Thanks for joining me at this new column. Together, we’ll talk about simple steps anyone can make to cut through the complexity and jargon to improve financial outlook. This post will focus on one specific pitfall I believe hampers people from getting their fiscal house in order.
If you ask 10 people to describe “Personal Finance,” you’ll get 11 different answers (and a lot of dirty looks). The phrase itself is intimidating, as if created by us in our ivory finance towers to scare people into purchasing our “expert opinions. ” It is certainly an important and often complicated matter. It is also one of the few topics that touch literally all people in some way. I strongly believe that all students (high school and college) should be required to take a personal finance course before graduating. We owe it to our graduates to equip them for their future. A liberal arts graduate with some business or finance knowledge has more tools to monetize their degree. This keeps people in the field spreading knowledge and ultimately helps the discipline thrive. (Disclosure: my undergraduate alma mater has a strong liberal arts program, and I am a firm believer in its importance.)
Even if you’ve had an introduction to personal finance, you’re likely to fall in to the “I’ve made it this far” trap. You’re thinking, “I’m alive. I have a roof over my head and food to eat. I must be doing something right.” Yes, you are doing something right: many people struggle to provide those things for themselves and their family. You’re going to have to do better than that. Here’s why.
First, let’s say you’re an entrepreneur and you have started a successful business. Congrats, you have accomplished something that others can only dream of, and most will never attempt. “I’ve made it this far,” you say? It doesn’t entitle you to neglect your future. It’s likely that most of your worth is tied to your business. This leaves you extremely vulnerable to a number of potential problems. If something happens to the company, you may be left out in the cold (literally…like, no house). Google may decide they like your industry and buy you out of business. I don’t want to alarm you by illuminating all the risks startups face, but it is worth acknowledging.
Since most startups lack a 401(k) plan or employer match, saving is completely in your hands. You owe it to yourself to create a backstop. There are enough saving options and ideas for an entire series and I plan to touch on many of the topics in future posts. For now, if you care to do personal research, I suggest spending some time on Investopedia – a wonderful resource – and searching terms like Roth IRA, ETFs, Commodities and CDs (Certificate of Deposit – if you were thinking “compact disc”). This should offer a nice primer of different investment options.
Maybe you’re safely employed in a large company and have no intention to strike out on your own. You must be doing something right, right? I fell into this problem coming out of undergrad. I assumed my $40,000 salary would grow by 10% a year for 30 years and I would be rich in no time (that would put my age 51 salary at $634,523.72 – not bad!). Unfortunately for my grand plan, 2008 happened and everything I knew changed. By 2009, I was just happy to keep my job. I watched friends and colleagues dip into their savings and become dollar menu experts. I quickly realized that the consistent salary hikes and promotions might not be coming. Faced with this scary new uncertainty, I decided to load myself with enormous debt to invest in an MBA. But, don’t worry, I’ll pass on what I’ve learned to you free of charge.
Yes, you’ve made it this far, but with a few small changes you can stretch what you have so much further.
Scott Moorhouse – I am a recent International MBA grad and recovering finance professional. My goal at Under30CEO is to make the concept of personal finance more accessible to those without finance or accounting degrees.