A new survey conducted for the AFL-CIO suggests many American workers under 35 can’t manage the basic financial building blocks of an adult life. The union calls the past 10 years a “lost decade” for these young people, during which many fell short on getting their own places, finding stable jobs and saving money for emergencies.

About 31% of survey respondents said they made enough money to pay their bills and set some money aside, but 70% said they did not have enough money saved to cover two months’ worth of living expenses. Parents of these young workers know how far they are from making it on their own; one-third are living with their folks.

I thought this quote was kind of funny:

…Jannon says the results should not be interpreted as laziness. “Young people are really yearning to move out on their own to start their adult lives,” she says. “(But) they can’t find the type of work that supports an adult life.”

I think part of the problem is that we often look at luxuries as necessities and don’t want to make the tough choices of prioritizing our needs and wants.

Lest you think I’m full of hot air, let me give you some examples of what my wife and I did in order to get ahead.

1. We bought a house we could AFFORD! We were told by the mortgage broker that we could “afford” a lot bigger note than what we wanted. But, we knew the math and how the note would affect our finances. We also knew that the mortgage broker’s commission was based on the size of our loan. We went with what we could afford.

2. We went YEARS without fixing up our house. We did little things along the way, but for the most part, we only spent money on things that HAD to be fixed like a new roof and plumbing. It was a couple of years before we even had money to start painting and stuff like that. We could have painted but we wanted to do more than that so we held off until we could afford to do what we wanted to do. We have been in our house ten years now and still aren’t completely finished making it the house we want. We’ll get there though.

3. We went without cable for years. We did have internet service but it was years before we decided to get cable.

4. We had barebones cellphone service for years. Just within the last year or so have we upgraded our cellphone service and plan.

5. We didn’t spend a lot on furniture until we made sure we could afford it.

6. We put away the maximum amount we could afford to put into the 401(k). When my wife first became eligible for the 401(k), we put in the maximum amount. We weren’t able to keep up that pace when our family started growing but we always put in enough to at least get the full match from her employer.

7. We didn’t buy fancy cars. We did buy a new Civic, a one-year old new Ford Contour, and a new Buick Rendezvous (in 2002 and I’m still driving it today). I see young people driving around in BMWs and big trucks and think about all that money they are just throwing away.

8. We racked up some stupid debt but we made an effort to pay it off as soon as possible. We sacrificed to get our credit cards and student loans paid off. Our only debt right now is our house and a Honda Civic note that will pay off in May.

9. We didn’t spend lots of money on clothes. We bought cheap stuff or we shopped end-of-season clearances.

10. We didn’t spend a lot on trips and stuff like that.

Now we are in a pretty good spot. Our monthly cashflow is nice and we are finding ourselves able to pay cash for nearly all of our purchases unless we take advantage of a 0% offer or something like that.

I think young people need to realize that they shouldn’t expect to have it all as soon as they graduate from college. Sure, we all want things, but that doesn’t mean we deserve them or should go out and get them even though we can’t afford them.

I’m not trying to preach. I’m just stating things as I see them.

Their list:

• Social work

• Special education

• Elementary education

• Home economics

• Music and dance

Okay, so they are low-paying. Big deal. As long as you know this information going in, you can make adjustments to your lifestyle expectations.

For starters, if you know that one of the above careers is for you, I wouldn’t be saddling myself with a lot of student loan debt. Going to college and choosing a career is a business decision and it makes no sense to saddle yourself with $60,000 or more in college debt in order to take a job that pays $30,000 per year.

You should also realize that you most likely will never be rich from working in those fields. In addition, you shouldn’t be trying to live like a rich person with an income from those fields. No fancy cars or expensive clothes for you. Living within your means (which includes putting money back for retirement as well as some savings) will require some sacrifice but if you love what you are doing, you’ll be able to accept that.

It’s not all bad though. I know several families in which both the husband and wife are teachers and they seem to do okay. It can be done.

According the author, Paul Facella, there are six benefits to starting in a low-level job:

1. Teaches you the ropes. In my opinion, there’s nothing worse than a manager who doesn’t know what things are like down in the trenches. I realize that not all managers can do every job, but there’s nothing wrong with experiencing what employees go through on the front lines. Those who start at the bottom and work their way up, have that advantage.

