The Five Biggest Myths About Saving Money, According to a Millennial
bloomberg.com
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And "emergencies" happen several times a year. In a few month span I had to replace a water heater, then a dishwasher, then tires on my car. Several thousand bucks of expenses in a couple months. Having to withdraw from a 401k for life's unexpected issues is insanity.
Source: I don't have a car, but I do have a motorized longboard.
That doesn't add up to something more expensive than a car? I was in ny recently, and a train ticket on the LIRR cost ~20 round trip. That's $600/month. But, it's better overall because of the traffic to and in the city.
It really depends on a whole host of factors both related to the economics and the convenience. There are a few cities that tend to be particularly car unfriendly. Many where cars are essentially a requirement. And some that can go either way depending upon your lifestyle, where you work, and a variety of individual preferences.
But figure that a car is going to cost some X thousands of dollars a year plus whatever it costs you to park it. (The government rate is $0.57 or so per mile though that may not be that directly applicable to car vs. other transportation analysis.)
Also there is not service to/from most of the suburbs.
I own mine. It is, for me, where I am physically and personally and professionally, a better move than renting. But then, I'm not really a Millenial. (Born 1978, some stretch "Millenial" back to the 1980s, but in life trajectory I'm more "X" than "Millenial". Though frankly I identify with neither.)
I'd personally rather pay an extra 20-40 bucks a month for something like BGE Home appliances/HVAC warranty than an extra 30% a month in rent relative to the cost of the mortgage. Oh, and gain equity. And rent the same house to someone else in a few years, have them pay my mortgage, and make an extra 30% off the top from them.
Renting isn't stupid. Buying isn't either, despite how popular that notion seems around here.
I have an emergency fund because "I'm supposed to", but in hindsight, paying myself 4% would've been a higher rate of return than my 401K has seen this year.
In light of that, is the advice really that bad? Even if it was a good year and it turned out wrong, you've probably only lost a few points on that money over the term of your loan. If the alternative is putting money into a Savings Account returning a fraction of a percent, and actually becoming worth less over time?
Just thinking out loud. I don't consider myself all that financially savvy.
Same can be said about the water heather and the dishwasher. If they both failed so close one another it was either an Act-of-God (and outlier that no one ought to experience more than once, statistically speaking) or more likely the result of malign neglect. If the GP had just bought the house, he/she ought to have made a better job at surveying the infrastructure and considering repair cost in the total price. If that's the case, it reflects poorly on them to have been taken by surprise by those events.
1. It's important to get a job and start saving for retirement the minute you're out of college. >It's more important to spend time thinking about what you want to do (surfing in South America?) than to start working and paying off students loans immediately.
2. Getting a credit card right out of school is dangerous. >Get a credit card with a small limit ($500) and set it on autopay.
3. The American dream involves buying a house. >Rent rather than buy and don't get attached to anything while you're young.
4. Once you graduate, immediately try to build up a cash emergency fund. >Use 401k as an emergency fund, even if you have to take the tax hit. Long-term benefits outweigh short term risks of doing this when you're young.
5. Investing is difficult, and stocks are sexy. >Avoid managers/fees and just put money into an index fund.
Nothing too radical.
I think it really boils down to what the relative costs are. There are many renters who pay as much or more as someone with a mortgage, and the person with the mortgage is obviously building up capital within that property (value Vs. current mortgage).
I certainly held off buying for a fairly long time because I didn't want to be locked down in that way. In retrospect I might have done things differently but hindsight is 20-20 and all that.
In my case foresight was 20-20 since I bought in 2012 and I knew that when interest rates on a 30 year fixed were the lowest they had been in 30 years that this was the time to lock in a mortgage. At the same time, housing prices in my city were the lowest they had been in 15 years so it made sense to buy. I knew if we didn't make a move then that we'd regret it once interest rates and prices started to rise.
That said, this is only really a good option if you've got a healthy income level and strong saving habits. If you don't, you won't be able to borrow at a reasonable rate (and you won't be able to pay it back quickly).
Debt is where most people fall down, and most folks in the US don't manage debt well. For example, there is a phenomena where people will take additional expensive debt (e.g. credit card) to keep their savings/401k contributions high. Irrational from an ROI standpoint, but very common.
I like all of these startups that try to optimize your spending/savings (e.g. Even, Acorn, Betterment), but I haven't seen anyone doing this well on the debt side.
There's also the budgeting and discipline aspect- if you make yourself work inside of a budget (one that's comprised of your money after your retirement savings) you're much more likely to stick with it in the long term. Once you start allowing emergencies to alter your retirement plans you may end up doing it again in the future. It's much better in that case to take on the additional debt and take paying that down out of another part of your budget.
TLDR; "You don't need to save money, just fund your 401k. If crap hits the fan, just pull money out of 401k. Just wait until your start-up is successful, then you will have cash and an emergency fund!"
And resources to spare. For the people that entered the workforce after 2004 - the economy has not been generous. And the spoils of growth has rarely got to them. We in tech are so far in position to extract almost fair value for our labor, but not all sectors of the economy are like that.
The bit at the beginning about the latte is also pretty silly. Sure if you can afford it and get great pleasure out of your Starbucks, go for it. But this is exactly the sort of money leak that causes a lot of people to wonder where their money all went at the end of the month.
I bought my first house while I was still in college. I patiently waded through the 8 month process of buying a short-sale property. I invested maybe $5k over 2 years (and a lot of elbow grease) in making improvements and netted $40k when I sold it.
Home ownership carries risk and responsibility, but leasing is restrictive and will never provide any kind of returns. In my case I was basically paid to live in my house, vs the $28k in rent it would have cost me
https://studentaid.ed.gov/sa/repay-loans/deferment-forbearan...
Completely forgetting about your credit card debt, or even your mortgage, for any extended period of time sounds like an amazingly stupid decision. Ignore compound interest at your own peril.
Agreed about the issue of compound interest, but everyone's case is different. I think that's all he's saying: "Take the time to be unemployed and figure out what you want to do. Three years of CI is less important than knowing what you want to spend your life making money at."
Now one might argue that this decision should be made prior to going to university in the first place...