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Author: monica3674 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5084  
Subject: Letter to young couple (long) Date: 8/20/2003 9:54 PM
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Last month, a teacher at my school asked what kind of advice I would give her son and daughter-in-law concerning money. They just got married recently and are in their early twenties.

This is what I wrote to them. Does anyone have any other suggestions?


Dear Andrew and Carissa,
Your mom asked what type of financial advice or information I would give to two young people just starting off. I teach with your mom at Nolan, and I really like financial stuff. My name is Monica and I am 29 years old. My husband, James, and I will be married for three years on Tuesday (he's also 29.) When we were dating, we made some long-term life and financial goals.

1. When I was growing up, my mom stayed home with my sister and me until my younger sister was in high school. I knew that I wanted to stay home with my children at least until they were in school.
2. We wanted to be Financially Independent. We both like to work, but neither of us wants to have to work.
3. We want to be able to send our children to college (and Catholic grade school.)
4. We don't want to have to worry about money.
5. After 5 years of marriage, we would like to have at least a $250,000 net worth.

In order to accomplish these goals, we would have to do some planning and lots of saving and investing. We decided that I would work for 5 years after we got married to try to save lots of money. This means putting off kids for 2 more years. I'd kind of like them now, but I want to stay home with them, so off to work I go!

Jamey and I are frugal by nature. We would be happier eating at Taco Bell than Outback Steakhouse. I love to save money at the grocery store, and I usually won't buy things unless they are on sale. This type of living is called LBYM – Living Beneath Your Means. Based on our incomes, we could eat at Outback at least twice a week, but we choose not to. We could drive new or leased cars, but instead drive used Saturns (with an extra one in the garage for emergencies and vacations.)

We purchased a house right before we got married. Jamey and I had saved up enough money for a 20% down payment. Our goal was to pay down the mortgage ($135,200) as quickly as possible. So far, we have refinanced twice. We currently have a 10-year mortgage at 5.375% with a balance of $100,463. We have decided not to prepay the mortgage anymore, as we feel that the stock market would be a better place for our extra money.

After three years of marriage, our net worth is approximately $232,000. We are only $18,000 away from our 5-year goal. We don't make tons of money, either. I am a teacher, and he's a treasury analyst. Our incomes are approximately equal. My sister and her husband make almost double what Jamey and I do. Yet, they spend money like it's water.

My advice to you would be this:
1. Make some long and short-term goals.
2. Talk about your finances. Have an understanding of where you are at and where you would like to go.
3. Learn about money – spending, saving, and investing. There are tons of financial websites out there. My favorites are:
a. www.fool.com - this site has information about everything financial. There is a mini-seminar called “Couples and Cash” that looks at goals, budgeting, investing, and lots of other stuff.
b. www.cheapskatemonthly.com
4. Save money. Make sure you contribute to your 401(k) with each paycheck and Roth IRA every year. You really need to figure about how much you will be able to save. Look at your income and necessary expenses. With the extra income, you should put money in your 401k up to your employers match. Then, in my opinion, put the next $3000 of savings into each of your Roths. Then go back and finish maxing out your 401k. Any money after that could be used to start college funds, taxable investment accounts, or put in your emergency fund.
5. LBYM
6. Don't accumulate any credit card debt. Jamey and I charge, but then we pay off the balance each month.
7. Use the library. We go each Monday night and check out lots of books. I always look for new stuff in the financial section.

Here are some books that are really worthwhile to read:
Debt-Proof Living – Mary Hunt (and anything else by her)
The Millionaire Next Door – Stanley and Danko
Jamey recommends something by Peter Lynch or a Motley Fool book (fool.com)

I wasn't really into investing until I met Jamey. I also hadn't always been very good with my finances. Together, though, we had a vision of what we wanted our lives to be like. That's what we are setting out to accomplish.

Good luck!
Monica




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Author: dsemmler Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 501 of 5084
Subject: Re: Letter to young couple (long) Date: 8/20/2003 10:36 PM
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I think I would describe the concept of an eFund in a little more detail and explain the goal of having 3-6 months (minimum) of living expenses. You may also want to mention the idea of a Freedom Fund that can be used to stash cash for irregular expenses such as insurance premiums, taxes, etc.

