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.
Showing posts with label Saving Money and Retirement Topics. Show all posts
Showing posts with label Saving Money and Retirement Topics. Show all posts
Monday, May 2, 2011
Saturday, April 23, 2011
A Solution to Young Americans' Current and Future Financial Problems: Part II
Good evening all!
If you did not read yesterday's article, this post will not make sense to you. So, please read yesterday's entry before reading this article (here is the link: http://eaynuf.blogspot.com/p/solution-to-young-americans-current-and.html).
As promised, I will provide a brief outline of my plan to fund the GRP accounts program. Before I can start, let us look at how much I believe it will cost to start our GRP accounts and the federal government's 2011-2012 budget.
According to my estimate (it is a crude estimation, but I believe 10-15% of our total outstanding debt of $930 trillion will be sufficient to get our program off and running. I came up with this solution basically by taking the total amount of debt students will pay back and dividing that value by the standard number of years it will take to make those payments). So, let's just say we need about $120 billion (about 15% of outstanding debt) to get this retirement account program started.
Let us turn our attention now to the federal budget. The most instructive explanation of our government's budget can be found here: http://www.usgovernmentspending.com/budget_pie_gs.php.
As we can see at the aforementioned link, the US government's deficit will be well over $1 trillion dollars this fiscal year. The largest expenditures as depicted in the pie chart are defense, healthcare (Medicare and Medicaid payments), pensions (Social Security and government worker pensions), and welfare. These four slices of the budget pie comprise about 79% of the government budget.
(Side note: the alert reader will notice that the pie chart on the website I linked to above seems to be flawed. Specifically, the summation of the percentages of the pie chart only equal 88%. I believe the missing 12% accounts for the funding of government agencies like the FBI, CIA, Department of Justice, etc).
So, let's look at the defense budget first. The defense department's total budget in 2011-2012 will be $925.2 billion. (Interestingly, that amount is very close to the total outstanding student loan debt number I stated yesterday). Anyway, I believe we can cut some significant spending from the defense budget (and actually turn some of it into public profits).
While this may not be popular, I believe we should rent out our overseas bases (currently there are 662, not even including Afghanistan's 411 bases). Operating those bases costs us $42 billion or so annually (http://www.fpif.org/articles/bring_war_dollars_home_by_closing_down_bases?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+FPIF+%28Foreign+Policy+In+Focus+%28All+News%29%29). We can save that amount every year by completely shutting down those bases (sorry South Korea and other allies, but you guys are big boys now and can handle your own crap).
But, if we keep those bases open and rent them to the host country, we can make a profit. If we rent those bases out for a total of $10-20 billion (plus the cost of operating the bases), the government will essentially make and save $50-60 billion annually that can be put towards our GRP accounts.
In addition to this, I believe we can cut more from defense spending. Just cancel the whole war in Iraq thing. It costs us around $5 billion per month ($60 billion per year) and it does not seem to be helping us in any area (giving Middle Easterners freedom, gaining access to oil, increasing goodwill in the region and combating terror).
Another option we can do is a combination of small (but meaningful) cuts in pensions and health care spending. For instance, a total 2% cut from both of those slices of the budget pie will amount in about $30 billion in spending freedom. (I know trying this may be a political death wish, but it really is in the government's interest to get the GRP started as soon as possible, as I pointed out in yesterday's post).
We can also look at cutting funding for welfare programs. A modest 2.5% reduction in welfare spending will free up $10 billion.
Other ideas include 1% taxes on Pigovian goods like cigarettes and soda. Or, we can partially roll back the Bush tax cuts. Those cuts might have cost the federal government $300 billion annually (http://www.csmonitor.com/USA/Politics/2010/1206/What-will-deal-on-Bush-tax-cuts-mean-for-the-federal-deficit). If we partially roll those tax breaks back (say only allow $150 billion in Bush tax cuts) we can totally pay for this program in full (and really rich people will still get pretty nice tax breaks).
In sum, I have provided several different avenues for the Feds to fund this program. It is now up to everyone to pressure our officials and make the GRP a reality.
If you did not read yesterday's article, this post will not make sense to you. So, please read yesterday's entry before reading this article (here is the link: http://eaynuf.blogspot.com/p/solution-to-young-americans-current-and.html).
As promised, I will provide a brief outline of my plan to fund the GRP accounts program. Before I can start, let us look at how much I believe it will cost to start our GRP accounts and the federal government's 2011-2012 budget.
According to my estimate (it is a crude estimation, but I believe 10-15% of our total outstanding debt of $930 trillion will be sufficient to get our program off and running. I came up with this solution basically by taking the total amount of debt students will pay back and dividing that value by the standard number of years it will take to make those payments). So, let's just say we need about $120 billion (about 15% of outstanding debt) to get this retirement account program started.
