This site is all about financial success, so it seems counter-intuitive to get into the habit of giving money away, doesn’t it? I mean, don’t we want as much as possible for ourselves so we can have plenty?

The truth is, financial success isn’t about hoarding money, it is about being free: free of debt, free of worry, freedom to go places and buy things. But financial success is also about freedom from money. If you take an attitude of hoarding every penny for yourself, you will become a slave to your job and your money because you are always trying to get more for yourself, and that isn’t healthy.

One way to guard against becoming a slave to your own money is to always be giving some of it away. Giving money away helps you keep the right perspective about money: it is a tool to do things. So, use it to do good things. Give some of it away to your favorite charity, a friend in need, your church, wherever. It doesn’t really matter where as long as you think that your money is going to a good cause.

It would be a loss to have a ton of money but to be controlled by it. Guard against that by always giving some away. I suggest setting aside about 10% for this purpose. We’ll talk more in the future about the benefits of giving, creative ways to give, and how to make sure your money is going to a worthy cause.

We will introduce Young Money Habit #8 on Monday and finish introducing the rest of the habits next week. Until Monday, enjoy the break from the Habits Series and read up on the weekend posts.

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This is the only of the twelve Young Money Habits that will require a certain amount of money before you can begin to apply it. Every single other habit is not affected by the size of your income, but simply instills behavior for financial success in life. That being said, if you start practicing Young Money Habit #5: Saving very soon, you will be able to apply this Habit of Investing in short time.

The reason to begin investing now is simple: retirement. If you ever want to retire, you are going to have to be able to pay for your own retirement. In the old days people would rely on company pensions and social security to pay for their retirement, but chances are those things won’t be in place for your retirement if you are in your twenties or younger (and even if social security is still around, it won’t pay enough to retire in style). So you are going to have to have enough money saved up by the time you retire that you will never run out of money.

However, if you save up your money only in a savings account or a CD (which pay 5% at best, most are in the 1%-3% range), your money will not grow fast enough to be able to retire on your own money. Investing in the stock market should yield at least 8% growth or more in the long-term. If you save $5,000 in a savings account at 3% interest, it will have grown to $16,310 in 40 years. But if you took that $5,000 and invested it in stocks returning 8%, it will have grown to a massive $108,622 in 40 years. Every year you wait to begin investing in retirement you lose out on time for your money to grow. When speaking of retirement investing your greatest asset is time. If you can begin to use all the years you have between now and retirement you will almost certainly be a millionaire.

Investing is actually fairly simple, but there is a good amount to learn before you start investing. We will talk about some of those things and outline various techniques you can use to make sure you are investing your money wisely. Until we start talking about some of those things, just start saving your money so you will have some to invest.

Next Post - Young Money Habit #7

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In order to begin down the road to financial success, you must begin saving a portion of all you earn now. I suggest 10% as a good starting place. Take 10% of every paycheck and put it into a saving account that is a hassle to withdraw from: that way, you will be less inclined to dip into it. If you are young, chances are you could save more than 10% of your income; saving 50-75% while you have no mortgage, no children, and no car payment will get you a huge step ahead on the road to financial success.

What will you do with all this money? Of course, there are lots of things to do. Some ideas:

• Just hold onto it. It’s always good to have a cushion for unexpected emergencies like car repairs or doctor bills. This kind of saving I’m talking about isn’t saving up for a Wii or a new car. Just keep some on hand for that rainy day.
• Invest. After you get a decent pile of cash it would be a perfect time to think about investing. We will talk a lot more about investing and how to go about it. For now, just start piling up some cash.
• Use it for a house down payment. When you are ready to buy your first house it you will want to be able to put 20% of the home price down as down payment. On a modest $100,000 house that would mean saving up at least $20,000. It’s never too early to start saving.

Most Americans don’t save money. As with most habits, when you get into the habit of not saving, it is very hard to break that habit, especially when you have a mortgage, car payment, kids, and other demanding expenses. This is a habit that you really need to get into while you are young, when you have a lot of discretionary spending.

With you next paycheck, start socking away at least 10% of your income, but push yourself to save as much as is feasibly possible.

Next Post - Young Money Habit #6

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If you are going to get into the habit of maintaining a budget, you will have to find some way to actually stick to it. A great way of doing that is to pay cash for everything. Credit cards can kill a budget because they make it easy (and tempting) to buy more things than you have the ability to pay for, which defeats the purpose of having a budget. Other kinds of credit should be avoided as well, and the reasons for this will become apparent over time.

