Thought about your financial planning lately? If you’re like most of us, any thoughts of retirement and investment strategies end quickly with the conclusion that other 20-somethings aren’t doing anything either.
Or are they?
Let’s compare what two of your contemporaries are doing with their financial planning… and more importantly, we’ll see what financial planner and author Penelope S. Tzougros, Ph.d., thinks about HOW they are doing and who might fare the best in the end.
Meet the candidates
Grad student David Fisher, 24, has a job as a part-time teaching assistant in Atlanta, which earns a little spending money – but not much else. He says, "The only financial planning I can afford at my salary is ‘don’t spend my entire paycheck.’"
David is focused mostly on the present, getting through his computer science Ph.D. program at Georgia Tech. He explains, "My life is nowhere near stable enough for me to have the luxury of planning for my future. I can’t really afford to make any of my money inaccessible through long-term investments."
David is aware of the need for investing, but doesn’t see it fitting into his life right now.
"My current financial planning is just an interim measure for a temporary situation," he says. "My life will stabilize, I’ll have a regular job, and then, I will be able to do real financial planning."
Nick Datlowe, another grad student in Washington D.C., works part-time as a paralegal. Having cashed out earlier investments to finance college, this 25-year-old is already planning for his future beyond graduation by contributing to a 401(k) at work.
Nick, a future college professor, says, "I’m actually hoping to go into a field that doesn’t require any kind of retirement (except at the point of my senility), so I am hoping to be working for a long while. But I am socking some money away."
Nick says, "I like [my 401(k)] because this way I don’t spend it, so I’ll probably roll it over as long as I possibly can."
Nick’s strategies work for him. As he says, "When it comes to investment strategy and financial planning, I subscribe to the tortoise school of thought: Slow and steady wins the race."
So, how are they doing? Nearing graduation, the two men are just getting their feet wet in investing and retirement planning. We can’t tell precisely how each will do in the future, because career opportunities, inheritances and fate will affect their next 40 plus years.
However, our financial expert gave us a brief analysis of their attitudes, behaviors and tendencies that will benefit – or hurt – them in the future. Her advice for them could well be applied to you.
David Fisher– Has vision, but maybe too much caution
Tzougros:Even on David’s low income, he is not in debt, and he is saving for a rainy day – BRAVO.
If he has a little money left over, he can consider $25 or less each month into a Roth IRA in a stock mutual fund. Yes, there are some funds that you can start with even less a month. Such an investment could help him transition from seeing himself as "just" a graduate student. Yes, he will be in a better dollar position in his first "regular job", but he can make a step in that direction now.
The principal contributed to the Roth IRA can be accessed before retirement without penalty. (The earnings cannot.) So this investment can be long term if you don’t need the money, and shorter term if you do.
David has a relaxed and yet serious attitude. He makes a fine statement about education being more valuable than just an investment. "Education will give me the knowledge and respect that I need in order to do the sort of work I love…" He has the big vision of his life’s work exactly right.
Nick Datlowe– A slow and steady winner
Tzougros:Nick loves the world of ideas and learning, so he is already a rich man.
He is realistic about Social Security and about making money through a slow and steady strategy. He is already contributing to a 401(k) plan. That’s good and even better would be to increase the contribution to the maximum as soon as he can.
Against the salary he is likely to earn, he has calculated the cost of repaying his student loans, and saving for the future. He is satisfied with the outcome and that is very important. He does not mention how his plans might alter with a family in the future, but he has good, careful habits about money and is comfortable with money.
Nick is in a slightly better situation than David, and seems the most clear on his plans and on the money involved to carry them out. His discussion of slow and steady indicates some awareness of how investments work, not just that he is contributing to the retirement plan. He is likely to have the edge for his future.
Each of our subjects will receive Penelope Tzougros’s audiocassette programThe Wealth You Want in the Time You Have.More details at www.wealthychoices.com.
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