Let us turn our attention now to the federal budget. The most instructive explanation of our government's budget can be found here: http://www.usgovernmentspending.com/budget_pie_gs.php.
As we can see at the aforementioned link, the US government's deficit will be well over $1 trillion dollars this fiscal year. The largest expenditures as depicted in the pie chart are defense, healthcare (Medicare and Medicaid payments), pensions (Social Security and government worker pensions), and welfare. These four slices of the budget pie comprise about 79% of the government budget.
(Side note: the alert reader will notice that the pie chart on the website I linked to above seems to be flawed. Specifically, the summation of the percentages of the pie chart only equal 88%. I believe the missing 12% accounts for the funding of government agencies like the FBI, CIA, Department of Justice, etc).
So, let's look at the defense budget first. The defense department's total budget in 2011-2012 will be $925.2 billion. (Interestingly, that amount is very close to the total outstanding student loan debt number I stated yesterday). Anyway, I believe we can cut some significant spending from the defense budget (and actually turn some of it into public profits).
While this may not be popular, I believe we should rent out our overseas bases (currently there are 662, not even including Afghanistan's 411 bases). Operating those bases costs us $42 billion or so annually (http://www.fpif.org/articles/bring_war_dollars_home_by_closing_down_bases?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+FPIF+%28Foreign+Policy+In+Focus+%28All+News%29%29). We can save that amount every year by completely shutting down those bases (sorry South Korea and other allies, but you guys are big boys now and can handle your own crap).
But, if we keep those bases open and rent them to the host country, we can make a profit. If we rent those bases out for a total of $10-20 billion (plus the cost of operating the bases), the government will essentially make and save $50-60 billion annually that can be put towards our GRP accounts.
In addition to this, I believe we can cut more from defense spending. Just cancel the whole war in Iraq thing. It costs us around $5 billion per month ($60 billion per year) and it does not seem to be helping us in any area (giving Middle Easterners freedom, gaining access to oil, increasing goodwill in the region and combating terror).
Another option we can do is a combination of small (but meaningful) cuts in pensions and health care spending. For instance, a total 2% cut from both of those slices of the budget pie will amount in about $30 billion in spending freedom. (I know trying this may be a political death wish, but it really is in the government's interest to get the GRP started as soon as possible, as I pointed out in yesterday's post).
We can also look at cutting funding for welfare programs. A modest 2.5% reduction in welfare spending will free up $10 billion.
Other ideas include 1% taxes on Pigovian goods like cigarettes and soda. Or, we can partially roll back the Bush tax cuts. Those cuts might have cost the federal government $300 billion annually (http://www.csmonitor.com/USA/Politics/2010/1206/What-will-deal-on-Bush-tax-cuts-mean-for-the-federal-deficit). If we partially roll those tax breaks back (say only allow $150 billion in Bush tax cuts) we can totally pay for this program in full (and really rich people will still get pretty nice tax breaks).
In sum, I have provided several different avenues for the Feds to fund this program. It is now up to everyone to pressure our officials and make the GRP a reality.
Monday, April 18, 2011
How to Save Cash
Ok, fellow young people, it's time to talk about something we need to start doing ASAP: saving our money for rainy days and retirement.
Some of you are probably wondering exactly why I think I'm qualified to talk on this subject. Here is my answer: I lived in Irvine, Orange County, California (easily one of the priciest places in the USA) for about 4 months saving over $600 every month while earning about $1,900 per month (after taxes). (That means I was averaging less than $24,000 per year -saving $7,200 of that- and still living a nice life).
Here are my recommendations for saving money:
1. Carpooling. Do not be ashamed of doing this. Gas is $4 per gallon (higher out west), and you cannot afford to NOT be doing this. For example, I organized bi-weekly grocery shopping trips with friends and my roommate. It's easy, and it saves a bundle on gas.
2. Cheap (but healthy food). Yes, this stuff does exist: canned beans, eggs, frozen veggies, bananas, celery, peanut butter, and apples. Canned beans, eggs, and peanut butter are some of the most protein-packed foods out there (in fact, eggs actually have the purest and most-beneficial protein on the planet. They're cheap, but don't eat more than 2-3 egg yolks per day). Frozen veggies (contrary to conventional wisdom) have just as much nutritional value as fresh veggies, and they're a fraction of the cost. Bananas and apples are good for you, cheap, and they keep forever in the fridge.
3. Cut out ingestible crap. Soda is a big no-no for me and for you. That stuff adds calories, has no nutritional value, and is more expensive than the best beverage on the planet for you: water. A similar analysis can be applied to most juices. Just drink milk, water, and homemade coffee (coffee has antioxidants and appetite-suppressing qualities).
4. No more gym memberships. Seriously. You can buy some kettlebells on eBay (for about the same price as regular weights) and get high-quality cardio and strength-training workouts in your home. Most people don't know how beneficial ballistics exercises with kettlebells are for your muscles, bones, and heart. For more, read this: http://www.livestrong.com/ballistic-training/.
