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Monday, May 2, 2011

Stop Screwing Yourselves (Part III): Learn Money Management Skills

Next to learning how to think properly, I believe it is crucial for young people to learn money management skills.  Specifically, young people need to understand the benefits of saving money, compounding interest, and opportunity cost.

I believe most of the practical knowledge on the aforementioned topics can be addressed in an economics class. Additionally, the earlier someone understands these concepts, the better.  I know some high schools have money management classes.  Take as many as you can!  The more you know about managing money, the better off you will be in the long term (I wish I had taken a money management class in high school, but I didn't and now I am paying for it).

There are a few tips I can give to my fellow young people right now, though.  First, every young person should start a retirement account ASAP.  As I have posted numerous times on this site, we will not be able to rely on Social Security for our retirements.  And, the earlier you start your retirement account, the earlier you can start taking advantage of compounding interest.  You will regret putting this off later in life because you will end up having to sock away much more money down the line in order to be ready for retirement.  In terms of finding places that host retirement accounts, check your bank or local credit union.

Additionally, try to pay off student loans ASAP.  That interest builds up over time, and it's not uncommon for you to pay back the principals and an additional 30% in interest.  On a related note, try to be as cheap as possible when you are in college.  You'll save a bundle in the long term.  

Finally, try to cut down on the non-essentials.  For instance, the next time you are at a gas station, don't waste your money on the concessions.  They are too expensive.  You'd be better served putting that money in the retirement account I told you to start.  

If you master the major money management concepts of opportunity cost and compounding interest, you should be financially set.

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