Does the early bird get the worm?

Posted by random olio

Money is on the brain this week. It is official — the early bird does get the worm. I recently came across a Dave Ramsey money article that especially peaked my interest. It basically is the simple truth about money that almost all of us probably know. Yet, the visual he shared just hits you smack in the face.

I do not want to steal the visual from his website, so I will explain and link back to his site for the full picture. Meet Ben and Arthur. Ben starts investing at age 19 and puts $2000 in an account each year for 8 years straight and then does absolutely nothing with the account until he retires at the age of 65. A total investment from the ages of 19-26 of $16,000. A lot of money to put away in those early years of his life. Arthur begins investing $2000 when he is 27 years old and continues to put $2000 away from 27 to when he retires at age 65. Arthur invests a total of $78,000 over 39 years. A difference in $62,000 in the amount that was actually put away between Ben and Arthur.

The result: at age 65 Ben has $2,288,996 and Arthur has $1,532,166. Ben came out $700,000 ahead by starting 8 years earlier and only put away $16,000. Compounding interest is an amazing thing. How do we spread the word? I do not know many 19 year olds that a) care about investing, b) truly understand compounding interest, c) have $2000 a year they can or want to spare.

Why not have a prerequisite that you have to complete a personal finance class to make it out of freshman year of college (no matter what your major). Or maybe it is a class that every high school graduate must take (since many might never go to college). The class could teach many types of life skills, and maybe those that truly understand it might actually decide not to purchase that video game they are dying to have and rather put a bit more into their retirement.

To think that all it took was $16,000 for 8 years, rather than $78,000 for 39 years. If I only knew when I was 19 what I know now, I might have made very different choices, especially thinking of that $700,000 difference at age 65. How do we make compounding interest sexy?

Bank of Dad

Posted by random olio

How did you learn about money? Did you learn in college when a credit card company sold you on all the benefits, and then you maxed it out not really knowing the repercussions? Did your parents teach you? Did you learn in school?

We can only truly take ownership of our money when it truly belongs to us. I remember when I was nine years old I had a paper route. I would usually keep some of my earnings and would give some to my parents to put into my savings account. My tips usually were my “candy fund” where I would ride my bike on a path that had been worn by the neighborhood kids to the Village Pantry. There I would select something or many things depending on how much money was in my pocket. There was rarely candy in our house, and occasionally we had some at my grandma’s house. So for me, candy was a treat. It was something special.

I truly believed the money I made on my paper route was my money. I worked hard for it. It was my choice to buy the candy. It was not my choice to never receive my money that I was told was put into savings. I have no idea now how much money I never saw. I trusted my parents to put it in my account, never knowing that was not happening. Which is why I loved reading the book: “The First National Bank of Dad: The Best Way to Teach Kids About Money” by David Owen. He talks about how he teaches his children about money. He sets up his own bank and a version of the stock market from his house. One idea he shared was about how kids have to know that the money belongs to them. If they know that, they will make different choices about money.

“My children’s accounts belonged to them alone. When they saved, they reaped the benefit; when they wanted to spend, they didn’t need permission. If my son decided to withdraw twenty dollars, I didn’t ask him why he needed the money—just as my bank doesn’t ask me. What he did with the cash was his business, as long as his balance was sufficient to cover his withdrawal. Why do kids need to control money of their own? Because if the money they spend money of their own? Because if the money they spend isn’t truly theirs, they have no compelling reason to pay attention to how they spend it.” Page 41

An interesting idea. I do remember having a savings account ledger and looking at it from time to time. I was more of a saver. I liked watching it grow and knowing I was working hard as the money accumulated. With the exception of my Village Pantry runs, I really did not spend that much of my money. Although I will never know how much never made it to The First National Bank of Tami. Alas. Live and learn. I will be teaching my kid(s) to take ownership of their money, and to know how to track what they take out and what they are earning. And, no, I will not steal a penny from them. If you have kids, I definitely recommend reading Owen’s book.

A woman on the $20 bill?

Posted by random olio

I had never really thought about it, but how come it is 2015 and there are no women on our paper currency? Seriously. This is a no brainer. I am not sure why I never really thought about it, but just with the right to vote, and have a fair wage, there should be paper currency and coins that have women on them. What kind of message does that give to young girls? Maybe they do not really notice, or maybe it is subliminal and they do not even realize they have noticed.

