Ric Werme's Finances for Young Adults
My daughters will be heading out into the cold, cruel world over the
next few years, and that got me thinking about what I would have liked to
know when I was their age. I came up with a number of things, but would
I have listened to my father if he passed on his knowledge? Maybe. I would
have had to keep it around because it wouldn't soak in the first time around.
Besides, it wasn't until I was nearing graduation from college that I was really living
on my own and realized there was no reason for my parents to be supporting
me. By then it was just tuition for my last required course, but it was time
to be on my own.
There were a number of things I didn't really need to know. Buying
my first car - it was a gift when the rest of my family moved to Germany.
IRAs? Didn't exist. Saving money? I had a savings account since grade
school. Being good at math, I had a decent understanding of compound interest,
incomplete it turned out, but the basics are simple. Checking account? My parents helped set that up when they brought
to CMU for my freshman year.
Looking back, there are things I would have done differently, but all in all
I did pretty well. My intent here is to pass on some of what I learned over
the years. Most of it is stuff up to my mid-20s, but there have also been
major changes in the investment world that make longterm investing a lot
simpler than it used to be.
Each page below covers one topic. Call it a lesson, call it a lecture
from Dad. Skip the stuff that doesn't apply today, but come back when it does.
If it's useful, let me know. If using it helps you, let me know. If you have
better ideas, let me know.
- The Magic of Compound Interest
Spreadsheets are pretty nifty applications. With just a little multiplication
and addition you can see the amazing things that happens to $1,000 given enough
time and interest.
- Your First Paycheck's Dollars are the Most Valuable
You really won't appreciate this for decades, I just want to plant a seed
that will bloom sooner or later. Until then I'll be happy if this nags
at you while you buy that new gizmo or latest fashion with your hard won
- What that Latte Really Costs You
This is an updated version of an old chestnut. Financial advisors used to
show people how much their pack-a-day cigarette habit cost, but lattes seem
to be just as addictive. While they won't kill you, they can do a "number"
on your future net worth.
- Saving Money
Back in my day checking accounts didn't pay interest and passbook savings
accounts paid 3%. Today, neither pay much of anything, but there's a nifty
investment that pays well and comes with duck checks. (It looks like a check,
it's used like a check, it works like a check, so it must be a check.)
- TBD Buying a Car
If you really need a car, you need to buy a car. However, cars are
really expensive, especially if you want more than you need.
- TBD Saving for Retirement
Umm, remember those precious first dollars? Ideally, you'd save them
for retirement. Reality, of course, has different ideas, but saving
for retirement when you can is important. Yes, it will be decades
before you believe that, but keep the faith!
- Buying a House
"Land just isn't being made any more" (not quite true), "Real estate always
goes up" (Hah!), "Why pay rent when you can own?" (Getting warmer.)
- Home Mortgages
I have strong feelings about these. Yes, they're a nice tax deduction,
but there's only one case where paying interest is sensible. BTW, mortgage
is Latin for "deathgrip."
- TBD Mortgage Math
This is most interesting to scientists, engineers, and people who know how
to use multiplication and addition on spreadsheets.
- TBD Making Babies
Cars are expensive. Children are really, really expensive. I can build a
strong case for borrowing your friends' kids. However, we do seem to be
genetically predisposed to passing on our genes to a new generation.
Rule of thumb - don't make babies until you can afford them.
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Last updated 2007 August 3.