The following are fictional narratives of many of the character traits, decisions, and habits that either my wife or I have exhibited, or those observed or communicated by readers of this website. Let’s examine together some of the many common scenarios where young people set the ball rolling on a path to destroying their finances.
Disclaimer: Discussing Finances is Hard
Before we get going, I’m going to go ahead and assume that somewhere in the words and scenarios described below is something offensive. To avoid getting off on the wrong foot, I do realize that personal finance is indeed personal. If you have the means and you feel confident and secure in your finances, then you can be largely dismissive of some of the scenarios described below. I understand that.
Come on in for a bear hug.
If, however, you are keen on either getting out of debt or pushing the plus side of zero, then examine closely any reactions to the following stories. Narratives provoking strong emotions could possibly be the areas where improvement can be most pronounced for your finances.
And finally, as usual, I also realize that not everyone in financial distress finds themselves there as a result of poor decisions. But enough do to warrant these stories, because people tell me so.
Let’s begin…
The College Major
Kelly is incredibly passionate about dance. The curated, artistic movement is something that’s drawn her since her early childhood days.
When in her final year of high school and planning for college, Kelly comes to the obvious conclusion that she will pursue what she truly loves in college. And that love is dance.
By her sophomore year of college, it becomes increasingly clear that a career in dancing is far-fetched and incredibly competitive, but perhaps dance education could be more promising. By junior year, that too seems like a stretch.
Kelly takes an about-face, and starts amassing credits outside of her program as quickly as possible, aiming for a minor in mathematics. Two years later she graduates with a double major in dance education and mathematics, but the cost of three years of training towards a passionate pursuit, and the extra years correcting course, carries a $70,000 price tag.
(Related Post: Chasing Your Dreams is Probably a Bad Idea)
Credit Cards are Free Money
John has just graduated from college and has moved to Portland, OR to pursue his career. Portland, a hip city known for its loving embrace of the bicycle, seems like a great place to finally get in shape and take a more earth-friendly approach to commuting.
The problem is that John doesn’t have a bike. And John also has $200 to his name. With a bike in mind that will cost $800, John decides to open his first credit card.
John knows the dangers of consumer debt, but he thinks this will be a one-time expenditure. And of course, once the paychecks start coming in, the bike will be easily paid off.
However, once John gets the taste of buying something on the promise of future earnings, other purchases follow. The bike is nice, but his apartment sure seems bare. Perhaps a new couch, a custom kitchen table, a handful of new outfits, three concert tickets, and a few nice dinners seem reasonable.
After all, John deserves it for all his hard work.
Each month, he pays the minimum $25 payment.
“There’s No Time” Spending and Finances
Stacy jolts awake. She’s chosen the sound of a nuclear reactor for her alarm. Those peaceful chimes do nothing for her.
She throws down the hammer on the snooze button. The process is repeated two more times.
Rushing out the door, she curses as she struggles to find her keys. F! I hope I have time for coffee!
Tires squeal as Stacy rounds the corner to the drive-thru line at Starbucks, coming to an abrupt stop far from the ordering kiosk. She can’t believe the line at this place! Where did all these people come from?? Eventually at the microphone she barks an order for a venti latte and a gruyere and ham croissant sandwich.
By 10:00 am, Stacy is hungry again. She heads downstairs to the small convenience store located in a quiet corner of her office building. There she buys a package of pre-peeled hard-boiled eggs vacuum sealed in their own jus to hold her over until lunch.
Noon comes, signaling a habitual instinct to eat. Stacy roams the halls to see who’s around for getting some food. She finds two of her co-workers, and they head over to a nice downtown café that charges a reasonable price for a salad. Stacy eats half of her salad, kindly refuses a to-go box, and pays her $14 bill. As the busboy shoves her half-eaten chicken into his underappreciated mouth, Stacy thinks to herself, Ugh, the last thing I feel like doing is going back to work.
Stacy works until 6:30 pm. The day just seems to have gotten away from her. Exhausted, she calls in an order from her favorite neighborhood restaurant on Uber Eats.
After all, it’s a small price to pay for convenience.
(Related Post: On Deprivation: Food)
(Related Post: There’s No Time to Save Money)
FOMO Spending and Finances
Chris unzips his tent as the morning sun forces his hand. Struggling to hold back a fire hose, he does a deep lunge to duck between the entrance zipper as his dog rushes to beat him to the outdoors. He is stiff and achy from another night spent on a crappy half-inch Therm-a-Rest mattress. Chris shivers as he empties his bladder onto a shrub, steam rising from the concoction of cold morning dew and ninety-eight-degree urine.
Across the meadow, the morning light is shining brilliantly on a trio of tall vans, two of them white and one a deep navy. The reflection off the rooftop solar panels is nearly blinding.
An hour later the occupants of the van begin to emerge with the clicking and cranking of sliding doors. They look refreshed.