2. Hones your work style.

3. Refines relationship skills. This is very important. There’s nothing like trying to balance friendship with trying to move up the ladder. Some people will be offended by your desire to move up the ladder. That said, learning how to deal with people from all positions within the company will help you go far.

4. Creates opportunities.

5. Forms networks. Depending on your position and company, you will have the opportunity to meet lots of people and have lots of networking opportunities.

6. Reinforces humility. Yes, starting at the bottom can be very humbling. I know this is tiny in comparison to losing a good job and having to start over, but when I first moved to Texas, I took a second job at IHOP as a dishwasher/bus boy. I had a pretty good position of manager trainee with the grocery chain I worked for and found it quite humbling to go work as a bus boy at a restaurant and having to take orders from other people.

One thing the author points out, which is very important, is that it matters a lot who you work for:

“…before you take just any “starter job,” you should find out if this is a goal- and growth-oriented job, as opposed to a dead-end job. In your interview, it is perfectly fine to ask such questions as: What percentage of your mid- to senior-level managers are promoted from within? What programs and policies are set up for helping high-achieving employees develop new skills? Is mobility at this company limited, or could one apply for jobs elsewhere in the company for which one is qualified?”

In other words, it’s not enough to get a low-level job, work hard, and expect to move up automatically. You have to make sure the company you work for will be interested in promoting you.

NOTE: Paul Fracella wrote the book, Everything I Know About Business I Learned at McDonald’s*

*Affiliate Link

Wiley’s Little Book series is a wee bit confusing in that there’s The Little Book That Beats the Market*, which is a stock-picking book. Then, in the same series there’s John Bogle’s The Little Book of Common Sense Investing*, a book essentially about indexing or passive investing. So, you read one book and say, “That makes sense,” only to have that opinion challenged by the very next book in the series. If it’s confusing to me I can only imagine how confusing it might be to someone who might be new to investing and financial planning.

That’s why I was pleasantly surprised when received a copy of Jonathan’s The Little Book of Main Street Money*, which is much more of a book on the basics of financial planning and the bigger picture rather than just another book touting a particular investment strategy.

For those of you who may not be familiar with Jonathan. He was the author of the Getting Going column, which ran in the Wall Street Journal for something like 17 years. I interviewed Jonathan a couple of years ago (Part 1 and 2).

I asked Jonathan about his book and he said, “I’m biased, of course, but I think it’s easily my best book. The “Little Book” format really suited my writing style. It was like penning a series of columns, except—because it’s a book—I was able to draw tight connections between the different topics.” He also added, “Most personal-finance books are about money and only money. But as we all know, there’s a whole lot more to life than dollars and cents, and I endeavored to make that clear with my Little Book. Money is just a facilitator, a means to an end, and we need to think long and hard about how we save, spend and invest if we want a truly happy financial life.”

In The Little Book of Main Street Money* you’ll find 21 truths about money expressed in a no-nonsense, easy-to-read manner. Truths like:

• We can’t have it all – a basic law of economics that people tend to forget.

• No investment is risk-free

• Markets may be rational, but we aren’t

• Paying off debts could be our best bond investment.

Because it is a “Little Book,” each chapter is short. The entire book can almost be read in one sitting (unless you’re a slow reader like I am). The concepts in the book aren’t new but have clearly been ignored by lots of people as you can tell by watching the news or reading the newspaper. It’s time to get back to the basics and that is what Jonathan’s book is all about.

I think that’s why this is my favorite of the “Little Book” series so far.

Over the years I have grown to like and respect Jonathan for his honesty. I even interviewed him a couple years ago (Part 1 and Part 2). No, I didn’t always agree with what he had to say, but for the most part I thought he was right on the money.

Jonathan didn’t mention in his column why he’s leaving the Wall Street Journal. Whatever it is, I wish him the best. Now I’ll have to come up with a different Wednesday morning ritual.

