Travel now, work later

April 27, 2009

A debate that often comes up within my circle is the use of vacation days. For the intrepid careerist, the thought of appearing lazy so early in their career is a sacrifice they are not willing to take. Or to others, the ability to pay out vacation time is even more enticing. If you’re the type of person that thinks that a weekend trip to Santa Barbara or Las Vegas is enough, then you are in an ideal situation where this advice doesn’t apply. But if a two week jaunt across the globe seems short, travel now before it’s too late!

For the past decade, people have become fixated on retirement. The idea was that people would invest wisely in their Roth IRAs and 401Ks, retire in their mid-40s, and spend the rest of their lives finally doing what they wanted to do.

Let’s look at this best case scenario. You’re in your latter years, fortunate to have enough money to take that once-in-a-lifetime trip to see the Amazon River. But your significant other can’t leave their job for too long and your kids only have two weeks vacation for winter break. So you end up taking a two week package tour that stops by the river, and your dream is disappointingly realized when you look out the window of a luxury ferry while your kids eat cheeseburgers and drink shirley temples. Travel will only become more difficult as you become older and have more familial responsibilities or people you have to cater to.

Now for the second scenario. I went to a business lunch with some of my colleagues and we were discussing an executive who had gone on vacation. He was in his late 50s, and had not taken a vacation in over five years. He was taking ten vacation days to go to Europe, but even this was deemed a career risk. The reason? He was afraid that someone else would fill in to complete some of his tasks, and he would be viewed as expendable. You may be busy now, but assuming you climb the job ladder, your work will only become increasingly important.

Go to Japan and attend an entire Nihon Sumo Kyokai Grans Sumo tournament. Follow a leg of the European tour of one of your favorite bands. Complete the Tour de France with a group of friends in September. Train in Muay Thai kickboxing in Thailand. There isn’t a better time than now.

Cava di Isolla, a beach on Ischia

Cava di Isolla, a beach on Ischia


Savings, Investments, Retirement… Where Do I Start?

April 15, 2009

We here at the Roaring twentySomethings unite strongly under the simple goal of enjoying life.  We don’t lose sight of the importance of maintaining a high quality of life, and therefore do not let work manipulate the qualities of our lives solely based on the fact that our jobs fund the fun in our lives.  This does not mean we lack motivation when it comes to our careers and achieving a successful future- it is true that sometimes sacrifices need to be made and extra hours need to be put into work in order to stay on top of your game – but it does mean that we are driven by the desire to live life rather than the notion of working hard and earning money so that maybe we can live life.

As roaring twenty-somethings, we are not yet overflowing with the extra cash, so we’ve had to look beyond relying on unnecessary extra overtime work just to ensure our financial security in the present and future.  I’d like to share a few basic things I first learned when I became interested in saving and the only account I had was a checking account.  Just because you are a “poor college student,” or were one not too long ago, doesn’t mean you are incapable of being financially well off.  A little known secret is that becoming wealthy has just as much, or even more, to do with how you manage your money as it does how much you have or make.

Open a high yield savings account or CD – even though these high yield accounts aren’t as “high yield” nowadays as they once were, it is still much better than letting your money sit in a checking account and not getting anything from it at all.  A CD generally has a higher interest rate – but the money you put in a CD cannot be withdrawn penalty free for a period of time until it matures.  MyMoneyBlog has a great list of the best savings accounts that is constantly kept up to date.

Start saving for retirement – Open an individual retirement account.  There are two options here – a Traditional IRA and a Roth IRA.  I generally think that a Roth IRA is more beneficial and  “Why You Need a Roth IRA” on Kiplinger’s is a must read article that highlights all the benefits of having a Roth IRA.  Just the fact that it is tax free growth alone is reason enough to look into it.  The article includes some rough calculations to show how you will come out with more money in a Roth IRA, and how a Roth IRA also doubles as a great emergency fund because you will not be penalized for withdrawing money you put into a Roth IRA account (just the interest). It is also a great account to have when saving up for your first house because a Roth has special exceptions set aside for that. The last thing I want to highlight regarding the Roth IRA is to start early. I assume that those who are reading this are highly motivated and will one day earn a respectable salary.  There is a salary cap on those who qualify for a Roth IRA and when you’ve reached that salary- you’ll be glad you have some money put in a Roth IRA come retirement.  A 401(k) is also another great way to save up for retirement – and sometimes this includes free money from your company. We will expand on this in a future discussion on workplace benefits.

Investments – Once you have a solid foundation that your savings are built upon, looking into investing is a great step to take.  There are ways to invest conservatively – your money will grow at a slower pace but there is less risk. And there are ways to be aggressive and accept the larger risk for a chance at a greater return.  However, a few basic points to start you out here is to know that: 1) the younger you are, the better it is a time to invest in stocks (given that you’ve got the money to do this) 2) Bonds are good for short term investments 3) Mutual/Index funds are generally good for long term investments.  Exchange Traded Funds (ETFs) are somewhere in between stocks and mutual funds.  To learn more, I highly recommend checking out the Morningstar Classroom.  “Morningstar” may become more familiar to you as you research investment options – and that is because Morningstar has created a system for rating mutual funds that is typically widely taken into consideration when choosing a fund to invest in.

If you have dug yourself in bit of a ditch when it comes to managing your money, I recommend first paying off your debt, opening up a Roth IRA if you’re working, start putting some money into a savings account, and when that is all stabilized – look further into investing.  No matter where you are, start early. Do not use the fact that you’re still young and all young people have the same money woes as you as an excuse to be lazy.  If I haven’t convinced you enough yet, maybe the power of Compound Interest will.  Take a look at the following excerpt from another Kiplinger article that illustrates this point:

Consider this: Amy, a 22-year-old college graduate, saves $300 per month into an account earning 10% per year for six years. (That’s the average annual return of the stock market over time.) Then at age 28, she starts a family and decides to stay home with the children full time. By then, Amy had kicked in $21,600 of her own money. But even if she doesn’t contribute another cent ever, her money would grow to a million bucks by the time she turned 65.

Compare that to Jason, who put off saving until he was 31. He’s still young enough that becoming a millionaire is within reach, but it will be tougher. Jason would have to contribute the same $300 a month for the next 34 years to earn $1 million by age 65. Although Amy invested less money out-of-pocket — $21,600 over six years vs. Jason’s $126,000 over 34 years — her money had more time to grow, or compound.

Another little equation that you might find useful is the “Rule of 72”:

72/interest rate = number of years it will take
for your money to double
Example:
You have money in an account earning roughly
8% a year.
72/8 = 9
It will take 9 years for that money to double.

Lastly make use of wonderful, FREE money management resources that are readily available to you nowadays.  Services such as Mint.com and Yodlee automatically link up to all your accounts and update them automatically for you so you can log into your account and quickly get a quick snapshot of how you’re doing.  They have tools built in to set goals and alerts; charts to let you see what you’re spending money on and how your investments are doing.  Kiplingers has a lot of useful tools and calculators too.  Best of all, these resources are FREE!  Take advantage of them!

I know times are tough money-wise these days, and it is always wise to proceed with caution.  However, with a little patience and careful planning you will be ahead of the game when the market bounces back.  It is always unpredictable so I understand that things like the concept of Compound Interest may seem a bit inapplicable right now.  However, there are still savings account out there that will earn you interest.  There are countless numbers of resources for you to turn to in your research, and I really encourage you to start now.  Happy saving!

– debs.