Archives For Generation Y

Most “retire with one million dollars” articles focus on slow and steady savings over the course of decades. That works of course, and saving regularly is a great habit to get in no matter how much money you have.

But if you’re young enough, with some concerted effort you can save for only ONE year, never save another dime, and still retire with a million dollars. This Motely Fool article explains.

It all comes down to the power of compounding. Let’s say you’re 26 years old, you start with $0, and somehow you manage to invest $20,500 that year (not so coincidentally the same amount it takes to max an IRA and a 401k in 2008). If you never save another dime after that, you can retire at 67 with over $1M if you can achieve annual returns of 10%.

As daunting as it sounds, coming up with $20,500 in one year is not impossible for many 26 year olds. Maybe you live at home after graduation and save most of your salary; maybe you receive a small inheritance; maybe you even have a high paying job and decide to just save half your salary and continue living like a student. The beauty of it is, it’s a one year committment – you don’t have to do it year in and year out forever.

And the longer you wait, the harder the one year challenge would be. If you wait until you’re 30, you’ll have to come up with $30,000 in one year.

Of course you don’t have to do it all in one year (though it’s kind of an exciting concept, isn’t it?). If you can manage to have invested $30,000 by the time you are 30 years old, you can quit saving for retirement and hit 67 a millionaire. That means if you start saving at age 20 you only need put away $2,000 a year for 10 years (earning 10% a year) – and then you’re done. You’ll have $37,000 at age 30 which will grow into $1.3MM in 37 years.

I must point out that $1MM several decades from now will not buy nearly as much as it does today. Still, it’s a nice round number to shoot for. And once you’re in the habit of saving that much I doubt anyone would really be able to stop. If that 20 yr old kept investing $2,000 a year rather than stopping at age 30, she would have $2MM at 67. And if she increased her contributions with inflation (putting in $2,060 in year two, 2,121 in year three, etc) then she’d end up with almost $3MM.

[Note: invest in index funds to minimize fees and within retirement accounts to minimize taxes, and you’ll be even farther ahead!]

More from Meg at The World of Wealth

NOTE: The reader-submitted question of the day will begin tomorrow morning.

Should Parents Bail Out Their Kids?

That is the title of Liz Pulliam Weston’s article over on MSN Money.

I can’t remember a time when I ever “bailed out” financially by my parents. Sure, they helped me from time-to-time and my wife’s parents helped us with groceries and stuff when my wife and I were in college but nobody bailed us out. Why? Because my wife and I knew our place. In other words, we didn’t go out and buy things we couldn’t afford. We were responsible for ourselves.

Normally I agree with Liz but her excuses for why today’s kids get into trouble bother me. Check this out:

Most baby boomers had the economic winds at their backs. They graduated into decent job markets and enjoyed strong appreciation of their homes and (for the most part) stock portfolios.

Today’s graduates, by contrast, are a bit more behind the eight ball:

  • A rapidly decelerating economy means college graduates are facing the worst job market in several years.
  • Instead of getting free money in the form of grants to pay for college, they’re taking out student loans — an average of about $20,000 at last count, an amount that’s nearly doubled since the mid-1990s.
  • And then there’s the demon credit card, pushed on college campuses today with a vigor unheard of a generation ago. The majority of students now have credit cards, according to studies by student lender Nellie Mae. The average balance was $2,864 for college seniors in 2004 and $8,612 for graduate students in 2006, the latest years for which statistics are available.

Excuses, excuses. Tell me, what generation hasn’t had obstacles to overcome? Didn’t the Baby Boom generation graduate from college into the inflation-ridden 70s?

I think the root of the problem lies in the fact that today’s kids think they deserve everything right off the bat. There’s no working and saving up for things. At least that’s my perception of today’s society. Maybe I’m wrong and maybe I’m being harsh but I think today’s kids need to figure out that everything costs money and that they are going to have to prioritize their finances and make decisions accordingly.

Our kids are still young so it’s tough to say how my wife and I will treat them when they are adults. I’m hoping that they will have a good understanding of their responsibilities when they leave home. I can tell you that if they were to ever come back home after leaving, rent will be due. Hopefully it won’t ever get to that point.

What are your thoughts?

Americans at Work

April 14, 2008

I am sitting at my desk at work right now, clearly not engaged in productive activity for my employer. I don’t have any pressing deadlines, but there are certainly customers I could be calling, things I could be processing ahead of time, and skills I could be learning that would help me do my job better.

Instead I’m writing this.

