| I Cry At Weddings |
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My husband and I recently attended a wedding.The ceremony was beautiful - and it reminded us of how serious this commitment is. I'm not sure that we realized this when we married 30 years ago, but this young couple seemed to get it, even at their tender age. Their future lies ahead - but it will likely be quite different than ours or their parents'.
They will be negatively impacted by four trends:
- No more private company pensions
- No more employer-employee loyalty
- Most likely reduced Social Security benefits when they retire in 2050
- More debt starting out - both education loans (good debt) and credit card debt (bad debt).
The good news for this couple and many other young people that I know is that they are more financially savvy than we were at their age. They have to be. Personal finances are much more complicated now. They understand that Social Security won't be as generous to them as it was to their parents and grandparents, and they are ready to start saving now. Finally, they're aggressive about getting what they think is their due from employers. They realize that regular layoffs have become a part of corporate life. They don't expect to get hired and taken care of in return for decades of loyalty.
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Advice for Young Newlyweds
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 While newlyweds today face a harsher
reality than we did, they understand this, and they will do the 5 things I
advise my clients to do:
- 1. Always save 10% of your gross income. Make it automatic. What you
don't see in your checking account, you'll learn not to spend. If you start now, 10% is the magic number. If you wait until you're 35, you'll need to save 15% - and if you wait until you're 45, you'll need to save 25%! Believe me, it doesn't get any easier to save, just because you get older. In fact, it gets harder, because you have to change bad habits.
- Build your emergency fund. Some part of that 10% - perhaps a third of it - should go
towards building up an emergency fund. Keep saving until you've saved
at least 10% of your income - this will pay the rent or mortgage and
food bills if you have unexpected expenses or a loss of income.
- Buy a house. Keep putting money into your savings account until you have enough for a down payment on your first home.
- Pay off credit card debt. Another portion of that 10% - perhaps another third of it -
should go towards paying off credit card debt. Yes, this is a type of
"saving"! And while you're at it - if you do have credit card debt -
stop using the cards! Switch to cash and feel what it's like to spend
"real" money.
- Save for retirement. A portion of that 10% should go towards long-term savings,
such as for retirement. I'm going to go out on a limb here, and say it may not make sense to sign up for your employer's retirement plan. If you're
in a low tax bracket - and you probably are if you're just starting out
- consider a Roth IRA. You can set one up at Fidelity, Vanguard or T.Rowe Price. The important thing is to make those contributions automatic - at least once a month.
Does it sound like I'm saying you need to build up your emergency fund, save to buy a house, pay off credit card debt and save for retirement now - all at the same time? That's right! 10% of your income today can go a long way towards making your dreams come true.
PS This advice also applies to you if you're not married!
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| I've Been Published--Again! |
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I co-wrote the cover article for the April 2008 edition of NAPFA Advisor, the magazine of the National Association of Personal Financial Advisors, which is read by over one thousand fee-only planners each month. My co-author was Bill Scott, who consults to me on practice and tax issues and works part time in my practice. (Full disclosure: Bill is my husband.)
This reflects my commitment to good practice and leadership in the fee-only planning community. The subject was a tutorial on how to use decision trees to help clients deal with uncertainty in decisions that they face. It was based on real client problems--well disguised for privacy of course--that we solved.
I also contributed to the popular book Just Give Me The Answers and have provided numerous interviews to the press. Two years ago I was honored to do a Boston Globe "Money Makeover" for a couple that was trying to blend the finances of two families together after their divorces.
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The Book Nook
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The Little Book of Common Sense Investing by John Bogle
 John Bogle needles the industry that he revolutionized. Vanguard, under Bogle's leadership, championed the index fund. If you haven't read one of his books, try this one. He explains why trying to beat the market is a zero sum game, and why so many sellers of financial products want you to try to do it. (Hint: their gain is your loss).
The inexorable math that he describes, is that all the buying and selling and paying fund managers eats up your money. And over the long haul, it really hurts your overall return.
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