5. Save on utilities. Unplug electric devices when you are not using them. Do not leave lights on when you are not in the room. Get more efficient light-bulbs. Wear heavier clothes indoors instead of turning up the heat. Stuff like that.
6. TV, land-line phones, and internet service. If you have a cell, I do not believe you need a land-line; get rid of it. As for TV, if you can handle it, cut it out entirely or find a different company (or smaller television package). Or, you can start watching TV shows online. Many TV networks broadcast their shows online a few days after they air, so you can catch them there. In terms of the Internet, it may be possible for you to share Internet access wirelessly. Specifically, ask your neighbors who have WiFi if you can pay them a percentage every month to access their wireless network. Everybody wins with that kind of arrangement.
If you start using my ideas, you can save tons every month. Now, with your extra savings, what should you do? That's easy. Start a retirement account.
Vanguard has a nice, cheap retirement account option. You can start a Roth IRA with them and invest your money monthly (see: https://personal.vanguard.com/us/home?fromPage=portal). Make sure you pump as much money as you can every month into your retirement account; it will be huge over time. As you will find out, compounding interest rates are your friend.
I cannot stress this enough: the earlier you start your retirement account, the better your results will be because of compounding interest rates (see: http://personalfinance.byu.edu/?q=node/440).
Get to it, people. You're going to need all the money you can save in order to have a comfortable retirement because we cannot depend on Social Security and Medicare (as I have mentioned numerous times).
Some of you are probably wondering exactly why I think I'm qualified to talk on this subject. Here is my answer: I lived in Irvine, Orange County, California (easily one of the priciest places in the USA) for about 4 months saving over $600 every month while earning about $1,900 per month (after taxes). (That means I was averaging less than $24,000 per year -saving $7,200 of that- and still living a nice life).
Here are my recommendations for saving money:
1. Carpooling. Do not be ashamed of doing this. Gas is $4 per gallon (higher out west), and you cannot afford to NOT be doing this. For example, I organized bi-weekly grocery shopping trips with friends and my roommate. It's easy, and it saves a bundle on gas.
2. Cheap (but healthy food). Yes, this stuff does exist: canned beans, eggs, frozen veggies, bananas, celery, peanut butter, and apples. Canned beans, eggs, and peanut butter are some of the most protein-packed foods out there (in fact, eggs actually have the purest and most-beneficial protein on the planet. They're cheap, but don't eat more than 2-3 egg yolks per day). Frozen veggies (contrary to conventional wisdom) have just as much nutritional value as fresh veggies, and they're a fraction of the cost. Bananas and apples are good for you, cheap, and they keep forever in the fridge.
3. Cut out ingestible crap. Soda is a big no-no for me and for you. That stuff adds calories, has no nutritional value, and is more expensive than the best beverage on the planet for you: water. A similar analysis can be applied to most juices. Just drink milk, water, and homemade coffee (coffee has antioxidants and appetite-suppressing qualities).
4. No more gym memberships. Seriously. You can buy some kettlebells on eBay (for about the same price as regular weights) and get high-quality cardio and strength-training workouts in your home. Most people don't know how beneficial ballistics exercises with kettlebells are for your muscles, bones, and heart. For more, read this: http://www.livestrong.com/ballistic-training/.
5. Save on utilities. Unplug electric devices when you are not using them. Do not leave lights on when you are not in the room. Get more efficient light-bulbs. Wear heavier clothes indoors instead of turning up the heat. Stuff like that.
6. TV, land-line phones, and internet service. If you have a cell, I do not believe you need a land-line; get rid of it. As for TV, if you can handle it, cut it out entirely or find a different company (or smaller television package). Or, you can start watching TV shows online. Many TV networks broadcast their shows online a few days after they air, so you can catch them there. In terms of the Internet, it may be possible for you to share Internet access wirelessly. Specifically, ask your neighbors who have WiFi if you can pay them a percentage every month to access their wireless network. Everybody wins with that kind of arrangement.
If you start using my ideas, you can save tons every month. Now, with your extra savings, what should you do? That's easy. Start a retirement account.
Vanguard has a nice, cheap retirement account option. You can start a Roth IRA with them and invest your money monthly (see: https://personal.vanguard.com/us/home?fromPage=portal). Make sure you pump as much money as you can every month into your retirement account; it will be huge over time. As you will find out, compounding interest rates are your friend.
I cannot stress this enough: the earlier you start your retirement account, the better your results will be because of compounding interest rates (see: http://personalfinance.byu.edu/?q=node/440).
Get to it, people. You're going to need all the money you can save in order to have a comfortable retirement because we cannot depend on Social Security and Medicare (as I have mentioned numerous times).
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