Other than that, I think you covered the majority of the key pieces of information.

dt

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Author: Evelynk Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 502 of 5084
Subject: Re: Letter to young couple (long) Date: 8/20/2003 11:51 PM
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I think this sounds great.

The only thing I might mention is the cost of carrying debt. Especially since it seems that most people seem to accrue most debt in their early 20's (myself included). For example, they might think $5000 in credit card debt can be paid off pretty easily (as their salaries increase, etc.). In reality, that $100 or so a month they would be spending on minimum payments is much better invested.

On that note, maybe I would also mention into how compound interest can be your friend.



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Author: bbydoll One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 503 of 5084
Subject: Re: Letter to young couple (long) Date: 8/21/2003 8:58 AM
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Evelynk, you told what I have to say :) Most couples don't know the danger of credit card debts, how it slows them down to acheive FI. I think a credit card horror story is good to include (or a link..) :)

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Author: ImCalvin Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 506 of 5084
Subject: Re: Letter to young couple (long) Date: 8/21/2003 12:34 PM
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When you are young, I think one of the important parts of any plan is to understand why it's relevant to you. I think most young people (myself included) don't want to heed the advice of their elders and are still in a half state of rebellion. FI takes a real commitment, and until they really decide that it's important to them they won't really take all the necessary -- and sometimes painful steps.

You've given them some important information about why you've chosen to go down this path but to help them make up their minds you might ask them some leading questions about what they want to do and how they want to live. FI is within reach, you just have to know you want it.

I agree with most of the other advice given. Specifically, I'd highlight in more detail the importance of an E-Fund (didn't really understand that until last year, and it's cost me) and the problems rampant consumerism can create. It's not that you like having used cars, but it's that there is such a high price to be paid for getting the "newest, latest shiny thing."

One other book I'd highly recommend is "The Wealthy Barber". Some people like it and some don't, but I think it's a nice starter and get's a good point across.

-Ben

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Author: edwinblaw Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 589 of 5084
Subject: Re: Letter to young couple (long) Date: 8/28/2003 1:31 PM
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It's a real pleasure to read the advice you gave to another youhg couple just starting out. Your progress is amazing, increasing net worth to $250,000 in 5 years at 29 would have dazzled Warren Buffet.

For several years I have believed the Gen x is the best thing that has happend to America since OUR parents. I am in the erroneously labeled "greatest generation." Our parents raised us (THEY were the GREATEST, WWI, stock market crash, depression and got us ready for WWII.) WE failed to do the same for our kids in many instances. We gave them whatever because we wanted them to like us ---Dr. Spock. My kids do like me ... why shouldn't they? they got everything they asked for. Their value system is not the same as mine - and - yours if I interpret correctly.

Stay the course, my grandkids are moving along right with you (although not quite so successfully.) God bless EBL

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Author: KennyO Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 602 of 5084
Subject: Re: Letter to young couple (long) Date: 8/30/2003 4:38 PM
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Good stuff there, Monica.
I'm 53 and my father died three months ago but not before we'd had many years of conversations about finances and the generations. Dad was a union carpenter who relied on his union pension and social security. He never saved heavily except for some predictable purpose (his house, our college) nor did he get involved in investing. Despite Mom's spendthrift ways, he carried nearly no debt beyond house and car payments. He made sure he had an emergency fund, construction being seasonal, so he and Mom eventually built a modest portfolio (< 100K). Definitely no FIRE there.
He was a teen through the depression and as an adult he and his friends made every effort to see that things would be easier for their kids. They succeeded and as a result we've never done without necessities. So if we haven't seen real down times our kids surely haven't either. We and they are generally complacent, not having experienced any pressing need for serious financial planning.
Dad knew I have no union pension to rely on, being an independent engineer and small business owner. He was surprised at how much I've been saving toward retirement but the downside he didn't grasp was that I'd waited so long (my late 30's early 40's) before getting serious about it. Much thanks to Dad's values I'm going to be fine and I'm going to (semi-) retire early.
I hope that couple subscribes to the meaning of your letter and doesn't read just the words.

KennyO

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