There is a campaign out called “Women on 20’s” that is a vote to put one of the following women on the front of the twenty-dollar bill: Eleanor Roosevelt, Harriet Tubman, Rosa Parks and Wilma Mankiller. Their website gives background and discusses the fact that 2020 is the 100th anniversary of the 19th Amendment and women’s right to vote. I even learned something – I had not heard of Wilma Mankiller, and now know about her. It is also interesting that two of the women are black women, and one is Native American. That is progress too.

We should be giving girls and young women something to strive for — maybe instead of a woman thinking about how much money she is making she thinks more about how she can be a role model and maybe one day be ON money? Not something I have ever pined for, but why would it be such a bad goal for someone? It would be refreshing to get rid of some old, balding presidents (joking, but why not update our currency to be “current”). Nothing wrong with that, but maybe I am just thinking about the issue from the surface.

I encourage you to take some time and explore their website and vote for a woman candidate for the twenty-dollar bill.

A great relationship is like a great financial portfolio

Posted by random olio

Last night I had a much-needed night with a good friend. A night away from the normal day-to-day to reconnect and be reminded of what is really important. An interesting analogy was brought up during our conversation about how a great relationship is like a great financial portfolio. Ponder this with me:

_You get what you put into it. Think of it like a mutual fund or an IRA. If you continue to feed and put money into the account it will continue to grow for you. If you leave it, and never watch or nurture it then it will sit and never do anything. The same is true for relationships – whether a friendship, or a romantic relationship, you get back what you put into it. Think about how you are investing, whether financial or personal.

_Over time your investment grows. I think of the friendships that I have had over time. Some continue to grow and others have a strange nostalgia that make us want to hold on to what we remember. Sort of like keeping money in a savings account. These days it does not really matter how much money you have in a savings account, you are not going to get much return on your investment. The friendships and financial accounts that are worth keeping will grow for us over time. Those that we no longer benefit from should be divested from our lives.

_Never put your eggs in one basket. You always want to make sure you diversify your friendships and your financial portfolio. It does not mean you must have a ton of friends. You can have a few that are deep and important relationships, but make sure you do not limit yourself. Shit happens, and sometimes that means that putting our eggs in one basket can devastate our future, whether pertaining to finances or our relationships. Diversify your friendships, so that you have different support mechanisms when something or someone fails you.

_Be grateful for what you have. Regardless of how many friends you have, or how amazing your romantic relationships are, be grateful for what you have right in front of you. We forget that our lives are often so much better than we can ever imagine, we just forget to look at the shiny spots. I imagine we all can be more thankful for the wealth we have in our life, whether via relationships or finances.

A happy evening, with much food for thought pondering ideas of wealth, gratitude, and all that we have right in front of us. Hopefully this makes you think about how you fuel your finances and relationships.

This shit gets real…

Posted by random olio

From time to time I write about money. Saving, spending, splurging, and thinking about the future. My childhood and lack of having many things as a child has created a passion inside of me that forces me to make sure that we never have a moment in our life where we have to wonder if there will be food on the table. Chris and I always try to have a back up plan. A Plan A, B, C…Part of the passion I have for living within our means, and saving for the future means that I stay interested in current personal finance trends and different ways of thinking about what you might need to do now to prepare for retirement.

This recent article from LearnVest shows an interesting infographic depicting what giving up a few things can mean for someone thirty years from now. If you scroll down to the middle of the page you will see an image of a pack of gum, with the description that if you cut back on a $2 pack of gum a week you would have $16,652 more for retirement. A $10 glass of wine on the weekend would be to the tune of $83,260 at retirement. The last one is mind-blowing (Chris are you reading this)? If you cut back $100 of your cable bill per month it would be $832,597 at retirement. It makes you think, right?

Thinking about retirement at 20, 25, 30, 35 and up is a very real and crucial aspect of our life. Often though we are barely paying our bills or student loans in our 20’s to 30’s and so retirement is the last thing on our list. I can imagine that many of us could cut back on paying $100 on cable each month, or get rid of it entirely. There are so many online options for entertainment. Regardless of what “thing” you could cut back (or eliminate) from a material consumption standpoint, the key is really to make a focused effort to think about what and how you are preparing for retirement. Have you thought about it? Will you be able to support yourself when you retire? Long gone are the days when your company supported you after you retire. These days a 401(k), IRA, and other options are the basic ways we kickstart our path towards retirement.

While retirement, saving money, and cutting back is not the most glamorous of topics, in 10, 20, or 30 years you may just realize how much you will need to put away each year for retirement and how much time you have lost. A good reminder that pertaining to money: this shit gets real… fast.