Future You Needs You

Originally published in Mazing Magazine, Issue 6.

“What if I told you, you could buy a house in three years?” This question was posed by a professional financial advisor—and a fellow millennial—I spoke with about the topic of personal finance for young adults. I’d just finished telling him how in a place like San Diego, saving for homeownership in your twenties feels like a fool’s errand. A quaint little place with a backyard and kids seem decades away, almost as far as the abstract existence of retirement. 

This financial advisor and his organization can’t be disclosed for compliance reasons (basically so if anything goes awry, you have to sue me instead of them), so consider me your conduit to some free lessons in financial literacy. 

“Think of it as advocating for your older self.” Two major things I learned from my financial therapy/boot camp. One, that many of the millennials I know are so blinded by a deadly cocktail of instant gratification and entry level hopelessness that we have refused to think about ourselves when we’re forty, or fifty or seventy. And two, that our twenties are actually the best bet we have for making life easier on our future selves. We love to talk a big game on self-care. Well here it is: future you needs your care. 

The Head

“There are two ways to use money: to spend it, or to have it work for you.” Here’s something spooky for you. Your checking account and your savings account are actually losing you money. The rule of thumb for inflation is 3% per year, while you would be hard-pressed to find a savings account with more than a 2% return. Practically speaking, by the time you retire, $1 million now will only have the value of $300,000. That means your stowed-away money isn’t actually keeping up with the times. You are on a spinning hamster wheel of paycheck after paycheck ferreted away for rent and necessities, while your incrementally growing savings won’t even go as far in ten years as it will now. Yeesh.

But it doesn’t have to stay like that. Wealth building is finding a way to get the money you’ve saved to do the work of growing for you. That looks like investing—and the earlier the better. Making money work for you may have a little bit to do with savvy investment skills or working with the right people, but it has even more to do with time. For example, if you save $400 a month starting when you’re 25, you’ll hit $1 million by the time you’re 65. But if you delay that start time until you’re 30, you would have to save $800 a month (double!) just to hit the same mark. To put it simply, starting small over a longer period of time is more effective than doing more later.

The Tools

“Let the money do the heavy lifting for you.” Here’s where we get into the good stuff. Our advisor friend laid out some basic investing structure for you (ahem, me) to understand what we’re really talking about when we’re talking investments. Check the triangle:

At the bottom—lowest risk and lowest return—we’re looking at cash. That’s the money you have accessible right now—checking and savings, including CDs and money market accounts. Before you start investing, you’ll want to have 3-6 months worth of savings at the bank to cover your expenses in case anything goes wrong. 

Above that is a category called income. Think bonds: IOUs from the federal government, corporations or municipalities to whom you’re loaning your money. They promise to pay you back a little bit at a time with interest, banking on the fact that they can do more with your money than you can. You can count on this money coming back to you.

Next, growth and income. Think equity, which in layperson’s terms, is stocks. There are two ways to make money here: capital appreciation (selling the stock for more than you bought it for) and receiving dividends—incremental payback for your stocks’ progress.

Then, growth. These are higher risk stocks, often in investment companies that own other companies, that don’t pay in dividends. Only way out here is to bet on your bets and sell when you’re ready.

And finally, aggressive. Think of this as super high risk bets: investments into new oil, and higher dollar bets layered onto the outcomes of other investments. Probably not the place you want to start.

How much you’re willing to invest and into what level of risk depends on your goals. This will take a little introspection as you figure out what you really want. There will be a difference in your investment strategy and risk tolerance if your goal is to buy a house in three years versus to spend most of your seventies on Caribbean cruises. 

Once you have some goals carved out, you have no limit to the information and resources in your grasp. I hope I’m not the first person to tell you about the internet. Check out Mr. Money Mustache, Personal Cap, and Nerd Wallet for accessible financial help, and on a personal note, don’t be afraid to vocalize your goals. Putting words to your wants can give you social accountability, and allow you to start matching your behavior now to your money’s potential. A good breakdown for your after-tax income is the 50/30/20 rule: 50% of your money to needs, 30% to wants, and 20% to savings and investments.

The Heart

“Let’s maximize enjoyment in the present without endangering your future.” The scariest thing about this conversation is feeling too young to start talking about finance. Feeling like you finally have some money in your pocket after all those thankless work-study jobs in college, so why can’t you just enjoy it? Or like the mass of information and options is too overwhelming for you right now. Or your only financial goal is to get a better job, because owning a home or paying off loans is out of the question.

Believe me, I’m one of you. After digesting some revelatory information about investment structures, inflation and the like, I found myself asking, Ok but convince me. Give me something more compelling than drinks at a trendy bar, or a spontaneous long weekend in Tulum.

At the root of the problem with millennials, especially us creative-types, is the feeling that we know there are options for us financially—we know there are ways to save—but we just aren’t ready to pursue them. Consider this your call to get ready. You can do this. There are good things ahead of you. It’s not too early and it is not too late. Let your money pull your weight. Future you needs you—take care of them.