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Advice for Your Twenties From A Millionaire

Your best asset is time; and as a twenty something, you should have plenty of it. And I’m not just talking about the number of free hours in a day either. I’m talking about the number of YEARS you have to accumulate your fortune. My grandfather Patrick Manning, a J.P. Morgan Chase Investment Bank retiree and very successful long-term investor, is a guest speaker in high demand at universities across South Florida. His college seminars revolve around finance, investing, and job positioning as it applies to twenty somethings. His most popular lectures, of course, are the ones that put into perspective just how attainable millionaire status is when you have time on your side. Sounds great, right?

Well, when I asked him to sum it up for me in digestible layman’s terms…. he sent me a 43 page document. I’m not kidding. He has TONS of advice and I was a bit overwhelmed with how much I didn’t know. It took me a few days to get through and I still need constant refreshers but I have finally narrowed it down to the seven things every twenty something needs to know when it comes to earning, saving, and growing their fortune.

6% is very conservative. If you aim for 8%, which is very attainable, you will have to invest much less monthly.

1. Start saving NOW. We touched on this a bit in The Savings Game, but there is nothing more valuable in your journey to becoming a millionaire than the power of compound effect.This chart below from Business Insider illustrates how much you need to save monthly to get to $1M and Retire at 65. It might freak you out, and honestly it should (just a little bit 😉). Just enough to light a fire in you and inspire you to consider the NOW. This does not mean that if you are 35 you are doomed. You are never too old to start saving, and however old you are, this year is a better time than next year. Just keep in mind that you are also never too YOUNG! Take advantage of this incomparable tool to becoming a millionaire: Time. Don’t wait until you have lots of money to start saving. Start small if you have to. The secret to getting rich is slowly-but-surely!

You chose to go to college and take on this debt. Don’t be like Alice. Make it your priority to get out of debt.

2. Avoid BAD debt. Pay off GOOD debt. An example of bad debt is a credit card that you pay the “minimum” on each month, accruing high amounts of interest (18% is HIGH), and drowning you in further debt. An example of good debt is a mortgage on a house (which is often cheaper than paying rent on an apartment) or most common for our generation…. STUDENT LOAN DEBT. Ahhh!!!! College is an investment in your future, and despite the scary debt that the majority of our generation face upon graduation, on average, college graduates still earn significantly more money than their GED-repping counterparts. When your good debt grows to tens of thousands or even hundreds of thousands, its easy to feel helpless and cope by ignoring it. You now view debt as an unavoidable part of your future. This is a VERY dangerous mindset. There are ways to lessen the burden. Do your research and make it your #1 priority to find these systems and loopholes that apply to your circumstance. This CNBC article is a great place to start.

3. Establish an Emergency Fund (or an “I Just Got Fired For Bitching About My Boss On Facebook” Fund). Before investing in an IRA or long-term account that, for the most part, will be untouchable, make sure to have a minimum of 6-months in living expenses saved up. It is key to establish these Emergency Funds so that you don’t have to borrow to meet an unexpected expenditure or job loss. Like what if you had this guy’s job?

4. Don’t try to beat the market, be the market. Fun fact: over the span of any 15-year period Since the NY stock market opened in 1865, there has not been a single 15-year period that has yielded negative returns. That includes the Great Depression and the more recent crash of ’08. So, the only sound advice you can be given regarding the stock market is to ride it out. Not only should you resist from selling off your stocks in a down market, but you should always continue to invest regularly, and take advantage of what is called dollar cost averaging. Dollar cost averaging is a technique used to buy more shares at a lower value, rather than high. When the market inevitably goes back up, you will be the one benefiting.

5. Don’t pay the price twice. Since it is impossible for anyone to legally predict the market, it makes sense that statistically; Financial Advisors do not enjoy much short-term success. Patrick advises that young investors with little money to manage avoid paying commissions and fees to a stock broker or financial advisor and be a do it yourself investor in commission free index funds through a firm like Vanguard….. but who the hell is Vanguard? See #6.

6. Invest in an Index Fund. No financial advisor? Well how am I supposed to know what stocks to pick? This was my main question to which he had a simple answer. Invest in an Index Fund. According to an Index Fund is “a type of mutual fund with a portfolio constructed to match or track the components of a market index. It is said to provide broad market exposure, low operating expenses and low portfolio turnover….” Blahblahblah. In English? It’s a way to make sure that you aren’t spending unnecessary management fees. Also, we didn’t all ace Economics, and don’t have time to be following the market and picking the best stocks. Index funds diversify your investments for you and they don’t try to beat the market! His recommendation for Index Funds is the Vanguard 500 Index Fund. He is in good company too! Warren Buffett, the greatest investor of all time, has instructed a trustee that upon his death he wants 90% of his wife’s inheritance to be invested in the Vanguard S&P 500 Index Fund and 10% in Short term US Treasury bonds . I’ll take free, off-hand advice from Mr. Buffett any day.

How painful does that look?

7. Use an IRA or 401K to save for retirement. Retirement? Ugh. I know. With the million other things you have to deal with in your twenties, retirement probably last on your list. But as we discussed earlier, the power of compound effect is TOO GOOD to ignore. Do your future-self a giant favor and open either a 401k or IRA. For more information on which is right for you, read up on the basics.

There are tons of ways to become a Millionaire but not all of the methods apply to the masses. Doing these 7 things properly is a great way to take your financial growth into your own hands and ensure your membership in the Millionaire Club come retirement. Are you doing these things? Questions for a Millionaire? Comment below!

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