I got the idea for this question from Jonathan Clement’s Getting Going column titled He Invests, She Invests: Who Gets the Better Returns? (free), in today’s Wall Street Journal. The column looked at the differences in the investment style of men and women. The main points:

1. Men typically take more risk and trade more often.

2. Women typically take less risk and trade less often.

According to the article, which sites a 2001 study, men turn over their portfolio 45% more each year than women. They attribute this turnover to men’s overconfidence. I’m not so sure about that. I would think it could be attributed to insecurity. In other words, men are looking for something better. I would think buying and holding would exemplify overconfidence. I guess it could go either way.

Anyway, I definitely take on more risk but I wouldn’t say that I trade often. I’m pretty much a buy and hold sort of guy. My wife could pretty much care less about investing. So, I would say that I make the investment decisions in our household. It works beautifully.

How about you? Who makes the investment decisions in your house? Do you both make them? If so, do you have obviously different investment styles and do these differences cause problems?

Today’s Getting Going column by Jonathan Clements is about how to stop your emotions from wrecking your returns (free). The article closes by offering a few strategies for keeping your emotions under control when things aren’t going so well in the market:

• If the market pluncges and you have an overwhelming urget to act, do something sensible. – Clements recommends sending a $100 check to your favorite mutual fund or rebalance your portfolio back to your target mix. I think this is solid advice. The main thing is to NOT make a rash decision!
• If you are tempted to make big portfolio changes, get a second opinion. – Or, start a blog and write about your feelings. Or even better, send me an email, which I’ll post and AFM readers will offer you some support.
• Automate your investing, so you keep buying stocks during rough markets. – I can’t tell you enough how important this point is. If you don’t put your investment plan on automatic, you’ll find yourself putting off mailing that check to your investment account until things settle down.
• Try the “restart” strategy suggested by Prof. Loewenstein (mentioned earlier in Jonathan’s article) – From the article:
  

  Take your existing savings and set them aside in a diversified portfolio, such as a target-date retirement fund. Thereafter, focus your energies on building a new portfolio.

  Your monthly savings will have a huge impact on this new account’s growth, so you will have a strong incentive to save. Your savings will likely also overwhelm any hit from a market decline. What if you make some foolish trades? Because you’re dealing with only a small portion of your wealth, you won’t do too much damage.

  I’m not so sure I like the last strategy. It seems like you’re giving in to your emotions. It’s also more work!

  That said, it is very important to keep your emotions under control. Your future depends on it.

Many dreams never become reality because they aren’t true desires. I might dream of winning the lottery on occassion, but that’s not a serious objective in my life. There’s nothing wrong with having dreams, but if your true desires never make the transition from dreams to goals then they can become frustrating regrets.

2. MAKE YOUR GOALS SMART
Goals are more Specific than dreams. To qualify as a SMART goal, your dream should also be measurable, attainable, realistic, and timely. Setting goals with all of these characteristics almost ensures you’ll reach them if you put your plan in action and stick to it.

Specific & Measurable: “I want to have $1,000,000 by the time I retire” and “I want to lose 20 pounds” are closer to goals than dreams because they are specific and measurable objectives.

Attainable & Timely: To really make them goals you have to outline specific steps that will enable you to attain them, and you should have a deadline. Our examples would become “I will accumulate $1,000,000 by the time I turn 65 by saving $1000 each month” and “I will lose 20 pounds in six months by jogging for 30 minutes 4 days a week.”

Realistic: Of course, if your goals aren’t realistic (because, say, you’re 63 with nothing saved and you earn $50,000 a year), then they aren’t really goals at all.

3. THE REAL KEY
It’s easy to turn your dreams into goals on paper. But the real key to acheiving those goals–and being satisfied when you do–is setting goals that reflect your true values. That may sound cheesy, but it’s especially true when it comes to financial goals.

If you pick some arbitrary net worth target or aim to accumulate expensive homes and cars based on someone else’s expectations, not only might you find it difficult to muster the motivation and discipline to get there, but you’re very unlikely to feel fulfilled when you arrive. Linking your financial goals to your values (education, family, independence, etc.) gives you the energy, encouragement, and motivation you need to work towards your goals. And you might even end up happy when you reach them.

