Starting Out on the Right Foot

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?

9 thoughts on “Starting Out on the Right Foot”

  1. Give the same advice you did, then laugh hardily 2 years later. What else can you do? It’s ingrained into the culture.

    Read “Generation Me.” It will change how you think about youth.

    I missed this generation since I graduated 9 years ago, but since I rent to students I have watched them slowly deteriorate. There might be some hope with the newest graduates. They seem a little bit more resourceful – although it might be just the group I attracted having been tired of the nonsense from more dependent groups.

  2. You gave good advice Dave, I’d add only to automate those savings, don’t get a credit card – or one with only a $500 limit for convenience.

    At that age, if she doesn’t really like her job, how about giving her a copy of Your Money or Your Life? I didn’t care for the style of The Wealthy Barber either.

    I’d also take into account all the brain research done in the last decade or so and recognize that many people don’t even develop the capability to think of long term consequences until around the age of 25. For me it was 22 and my oldest son is finally showing those signs now at 22 yo. So don’t give up hope, although the book that Chris recommends above does look very interesting (thanks Chris!) – but hopefully narcissism isn’t your relative’s problem.

  3. The only thing I think I’d maybe do differently is try to get her to try the saving strategy in the wealthy barber. Try saving first and see what your life is like after 2 months. Just try it. If you don’t like the effect it has on your life, take the money saved and dump it on a debt.

  4. You definitely had very good advice, but as a relatively recent graduate (3 1/2 years ago, but on the path to Financial Independence) it’s extremely difficult to go from making nothing to making a decent amount of money and controlling your spending. I think college grads have the tendency to go hog wild on everything (nice apartment, tons of going out/restaurants, buying all new stuff for the apartment, car, etc.). My advice – decide the one or two things that make you the happiest…be it shoes, eating out, clothes, car, whatever….and splurge on that. Then find ways to cut costs on everything else as mercilessly as possible. I think if people have the ability to spend on what they really enjoy it makes it easier to cut back on other stuff.

  5. My dad’s advice to new teachers was: you can have a nice car, you can have a nice house or you can have a nice vacation – but you can’t have all three.

    I would add: Pay off all your credit cards every month, and if you can’t, don’t use them.

  6. This is absolutely correct.
    Unfortunately we live in ‘an new Iphone’ every 12 month world.

    I wish they teach this in college/University etc, which might leave a longer impression.

  7. I would certainly have offered the same advice as you did: start now, while it is relatively easy, and enjoy this later. I’ve always been a saver, yet I wish I would have saved more during and after I graduated from university. Right now, it is harder, because of an expensive house. Which is also my dream house, so I am not complaining.. 😉

  8. relatively new to your blog…

    my first job was at the royal bank. i got started on investing pretty much immd, which worked well when i went to buy my first house. so that helped.

    and i took dave ramsey’s financial peace university shortly after i got married (i was 22) and that helped. but tough to say whether or not it would work for everyone.

  9. I went through this with my younger sister, it’s painful to give advice and watch it not sink in, especially when you know it’s sound and can make a big difference for them down the road.

    Think of all of the knowledge you have now, and now imagine you had that when you were in high school… I’d be king of the world by now

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