The Absolute Worst Financial Advice for a 20-Something [My Fight Against Foolish Money Managers]

I’ve talked before about how hard it is to know when you are getting the right financial advice.

Well folks, things have hit an all-time wrong.Lately, pop culture blogs have been chiming in as financial advisors to the young and naive among us. The Elite Daily published an article entitled "If You Have Savings In Your 20’s, You’re Doing Something Wrong" that basically borders on personal financial malpractice.

Worst Financial Advice

I had a professor in college that said his mission in life was to quote: “Stamp Out Ignorance.” Well today i’m with you, Dr. Gillen. While i will not link to the article here, or attack the writer personally (as many have already done), i don't want to let my flock go astray, so i will take this opportunity to stamp out the ignorance of this article.Below - in bold - are a few excerpts from the Elite Daily article. I will address each individually, and help redirect the thought to something that will be a bit more beneficial for us all.

"But like most things our parents have ingrained in us, we must consciously work to push it out...They want us to save because it provides us with a safety net, but that’s exactly why we shouldn’t. Their need for us to have a safety net is just a giant metaphor for the difference between our parent’s generation and ours."

I reiterate frequently how different our generation is from that of our fathers. However, the difference doesn’t explain away the need to act responsibly with our money and be good stewards of our lives.Let’s not be silly. While we are drastically different in our approach to life, there are still many common fundamentals that transcend generations.As 20-somethings, we want to live a rich life. While that doesn’t necessarily being rich, it does mean that we have a healthy balance of spontaneity/adventure and responsibility/planning. Life will happen and emergencies will come up, so having a “safety net” is never a bad thing.

"When you have something to bank on, you have nothing to reach for. When you have nothing to lose, you have everything to gain."

While this sounds cute and dangerous like something out of Hollywood, it’s no doubt a piss-in-the-wind approach. I’m sure we’ve all heard the self-made success stories where a family man started a business on his last dime, and now lives in a house on the hill with the high school football stadium named after him.While that may work for about 0.0000011% of us, proven entrepreneurial practice doesn’t say “go all in” on everything. Quite the opposite, in fact.Peter Sim’s discussed in his book Little Bets that it’s often the small discoveries that turn into revolutionary advances. Take a few small companies like Google, Twitter, Dropbox, or Pixar for example. Yes that was a joke. These guys all started small without a great idea, but ended up discovering one by making “Little Bets” in the market. Not by “going for broke” and living on the street.I’ll say it simply: With savings comes margin, and with margin comes opportunity. Don’t miss opportunities in your future because you don’t have the financial margin to change jobs, take a sabbatical, or move to a new place.

"When you care about your 401k, your life is just “k”. When you’re 40, you’re not going to look back on your 20s and be grateful for the few thousand you saved."

What the writer is not taking into account here is the fact that your money multiplies over time, and the earlier you put the money in, the more time it has to compound. The following chart shows how your savings trajectory changes as you age.

Worst Financial Advice

It is interesting that to save $1 million by age 65, you only have to save $2/day if you start when you are 20 years old. But if you wait till your 40’s, you’ll have to save a smooth $38/per day to reach the same target.That speaks for itself, and completely debunks the entire Elite Daily piece. Gavel Slams. Goodnight.

Moral of the story

  • If you have no savings, don’t be discouraged. It’s not unnatural to not have a fat savings account when your younger. There is time to make up for lost time. However, i would discourage blowing money just to “live it up” while your young if you could be saving your $2 or more per day towards your future.
  • Enjoy your life, but don’t get crazy. Find your balance between whimsy and responsibility
  • Please be aware of what you are listening to when it comes to financial advice. I have a few people that i trust to provide sound insight, and i basically chalk the rest of the babble up to noise. If you’re not sure about something specific, ask for a second or third opinion!

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