More from Meg at The World of Wealth

Use index mutual funds for accounts you’re regularly adding to or drawing on, while stashing longer-term money in exchange-traded index funds. That combo should trim your investment costs — and further boost your fund returns.

This idea has merit because exchange-traded funds typically have lower management expenses than mutual funds. The only problem is that exchange-traded funds trade like stocks, which means there are transaction expenses. Of course there are ways to reduce transaction charges by using a low-cost broker like Scottrade. Scottrade charges $7 per trade but will only trade full shares. Another route you could go is to open a basic account with FOLIOfn, which run $199 per year but gives you 200 trades per month on a select list of companies. On a small account $199 per year is pretty steep but gets more reasonable as the size of the account increases.

Account size also weighs in with mutual funds as most mutual fund companies have account minimums. One way around this is to set up an account and do monthly direct deposits into the account. Then as the account grows more options will open up to you.

One thing I have always liked about ETFs is their simplicity and the ability to set up portfolios the way I want them set up. For instance, I like the ability to break down the Dow Jones Total Market Index into ten sectors and invest an equal amount in each sector. I can do this with iShares ETFs but not with mutual funds.

Anyway, it is something to think about. I like to look at index mutual funds and exchange-traded funds as tools. One tool may work perfect for one job but be totally useless for another job. It’s better to have a tool box full of tools.

The very poor and the poor are stuck in survival mode; they just want to survive. The primary goal of middle-class people is comfort; I just want to have enough; I just want to be comfortable. When you get into the rich and the very rich, their primary goal is freedom; I’m going to do whatever it takes to experience freedom. That’s the biggest difference.

It’s OK to have a plan for survival, it’s OK to have a plan for comfort, but just make sure that most of your mental energy is focused on freedom. Then you’ll start experientially understanding the old saying, “Seek and you will find.” If you seek to survive, you will. If you seek to be comfortable, you will be. But if you seek freedom, you will find it. It just takes longer to create freedom in your life than it does to create survival. Does it take longer to grow a weed or an oak tree? Financial freedom is like an oak tree, where survival or comfort is like growing a weed or a little bush; it doesn’t take too long.

This is a very interesting and important consideration. I agree that the poor are focused solely on survival and that the middle class is focused on comfort and a basic sense of security (”sense of” being the operative phrase). I also agree that those mindsets inherently limit financial and career potential of those people, as a group.

However, I’m not sure that all (or even most) of the poor and middle class can acheive financial freedom simply by “seeking” it. I strongly believe in individual responsibility and the American Dream, but the fact is that many people from those classes lack the education (formal or otherwise) and the ability to become a successful entrepreneur, which the article implies is really the only way to become financially free. Many also do not have the academic preparation, resources, or motivation to go to college, after which they could arguably obtain a decent-paying job.

Financial planners and “experts” love to look at people as individuals in a vaccuum. “Get educated!” “Save money!” “Start a business!” they preach, as though everyone is perfectly capable of doing such things but are somehow simply choosing not to. That advice may apply to many of us who typically read and write about finances–those who are already more or less financially comfortable. We grew up being told we can do and be anything we want. We were read to and educated constantly; we were taught how to handle and save money; we were expected to make good grades, go to college, and have a career (as opposed to a job).

It’s important to remember that millions of Americans never get that kind of education and guidance growing up. Many people never see or hear of a single positive financial role model. They are not expected or encouraged to become financially comfortable, much less “financially free.” Things like payday loans and savings jars (as opposed to accounts) are what they are used to–things like IRAs, savings bonds, and 529 plans are not even part of their vocabulary. And hearing about the tax breaks that a 401k has to offer is not going to change their reality or their financial situation. The poor and the middle class get their financial education from the same place the rich do–from friends and family. The difference is that their friends and family are more likely to be sorely mis-guided.

The point is not that there’s no hope for individuals from the poor and middle class to succeed. There are countless success stories (including all four of my grandparents). The point is that many of those people may need a different kind of financial advice and guidance. It’s not as simple as telling them to seek financial freedom.

More from Meg at The World of Wealth