I have a friend who really busts his hump all day long every day for his employer. He just got this new sales job, so he’s really trying to impress. He’s constantly reaching out to refereral sources. He sets up at least 1 meeting a day with a potential client. He’s learning quickly, he’s always polite and helpful, and he’s already initiated over 20 new deals in 6 weeks – they expected him to do 10 in his first 90 days.

Interestingly, this friend told me he was thinking of strategically slowing it down, in order to avoid setting the bar to high with his new employer. But in reality I know he won’t do that; he takes pride in his reputation, which is clearly tied to his production at work. That’s the beauty (and scariness, to me) of sales.

I just read the following article by Ben Stein on Yahoo! Finance: Want To Survive the Recession? Work it Out. Ben uses some personal anecdotes to point out that many American workers (specifically young ones) just don’t care about doing their jobs well. He asserts that despite the idea of workers begging for jobs that the media perpetuates, in reality it’s employers that are begging for qualified workers.

Why? Well, because many of us have never had to struggle at work. Those in my generation – myself included – have never faced a tough (or nonexistant) job market, a deep recession, or even a job loss. On top of that, many if not most jobs today are such that it’s easy to slide by without really trying your best or working your hardest. No one will notice if you’re online shopping instead of working on that power point for an hour or two. Sure you may only get “meets expectations” at your next review as opposed to “exceeds expectations,” but that is likely the extent of the consequences.

The difficult thing for all involved is that some of the best workers aren’t even noticed by their employers in certain industries. Secretaries are often more vital to the company and to the client relationship than the highly paid people they support, in my experience. But they seldom get the bonuses, the glory, even the thanks. Customer service reps aren’t going to get paid more or even recognized for being polite to you on the phone. Only if you are physically producing something might you get recognized for finishing ahead of schedule; or if you are selling something your boss will notice if you exceed your quota.

Ben closes with a quote that I’d like to echo: “I wish every worker in America had to be a freelancer at selling or writing or painting or carpentry or computer repair or law or something for two years. I wish Americans could have a period in their lives when they only got paid for what they sold and produced. It would do this country world of good.”

I know it would do me a world of good; what about you?

More from Meg at The World of Wealth

It’s overwhelming (and a little bit scary) when you think about the sheer volume of dollars a young person today needs to accumulate to maintain our current standard of living all the way through retirement (especially considering we’ll all probably live to be at least 125 by then – which I actually read in Time a year or so ago).

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Loving Your Job Is Overrated

January 11, 2008

The message that you can and should be wildly passionate about and totally fulfilled by your career can unintentionally promote impatience, entitlement, poor work ethic, chronic dissatisfaction, frustration, and even depression. Plus it causes huge amounts of stress.

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Do You Know How To Work?

November 26, 2007

Ben’s basic message is that “while almost everyone I know went to college, very few learned how to actually work — i.e., how to give an honest day’s labor for a paycheck.”

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My first impression of Gen Y after reading Attracting the Twentysomething Worker in Fortune, is that they are bit pompous and arrogant. Now I realize that not all Gen Yers are like this. That’s just the impression I got from reading the article. In fact, the cover of this particular issue of Fortune has a picture of a guy and a girl and the caption:

“Manage” US? PUH-LEEZE…

One thing that really stood out to me was the story about Joshua Butler, an audit associate with KPMG:

With his broad networker’s smile, stiff white collar, and polished onyx cuff links, Joshua Butler has the accouterments of an accountant. Even so, he looks a little out of place in a KPMG conference room. At 22, he’s 6-foot-2 and 230 pounds, with a body made for gladiator movies. A native of suburban Washington, D.C., Butler chose accounting after graduating from Howard University because he wanted “transferable skills.”

At KPMG he’s getting them – and more: The firm has let him arrange his schedule to train for a bodybuilding competition, and he’s on its tennis team. Even before that, KPMG got his attention when it agreed to move him to New York, his chosen city. “It made me say, ‘You know what? This firm has shown a commitment to me. Let me in turn show some commitment to the firm.'” He pauses, a twinkle in his eye. “So this is a merger, if you will – Josh and KPMG.”

It’s the last line that really gets to me: “So this is a merger, if you will – Josh and KPMG.” Nothing arrogant about that!

Finally, the other thing I thought was funny was the article mentions Jason Ryan Dorsey, who wrote the book Graduate to Your Perfect Job even though he dropped out of college to write the book and didn’t have a job! That would be like me writing a book on how to manage a restaurant even though I have never managed a restaurant.

All that said, it isn’t my aim to make fun of a generation. Each generation has their strong points. I just don’t understand why companies are bending over backwards to treat these kids like royalty (read the article and you’ll see what I mean). If they (Generation Y) get hungry enough, they’ll work.