There are four ways to pay cash for things:

• Auto-draft your checking account. This is a good way to pay for recurring monthly bills: insurance, utilities, other recurring payment. You don’t have to remember to pay, and if you are keeping a good budget the money will always be in the account.
• Check. For companies still in the stone-age that won’t draft your checking account or for payments you need to mail in, checks are the way to go.
• Actual cash. For pretty much all other expenses you should use actual cash bills. The reason for this is that many of these other expenses are usually discretionary: eating out, buying clothes, a trip to Starbucks, random purchases, etc. These purchases are where people who don’t budget spend way too much money (or for people who do budget, this is where they go over). The trick is to use cash for these categories in your budget so that you only have a certain amount of money at your disposal. If you spend all of your cash on hand to go out to eat every night then there won’t be any money left to pay for gas in your car. Cash forces you to take money from one budget category to pay for another instead of overpaying in multiple categories.
• Debit cards. You should keep a debit card only for emergencies. Between auto-drafting, checks, and cash you should be able to pay your usual monthly expenses. Debit cards come in handy if you need to reserve a hotel room, rental car, or buy something online. For the most part, however, they should be used sporadically.

I know that for most people this habit might not make a lot of sense, but give me some time and I will explain why this method of paying for cash is better for most people financially.

Up next: Young Money Habit #5

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Now we’re getting down to some of the typical personal finance topics, and budgeting is one of the most important of the Young Money Habits. If someone hired you to manage a business for him or her, would you just spend freely and hope the business was making a profit? Of course not, you would make a budget first. For some reason people think it is okay to manage personal finances without a budget, spending money on things they think they need and hoping there is money left over at the end of the month.

I wasn’t a big fan of budgets until I heard this (paraphrased) quote by Dave Ramsey: “Budgeting is telling your money where to go instead of wondering where it went.” Then it clicked. If you only have “X” number of dollars, the only way to make sure you have enough money to do what you need to do it tell it where to go before it is gone.

That’s what budgeting does. You make a list of all your expenses for a given period (usually a month), and assign a certain dollar amount to each category that is equal to your income. Then you spend only according to that budget.

Yes, budgeting takes time and effort, but it is worth it to avoid financial stress or running out of cash (or worse yet, going into debt needlessly). We’ll walk through some ways to go about budgeting and how to make that budget work. The next habit will help you immensely with budgeting, so check back tomorrow for Young Money Habit #4.

Next Post - Young Money Habit #4

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I hope to provide a weekly list of links pertaining to things that I think would be applicable to young people and their money. Below is the first edition:

Saving Money:

• Dedicated 2 Financial Freedom has a good idea for saving money on your utilities while simultaneously making you healthier.
• Joseph Sangl advises to save some cash by getting rid of your home telephone.
• Need a cheap date? Financial Learn has 15 ideas for you.
• Just need something to do? Here’s 15 free things to do by Money Under 30.
• College students are always broke. Here’s twelve ways you can save some cash in college from Clever Dude.
• Gas prices are shooting up. My Money Story gives some great tips for saving gas.

Random:

• The Wisdom Journal asks, “Which Presidential Candidate is Best for My Portfolio?”
• Just Ask Nicole points out that no matter your age, you can be an identity theft victim.
• Quest for Four Pillars writes about a new index fund from Vanguard. For those who want a truly diversified portfolio, this single fund provides it.
• Teens, are your expectations of how much money you will make out of college too high? Debt Advice Trust thinks they are.
• Need some cash? Money Shaker says to sell your hair.
• It’s tempting to try and save money by going without health insurance, even if it is just a few months. Get Rich or Die Trying decided to purchase temporary insurance for two months. Good decision, in my opinion.
• As a young person, chances are the world will be a lot different from today when you are 65 years old. Sushi Money takes a guess at Ten Themes of Change for Our Future.

If you are going adhere to Young Money Habit #1 and work hard, you also have to make sure and take time for yourself. It is easy for people who are driven towards financial success to fall into the trap of working yourself into oblivion, especially if you are young and single. Ingraining this habit of taking time for yourself will be very valuable when you make it out into the “real world.”

When you come out of college you will have a lot of time on your hands, you may move away from all your friends, and you will finally start making some decent money. All of these factors make it very tempting to spend 80+ hours a week working, and many “rich” people do just that. Check out this post at Five Cent Nickel: the average middle class millionaire works 70 hours a week.

But I believe that financial success is about more than having a lot of money; it is about being in control. Don’t let your job and desire for money control you. Instead, allow your money to serve you. Learn the things you like to do, friends you like to hang out with, hobbies you want to take up and make time for these things. Your life will be more complete if you take the time to play and pamper yourself in addition to working hard. We’ll look at various cost-effective ways to play in future posts, so stay tuned.