Chris, with a tinge of jealousy, shrugs it off. After all, this is a short climbing trip, and one of maybe two or three in a year. The tent kinda sucks, but the cost of a van certainly isn’t justified for maybe fifteen days a year spent camping.
Two nights later, a hail storm blows in unexpectedly. Chris and his partner, halfway through cooking dinner on their unprotected camp stove, curse and shout loudly as they try and salvage their meal, grab the dog, and dive into their small, cramped sedan for cover. They watch in horror through foggy windows as a stiff westerly wind rips a corner of Chris’s tent rain fly loose, and then another. In minutes, his tent and all its contents are soaked.
Back at home two days later, Chris opens his laptop. On the keyboard he types, “payment plans for Sprinter van.”
(Related Post: Van Life: The Economics and Trade-Offs)
Instant Gratification and Poor Finances
Rachel works for pennies at a local non-profit. She has friends from high school and college who have gone on to other high-paying jobs: lawyers, doctors, and corporate whatevers. Good for them, but they sold their souls for a paycheck.
Rachel barely makes rent each month on a 30 hour-per-week work schedule. The work is important, but she’s left mentally exhausted each day and building any sort of savings is a joke.
On the occasional loans from her well-meaning parents, she’s able to—with great guilt, mind you—purchase some groceries. In the cart she throws the essentials: bread, vegetables, free-range chicken, and a $17.99 bottle of Bordeaux.
She’s also able to find the margin for weekly brewery visits, take-out food, and she’s got her sights set on a new car. This one will take some crafty messaging, but how else can she be expected to get to work?
I’d buy all these things myself, if only my job paid more.
Not Investing
Sarah is frugal, and some might even call her cheap.
With a job that pays reasonably well, Sarah is able to live well within her means. As one year turns to two, and two to four, Sarah’s checking account grows larger and larger.
As her account continues to grow like a neglected backyard zucchini, she still feels very little pressure to spend it. After all, she loves the feeling of knowing her finances are secure.
At 10:00 am on a Tuesday, her co-worker Alan is bullshitting casually before a meeting begins.
I’m telling you man; I’m crushing it with this bitcoin investment. You guys have GOT to get in on this! CRUSHING IT!
Another co-worker, Adam, smiles politely as he slouches in his chair. Ahh, ok, Alan. I’m all about investing but that sounds dodgy, huh?
Sarah generally finds Alan to be an idiot, and so she once again shrugs off his suggestion as idiotic. Even Adam, who she respects, has got to be off on this one.
Sarah’s uncle lost most of his retirement savings in the 2008 financial crisis. There’s no way she’s investing in the stock market.
(Related Post: Personal Finance: Not Very Sexy, Huh?)
Investing Poorly
Alan is psyched. Generally.
When he’s working in his office and hears laughter down the hall, his head pops up like a meerkat scanning the office landscape for the next social interaction.
Digging his heels in the office carpet, Alan rolls his chair back and nearly trips over an extension cord in violation of fire code, rushing wide-eyed to get in on what undoubtedly must be a fantastic conversation.
Oh, that’s right. We have a meeting at 10:00.
Alan loves the idea of the rock star, the classic pursuit of fast cars, fast women, and a work-hard, play-hard office culture. Memories of beer-soaked golf cart rides, gut-laughs, and late-night cigar lounges are times of greatness. He loves knowing all the dirty secrets of the salesman waiting in the lobby. He’s seen what happens when that guy gets red-faced with a few too many cocktails. It’s a small world in this town, after all.
In a handful of these after-hours events, there’s discussion of bitcoin and other red-hot investments.
Have you seen what’s going on with bitcoin?! It’s the future of money, man!
Sure enough, Alan bought in and has doubled his money! This is so easy, and the rush of winning is addictive.
Alan breaks the pre-meeting awkwardness by saying out loud, with a smug little smile, what is stirring in his mind…
I’m telling you man; I’m crushing it with this bitcoin investment. You guys have GOT to get in on this! CRUSHING IT!
The Over-Thinker
Jeremy is doing really well. He and his wife have been able to hit a savings rate of 50% for the last three years. Instead of kicking moderate ass, Jeremy, at his wife’s request, even started investing their savings a year ago, kicking their finances into high gear.
Around Christmas, Jeremy logs into his investment accounts to see that his deposits have yielded a 27% year-over-year return.
Holy shit man! I did nothing and I made $18,000!
But things have been feeling off lately. In his calculation, substantiated by all the headlines, it seems we are due for a recession. Stocks are raging, which feels like some sort of a bubble. Everyone keeps saying it.
Recession.
The stock market is going to crash.
Recession.
Seriously, with all this and that in the world, I think it’s maybe a good time to get out of the market until things cool down.
