I was fortunate that my mother ingrained many lessons about Personal Finance into my head from an early age. From talking to many friends, family, and coworkers, I have found that these concepts and best practices are not always common knowledge. For example, I have overheard several people refer to the Dow Jones Industrial Average as the “biggest” 500 stocks in the market. When I explain that the Dow is actually composed of only 30 companies, they seem surprised. Knowing the Dow components won’t necessarily prepare you for (an early) retirement, but it illustrates that many people are not really familiar with terms that we hear all the time, let alone the details involved in creating and managing our Financial plans.
Education is not the learning of facts, but the training of the mind to think
ALBERT EINSTEIN
As we have found, our financial plans are not static and will need to evolve along the way. As Einstein is implying, we need to learn “how to fish” and develop skills to deal with unexpected factors that impact us. Our finances are “Personal”, so they do require that we invest time in ourselves to do what fits our needs and wants.
How well do people learn about Personal Finance and preparing for retirement? A recent poll on CreditCards.com shows that 37% get advice from friends and family, but younger generations (Gen Z) often turn to social media, although overall 2/3 don’t think that social media advice is trustworthy. Almost 1/3 get no financial advice at all, Yikes! This seems to align with the other data we have seen and how many Americans are not prepared for retirement or are not in sound financial standing. Unfortunately, Financial education level is skewed against lower income people, which may further exacerbate the inequalities of wealth.
The article is definitely worth a read and hopefully a wake-up call if you are not already in good shape in terms of managing money. The preference for social media shows that many (usually younger folks) prefer to get easily digestible information and not dig into text-heavy resources. This is where being a “nerd” helped me 🤓, because I enjoy getting into the details to some extent. However, I have watched many eyes glaze over when I start rambling about managing money. I get carried away and I’m sure a lot of the info does not get digested. Too bad I’m not on tik tok to make a personal finance video 🙂 .
When I recall the conversations with my mother, my eyes probably glazed over too. Many things did not make sense, or I didn’t really believe them at first. For example, she said that she and my father needed to earn $2 to buy something that was $1. When we started working and saw all the deductions from our paychecks in addition to the taxes on our home and cars, this became reality for us as well.
Another example was the power of compound interest. I could grasp the concept and appreciate that saving continually over a long period of time could add up to 1 million dollars or more, but in the back of my mind I wondered if this would really happen. Our nest egg is in decent health, but still working towards our goal of generating enough passive income to cover our (early) retirement expenses.
At a minimum (Beginner Level), we can all adhere to some basics (“save as much as you can as soon as you can for as long as you can“) and strive to achieve the Advanced Levels if our circumstances allow it!
Beginner Level:
- Put at least 10% into your retirement savings
- Spend less than you make
- Take care of your credit health
- Eliminate or minimize debt
Advanced Level:
- Max out your 401k contribution ($19,500 or $26,00 if 50 and older)
- Max out your IRA contribution ($6,000 or $7,000 if 50 and older, Traditional or Roth, use the back-door if necessary)
- Save in a taxable account to build passive income if you want to retire before age 59 1/2
- Eliminate debt
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| Disclaimer: I am not a financial planner and content on this site is meant to provide food for thought, not professional advice. I share my experiences to show what worked so far and what didn’t, YMMV. Please consult your financial advisor or tax professional as needed. |
