expenses down and have a pile of money saved so that if you don’t like the job you have, you’ll have the cash to either go back to school or start over in another career. This is how I run my finances and it certainly helps me sleep at night, knowing that I am not “stuck”
After two years, this relative has forgotten or disregarded most of what I told her. She is “stuck” working a job that she detests and doesn’t really have a lot of options other than to keep doing it because she can’t afford to quit. I feel bad for her, as when she was out of school she had a blank slate to work with – making changes now will be harder (due to lifestyle inflation) and take longer to make (due to debt).
What would you suggest for a young person just entering the workforce?