And sure enough, with the breaking global news, stocks react. The first day is a sharp drop of 2.6%. And then Wednesday, with more bad news, stocks fall another 3.1%. After a brief rebound on Thursday, Friday’s headlines leave the stock market reeling. The S&P 500 closes down a whopping 5.3%!
That’s it. This is the big one. There’s no way I’m investing in this market!
Stocks are sold, and Jeremy warms himself in the electric wool blanket of cash amidst the cold, dry winter of stock volatility.
But come spring, things are looking good. Stocks have been returning day-after-day of 1-2% gains. But things still don’t feel right. The market fundamentals aren’t there. The economy is still in trouble.
Nope. I’m waiting this out.
Days turn to months, and Jeremy can no longer take watching the stock tickers on their relentless climb. Fearing missing out on even more, Jeremy buys back in somewhere close to previous highs, and well above his sell-off point.
And then…
Breaking News: Something Shitty and Unexpected!
(Related Post: You Know a Recession is Coming, Right)
(Related Post: I have Cash! Is Now a Bad Time to Invest?)
Dilemmas and Recommendations for Your Finances
Phew, how did that go?
Some of our story is baked into these narratives. Some are my observations, and some are damn-near verbatim accounts from readers of this website.
And this is all so incredibly common. I’d be surprised if anyone reading this post hasn’t exhibited one or many of these behaviors with their finances. I certainly have.
Struggling to Save?
Stories like this are why Americans are poor savers compared to those in other developed countries. It hurts to write it, but it’s true. There are undoubtedly structural and societal problems that keep well-meaning folks where they are. And those same structural and societal problems elevate and prop those who do very little to find prosperity.
But perhaps most importantly, there’s a lack of education that gives way to mindless comparison spending seen across society, from the top down. So, when we find ourselves in dire financial straits can we honestly say we did our best? Sometimes the answer is yes, but far too often the answer is no. It’s a hard truth that we as a society don’t want to admit.
This sort of thing inspired this post: Do You Deserve a Life You Can’t Afford?
Track Spending for 1-3 Months
If you struggle with spending, track your spending.
Dig deep for meaning and value on the purchases you make. Are those expenses improving your life without consequence? Keep them! If not, look to eliminate those burdens.
Your primary goal is to define, and eventually increase, your all-mighty savings rate. If you can get your savings rate to 50% and higher—and then invest those savings—it is likely that finances will soon be a distant concern.
Focus on Income
Spending less is incredibly important, but there is a point of diminishing returns, as we’ve found for ourselves.
Is now the best time in life for the meaningful job that pays a poverty-level wage? Have you negotiated for a higher salary? Have you considered the coveted side-hustle? More on increasing income here.
Struggling with Staying Safe with Your Finances?
However, the flipside of the coin are the folks who are natural savers, but aren’t educated in how to put their money to work. That was certainly Mrs. CC and me.
The good news for you folks is that your journey will be an even easier one. Check out the excellent Stock Series by JL Collins.
Invest in Broad-Based and Low-Cost Index Funds
So as to not recreate the wheel, I’d check out the JL Collins series or our own investing strategy described here and here. Hint: they are very similar and very simple.
Struggling with Sticking to the Plan?
Some folks have to be tinkering. Or they can’t pass on the excitement of a red-hot stock or new investment opportunity. Or worst of all, they try and change plans during a crisis.
I admittedly have mixed feelings here. Obviously big things have come from individual investors who stuck out their neck and took a risk. Products and companies have been created that changed the world in beautiful ways thanks to the contribution of individual investors. However, betting big on a single product, company, or even industry can destroy your finances.
Have a Plan and Stick to It
If you have to play, then play. Keep a percentage of your total net worth, ideally 5% or less, for less tried-and-true passive investments.
If you struggled psychologically through the downturn earlier this year, or you think you might as a new investor, I’d take a hard look at your investment allocation. If you don’t like the wild ride, it’s probably not advisable for you to go 100% stocks. That said, an investment portfolio without at least 50% stocks is going to significantly lag the market as a whole, hamstringing your ability to reach financial independence (if that’s a goal).
(Related Post: Market Timing: Why It (Still) Doesn’t Work)
(Related Post: The Shocking Headlines of the 2008 Financial Crisis)
We’re in our mid-30s and presumably have a lot of life left to live. We’re 95% stocks and happily enjoy saddling the mustang. Almost whole-hog, baby! Face meat and all.
But once you are in the saddle, your only job is to hang on tight.
Giddy-up.
Summary
Once again, I 100% realize that personal finance is indeed personal. However, just a pinch of intentionality can lead to unimaginable positive change. I’m serious.
Examine some of the narratives above, and give consideration to the financial leak-points in your life. Take action where it is warranted, and begin to live better today. All good things come with effort and patience.
Remember, the best laid plans mean nothing if you can’t take action today. Have questions? Need some feedback? Hit us up on the Contact page.
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Thanks guys, see you next week.