Hope for Japan

Two years ago my niece graduated high school and I wrote down some advice for her in a letter. This week, my nephew will be finishing high school. So, again, I put down some thoughts that I wish I had learned fresh out of school.

I realized that this may be helpful advice that other young people (or older) have never heard. Perhaps those in my own church. Somebody once asked what I would be doing if I wasn’t a pastor. One thought that crossed my mind was being a financial planner. It combines my love for investing with pastoral counseling; as I would walk alongside a family as they figure out not just money matters, but priorities in life. Their budget (or debt) tells a story (that is fortunately not finished). So, I am sharing the advice I gave to some beloved 18-year olds. May you find it helpful for yourself.

We want to see you flourish in your college life and into adulthood. Here is some advice that we wish we had known much earlier.

1. God is the giver of all gifts. Your scholarships, paychecks, etc. come from God. You have freedom in how you use these gifts. But, God wants you to see yourself as a manager and steward of everything. How will you use what He has given you?

 

2. Three ways to use money: Spend. Save. Give.A good rule is 80-10-10.You are now developing habits for your life. Begin, even when the amount is small, to only spend 80% (or less), save 10%, and give away 10%. Pay yourself first. Like a tax, you won’t miss it if you set it aside right away than hoping there is something left at the end of the month.

 

3. Debt is an anchor.It will weigh you down, limit your options, and create unnecessary stress. Except for education (college) or a mortgage, seek to avoid getting into debt. Don’t spend what you don’t have. There is smart and dumb debt. College and a house may be smart because it should add more value to your life. You are investing in your future. A degree will likely pay for itself with your future job. A house typically becomes more valuable. A car loan is dumb. A $20,000 loan will end up costing like $30,000 after interest. After you pay off the loan, it is worth a fraction of what you paid, due to depreciation.

 

4. You will be tempted with credit card offers. Know yourself and be wise. They can be good tools, but very dangerous too. There is a reason companies will give you gifts, t-shirts, bonus points, etc. when you sign up. Unless you can pay off the balance each month, don’t use it.You will end up spending far more than the amount on the receipt.

 

5. Build up an emergency fund. Aim for 3-6 months of living expenses. You never know when you may have to fix your car, replace your phone, or deal with an emergency. Don’t be shocked when unexpected things pop up; anticipate that things happen eventually.

 

6. Start investing now. At your age, minimal savings will compound and add up to huge amounts rather than starting in your 30s or 40s. Start making a habit of saving every month, even if it is only $25, 50, or 100. For example, to be a millionaire at retirement, a 25-year old needs to save $400/month. A 40-year old would need to set aside 3x a much! Around $1,300 a month. Your $50 now could be as valuable as saving $200 in a few decades.

 

7. As you invest, think diversity. You don’t want all your eggs in one basket. Things go up and down. The simplest plan would be to primarily focus on a few index funds: S&P 500 (VOO) for US stocks, Vanguard Total World (VT) for international companies, and Vanguard Utility (VPU) for boring but reliable electric or water companies. Since you are young, you can feel free to use a portion and take some risks with on growing companies (ex. Facebook, Amazon, Alibaba, Tesla, etc.).

 

8. Think long-term. The best advice is not to try to chase news stories or fads. Is this a company that you think will still be around and stronger in 10 years? 20 years? Ex. Disney is not going anywhere. But, I have no interest in JC Penney or Crocs 🙂 Just because things drop, fight the emotion to sell. If you like the company for the future, low points are a chance to buy more shares at a cheap price.

 

9. Companies are divided into sizes and sectors.Small-cap to Large-Cap (ex. Shake Shack vs. McDonalds). The sectors are what these companies do. Here are the broad categories with a few recommendations for each. a. Healthcare (Gilead, Celgene, Biogen, Teva), b. Consumer Staples & Discretionary (i.e. everyday products) (Coke, Nike, Disney, Starbucks, Proctor & Gamble), c. IT (Google, Facebook, Apple, Baidu, Alibaba, Paypal, Netflix, Amazon), d. Industrials (equipment or machines) (United Technology, Boeing, John Deere), e. Financials- (Bank of America, Wells Fargo, JP Morgan Chase, Visa), f. Energy (Exxon, Kinder Morgan, EOG Resources), g. Real Estate (REITs)- (own property indirectly) (Kimco, Equinix, Prologis, American Tower).

 

10. Create a Budget. This is telling your money where you want it to go, rather than wondering where it went. Rather than being restrictive, it is freeing. You can enjoy things without guilt, if you planned on them. Try to cut out wasted expenses. But, plan for things you value, whether it is spending X amount on music, eating out, or clothes. This will help you make wise decisions, save up, and plan better.