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?
We are all creatures of habit. I am not one to have to do the same thing everyday, but there are a few things in life that are pretty similar from day-to-day.
As I mentioned in my blog “Phone calls: No thank you” last weekend, during Portland’s mini snowstorm, I caught up on my Fast Company magazines and found the article: “Secrets of the Most Productive People” in the December 2013/January 2014 issue. There was a mention of the CEO of LearnVest. See, I am a finance buff, so I am a fan of LearnVest, a website that helps with personal finance. I receive their newsletter, and understand where the CEO, Alexa Von Tobel is coming from with this quote in the Fast Company article:
“Since the beginning of LearnVest, I’ve never left the office for food. I eat the same thing every single day [an apple, almonds, yogurt, a salad…], and I never sit still to eat a meal. My ultimate goal is to create operating systems for myself that allow me to think as little as possible about the silly decisions you can make all day long–like what to eat or where we should meet–so I can focus on making real decisions. Because mental energy is a finite quantity.”
I get it. I feel like during my work day I go from meeting to meeting, and often barely know when I am going to squeeze lunch in, or eat while at a meeting or at my desk while quickly trying to catch up on emails before my next meeting. Based on the crazy day, the last thing I want to do is think about what I want to eat for lunch. I usually just restrict it to salad. That way I am eating healthy, usually raw food that my body can easily process. However, often there are many different versions of a salad that I can decide from at work which always makes my decision that much harder, yet by just sticking to salad, I have narrowed my options and made my brain not have to think so much in an already busy day. So I am not as extreme as Von Tobel, but agree that often when you have so many other decisions to make during the day, why complicate things even more by having to decide what to eat.
I am a personal finance fanatic. I grew up poor, and while for the most part my basic needs were met, I look back and never want to live the way we did. Nor do I want my children to live that way. What has that done to me? I have become passionate about personal finance, and how to be careful over what I spend my money on, how I save, and how I think about my future.
Which is what leads me to my blog title. There are a few subjects I think are taboo in our society. We rarely talk about our sex lives, and we rarely talk about money. Yes, we talk in surface ways about money, but never about how much we make, how much we save, and how much we feel most comfortable about having in our savings account. Why is that? I often wonder why it is such a taboo subject. Is it because comparisons make us feel like we are lesser than, or better than others? Possibly. What is funny, is you could live next to a run down home, that gives the facade that someone does not have the finances to keep it up, and maybe they do. Maybe it is just a choice that they live that way.
So, about checking accounts. Do you and your spouse or significant other have joint or separate checking accounts? I know that I will probably piss someone off today, as I am from the joint checking account camp. When Chris and I got married we decided to pool our finances, or rather I should say to be politically correct, we decided to pool our debt. We did not have much cash when we got married, we just had debt. Credit cards, school loans, you know normal twenty-something-year-old debt. Not too crazy, but still money we owed. So maybe it was easier for us to pool our finances, and make financial choices together. Would we have thought differently if we had plenty of cash in the bank? I hope not. Why? It works for us. We talk about everything, we discuss our purchases, and it all makes sense to us.
Yet, I know that a lot of couples fight about money. They fight about debt. Having separate checking accounts work for them, and I want to know why.
As more and more people around me have babies it makes me think about kids more and more. There are so many things to think about: car seats, cribs, bassinets, strollers, names, kinds of diapers, bottles, the list goes on. As they get a bit older the list shifts a bit to other very important ideals that a couple should, for the most part, agree upon in how they want to raise their kids.
When I recently came across this article on how to teach your kids about money it made me think, wow everyone should be starting very early in how they want to approach money with their kids. I was talking to a colleague just the other day. Yes, I can tell you this now, and it is possible that I have no idea what I am talking about! We were discussing how expensive it is to raise a kid these days, let alone thinking about paying for them to go to college. I paid my own way through college. I was in a work/study program, and I worked outside of that too. My parents could not afford to pay for college for any of their three kids. While it would have definitely been nice to have it paid for, it taught me a lot about money, about growing up, and about taking responsibility for my decisions. I probably would not have worked as hard to learn if I was not paying for it.
Now that does not mean that I will not help my future kid(s) out with college, but I want to do it in a way that helps them grow, learn, and understand what their decisions mean financially. Too often, I think parents write a check and walk away, and that does not help their kids learn about life. The above article starts with ages 2-5 on how you can use play money and play “store” together. Oh how I remember the plastic cash register I had when I was little. I loved watching the coins come down the side like it used to at the grocery store. Toy cash registers today I believe have scanners and credit card swipers. Oh well. Parents could still teach the value of money, and include a bit about how someone has to pay for what is put on that credit card.
Start young. Whenever we begin having kids I know I will start young too. I think conversations about wants, needs, and money help kids know and appreciate all that they have in the world. It does not have to be in a way of shame, but from a place of abundance and gratitude.
Some of you that follow my blog know that I have a passion for money management. My passion evolved because I wanted to make sure that I truly understood what we were doing with our money, and that I trusted the information we were using to make our money decisions. I cannot do that in a vacuum. It means I have to read, learn, and ask the right questions. This recent Daily Worth had an idea that resonated with me:
“Money management is like cooking, or fixing a car or anything else you can learn,” says Myers. “But if you tell yourself you’re simply not good at it, you’re less likely to take steps to learn the basics you need to be financially healthy.”
I have to agree. While I am not a cook, I would feel comfortable calling myself a baker. I learned over time how to work with dough and understand why a recipe called for baking soda rather than baking powder. I am still learning new things about baking, and enjoy trying out new recipes. The same goes for money management. As the world changes and evolves fast, we have to shift and adjust with it, and be aware of whether the decisions we have made in the past continue to serve us, or if we need to adjust our financial allocations based on changes in the market, and our lifestyle.
Some individuals work with a financial planner that they trust, others rely on friends and family, and some look to books, the news, and the Internet to help inform them on what decisions they make regarding their money. Whatever step you take, I encourage you to continue to learn. Maybe you are young and a beginner, or you might have a family and are looking now at how to save for your children’s future, wherever you are in life, there is always something to learn that can benefit you today and in the future.