Tomorrow’s post will be related to some of the recent news stories related to personal finance. The next Young Money Habit post (#3) will be on Monday.

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The first habit that you need to begin to cultivate is a habit of working. My definition of working is doing something in order to receive something of monetary value (cash, goods, or services). Our economy works quite simply: work, get paid; don’t work, don’t get paid. To be financially successful, you must work.

The problem is that many young people tend not to work much before graduating high school or even college. Parents might pay for most of your expenses through high school and college and then all of a sudden you are expected to get a job and manage your own money and finances, which is quite a scary proposition.

If you can begin working at a very early age, you will learn many lessons:

• Money does not come easily. When parents are supporting you, it is easy to fall into the mindset that money will always be there because it is always there for your parents to give you. Besides the possibility that your parents might be in terrible debt, the fact is that your parents only have money to give you because they work hard for it. To learn early on that having money takes work will set you down the right path.
• How to manage money. After a little while of having an income, you will notice that if you spend all of your money on fast-food there is no money left over to put gas in your car, buy new clothes, or go to the movies with your friends. Soon you will begin budgeting your money so that you spend appropriate amounts on things that you need and want.
• When money is gone, you need to find new streams of income. Let’s say you did spend all your money on Chick-fil-a and you are broke. Not a penny left. What do you do? How will you pay for gas until your next paycheck? You’ll have to get creative. You could knock on neighbors doors asking to do odd-jobs, collect recyclable materials, try and get more hours where you work, have a garage sale, put stuff on ebay, or a whole host of other options.

I hear your objections already:

• “I’m too young to work! It’s illegal for me!”
• “I’m too busy to work! I’ve got sports, class, volunteering, and homework. When will I have time to work?”
• “My degree plan is too demanding to work. I spend all my free time studying and preparing for classes. There’s no way to fit in any time for a job.”

I have a solution for those of you who think you can’t work for whatever reason. There will be a post in the future outlining some options for those of you in these situations. Until then, start thinking about possible ways to earn an income if you aren’t already. The habit of working is vital to financial success.

Next Post: Young Money Habit #2

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For the next twelve days I will unveil what I believe to be the 12 habits necessary to become financially successful that will become the foundation for this site. But before I do I wanted to make a more philosophical post about these habits.

Some of these twelve habits aren’t directly related to personal finance, and that is on purpose. I believe that life is about more than having lots of money. Life is about peace, joy, and contentment, among other things. Being financially successful will help put you in a position to experience those things, but it isn’t those things. So, some of these habits are aimed at simply succeeding at life in general.

But secondly, some of these other habits do have a direct, “bottom-line” impact on the actual money you spend or take in, and those effects will be highlighted as well. There are lots of things people don’t think about when they understand wealth as simply making a lot of money or having a million dollars in the bank. But if you can look at the big-picture, you will see that there are tons of other things in your life that impact your finances. We will work through a lot of these things together through these twelve habits.

I want to admit up front: some of these habits I’m not so good at but am working towards. So if some of these are your area of expertise, make appropriate comments on the site or contact me if you would like to make a guest post. Together we can work towards a comprehensive approach to personal finance.

Next Post - The First Young Money Habit

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This site is called Young Money Habits and targeted specifically at young people for a few reasons:

• I believe building wealth is about behavior, not complicated math or complex investment techniques. So, the key is to change our behavior in such a way that to build wealth is simply a habit, a way-of-life, second nature. This site will inform you of these habits and provide a community of people trying to develop these habits with you.
• 11 of the 12 habits are applicable no matter your income. Even if you get a $10 allowance from your parents or make $100,000 a year, you can practice these habits. Get them ingrained in your life now and you will reap the benefits later. There is one habit that requires you to actually have a decent pile of cash, and we’ll discuss that when we get there.
• Solid money habits are simple to understand; the difficult part comes in putting them into practice. Hopefully this blog will become a daily reminder to put these habits into practice now and to keep them up. Having a community of like-minded people also helps us galvanize our goals and work towards them together. It’s always better if you don’t have to go at something alone.
• Time is your friend. If you establish sound financial habits at a young age, you are almost 100% guaranteed to be financially successful. You can allow the magic of compound interest and lifelong wealth-building habits to work for you over time instead of trying to play catch-up when you realize you are fifty years old and broke.

I decided to target this site toward those of you who stand to benefit the most: young people. It’s hard to build wealth if you wait until you are in your forties. Building wealth really begins in your teens and twenties.

Next post - Young Money Habits: A Comprehensive Approach to Personal Finance

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