Did you or someone you know recently graduate from high school? Have you gotten so much advice your head will explode? Well, here’s some more in a list I’ll call Personal Finance 101 for College Freshman (but don’t replace this with an actual personal finance course… take one of those).
Month: June 2015
We live in an older house. (This term is used loosely in Alaska because we’re about twenty years behind on the housing trends. I swear they just stopped building split-levels a couple years ago.) Our lovely wood windows all have broken seals and heavy fog between the panes. We can’t see out of them. Also, they build up major condensation at the bottom. This means ice in the winter and mold in the summer. And only two windows still open. The rest are broken. This winter (it was a warm one, so no ice on the windows), I watched Lui walk around with moldy wood under his fingernails, I could only vaguely see Penny walking up the driveway from the bus through the foggy glass, and the house was super hot from having the oven on but I couldn’t crack the windows. I was done. Oh, and also, our front door doesn’t open in the winter because of the weather stripping and it’s hung weird. So, of course, when Penny got home, she couldn’t open the door. Grrr. Mr. T and I mentioned our need for new windows and a new door to several friends. One friend told us about the state’s home energy rebate program. (Always talk to friends about these things. It literally pays off!) Mr. T and I looked into it and had an energy auditor for the program come out to our house in February.
Mr. T’s work sends home a monthly retirement newsletter. I always read it cover to cover and find it hilarious. If you don’t know the basics of personal finance (you can’t think about early retirement without understanding some fundamentals), please don’t get your information from the company retirement newsletter. My first qualm with it is that it doesn’t ever move past the fundamentals of retirement investing. It doesn’t mention the possibilities. It makes all sorts of assumptions that aren’t hard and fast rules (retiring at 65, 8% interest, contributing the same percentage of income until retirement, etc.). But another issue with the newsletter is that it’s frightfully dull.
Let’s talk about compound interest. We’ll start with their assumptions (retiring at 65, 8% interest).
One boring day, Jim decided to start investing $100/month. Luckily, Jim was 25. What a smart guy. By the time Jim was 45, he had only put in a total of $24,000 but now he had $58,900. Stupid Larry forgot to invest any money at all until he was 45. Poor Larry. He decided to triple Jim’s $100 to catch up. He started investing $300/month. At 65, Larry had saved a total of $72,000 and had $176,706 with which to retire. Not bad. (Awful. It’s awful!). But what about Jim? He kept up that $100/month until he retired at 65. Over 40 years, Jim only had to put in $48,000 of his money. And at 65, he had $349,100. Moral of the story? Start investing now. $100 can go a long way.
The lesson is good. Remember that $100/month can mean nearly $350,000 in 30 years. But, there are so many things wrong with this story. First off, kudos to Jim on $100/month at 25. If everyone did that, the whole world would be rich. But at some point, Larry became way smarter than Jim because Jim was 45 and still only saving $100/month. Let’s jazz it up a bit. Cooler names. A better story. And less assumptions.
It is summer 2009, and Mr. T, Penny and I are waiting in line for three hours to get into a job fair in the Seattle area. We finally get inside and take a look around at our options: the military, Tupperware, Mary Kay. At this moment, we realize this is some strange, historic time through which we’re living. It was still way too early for anyone official to admit it was actually a recession, and “The Great Recession” didn’t become a thing until awhile later. But now, when you say “The Great Recession,” I’m right back in that job fair deciding whether to talk to Tupperware or head home for Penny’s nap.
You’ve heard rumors. “Alaska will pay you just to live there.” Maybe you’ve seen references to this. Well, I’m here to tell you, as an Alaskan, that it’s true. In Alaska, a PFD does not mean a life jacket (those we mainly just call “life jackets”). The PFD is the “Permanent Fund Dividend.” The Alaska Permanent Fund is an investment fund the state of Alaska voted to create in 1976 as the oil pipeline was just finishing up. The constitutional amendment created states: “At least 25 percent of all mineral lease rentals, royalties, royalty sales proceeds, federal mineral revenue-sharing payments and bonuses received by the state be placed in a permanent fund, the principal of which may only be used for income-producing investments.” Basically, the state of Alaska saw that with the oil pipeline about to open, oil would become a big deal financially to the state for awhile. So, they set up a fund in which they put 25% of all profits. And every year, the interest produced from the fund is divvied up between all investors: every Alaskan man, woman, and child.