A Financial Advisor’s Advice to the Young

Do Not Read If You Are Over 25

By David Topper

Everyone wants simple steps. 10 steps to finding true love, 7 steps to real estate fortune. Even Lynyrd Skynyrd requested “3 steps” (okay probably someone under 25 won’t get that reference but if you YouTube it you will be rewarded). I like things extra simple, so I’m going to give you 2 steps to financial independence. Well, the first 2 steps anyway.

As a Financial Advisor young people often ask me “what should I invest in?” I always tell them that at this stage in life what you invest in is not nearly as important as simply investing.

As you get closer to retirement it can get more complicated but for now you should do these 2 simple things.

#1 Know Your Spending

Watch where every dollar goes.

You know that feeling of wonder you get when you see your W-2 at the end of the year and you wonder where all that money went? You don’t remember making all that money. Where did it all go? And what do you have to show for it? Guess what, that feeling of wonder never goes away.

You will never know where your money went unless you watch where it goes. This can be a hard habit to create, but it is a great habit to have. Why not try it now? You’re young, you’ve got plenty of time. Spend a few weeks, months, years, decades perfecting the skill.

I guarantee it will never be a waste of time. And it can have great benefits other than retiring well. You might sleep better, eat better, vacation better… well, at least sleep better anyway.

I’m not talking about something so nasty as setting a budget just yet. All I’m saying is, know where your money went. Look back at the money from your last paycheck. Next time you get paid watch closely. Write it down. I’m not suggesting you give up coffee, avocado toast or Netflix. Never mind that last one, statistics say you are using your parents Netflix account.

I’m just saying, watch it and write it down. You will quickly notice the money you waste. The stuff that slips through the cracks. Are you really paying for Spotify, Pandora and Apple Music? Okay, keep doing that if you want, but at least you now know where you can find $120 if you would like to use it for something else (like maybe retiring early).

As the months and years go by, if you are in the habit of knowing where your money goes, you will naturally spend your money wiser, and you will be able to spot rip-offs and money wasters. You will learn to tell the difference between a “want” and a “need”. If that’s all you learn from this practice it will be well worth it. Many adults are in serious financial trouble because they never learned the difference.

#2 Automate your savings

Don’t think about it. Do it.

If there is one thing robots can help us do, it’s save. They seem to be good at vacuuming, and are getting better a driving, but automated saving can really change your life. If it does its job correctly the only person it will put out of work is you.

You have probably noticed that if you decide to save what’s left over after the bills are paid you won’t be saving anything. There always seems to be more month than money.

There are already a few things you prioritize when you get paid, or at least you should. You should physically, or at least mentally, set aside money for housing, utilities and groceries. You naturally make sure to cover the basic needs of life, but you ignore your future self. You pay everyone except you. Start prioritizing your future self and add yourself to the mandatory payment list.

One of the odd things about saving is that it feels like you are spending money, but you are actually keeping it. In fact, out of all the bills you pay this is the only one where you get to keep the money. Remember, keeping the money is what it’s all about. The clients I work with who are the best prepared for an early and active retirement are not necessarily the ones who made the most money. They are the ones who kept the most money.

The government knows that if everyone had to pay their income tax all at once very few would be able to do it. That’s why they take it in bite size chunks out of each paycheck. You barely feel it even though it is a significant amount of money. Use this strategy for yourself. If you are offered a 401(k) take it. Use it. Contribute as much as you can. Then increase your contribution at least once a year. Make 10% contribution your goal. When you get there go to 15%. You will be amazed at how your account will grow. If you don’t have a 401(k) go to your bank, credit union or a broker and open a Roth IRA.

Did you know you can have your paycheck deposited into multiple accounts? Part of it can go into your checking account, part of it into a savings account and part can go into your new Roth. It does take some effort to set up but once it is working you don’t have to worry about it. Then as the years go by you can have that sense of wonder when you look at how much you have saved instead of at how much slipped through your fingers.

An ancient Chinese proverb says that a journey of a thousand miles begins with a single step. I say, financial independence begins with 2 simple steps.