Money Tips for Young People: Avoiding Paris Hiltonitis
by Dr. Boyce Watkins
There’s nothing wrong with a little shine in your life, especially since you’ve worked hard to get that degree. But attempting to become Paris Hilton on your first job can have you rolling on your way to bankruptcy court. Whether you earn $10 per year or $10 million, you are a financial slave if you are not saving, investing and letting your money grow. As I like to say, “To have nice stuff at 23 is human, but to be rich at 90 is divine.”
As a finance professor and your personal financial physician, let me give you a list of rules to live by, so that your grand kids will be riding high on the hog after you have cooked up the pork chops:
Rule #1: The easiest way to stay poor is to never own anything. Renting an apartment will help your landlord get a house, not you. Buying cars helps the auto dealer get a new limo, not you. Get on the other side of that deal! Buy a house as quick as you can, buy stocks, buy bonds, own ASSETS. Don’t believe the hype about having a high paycheck; It means nothing if you don’t own anything.
Rule #2: The quickest path to being owned by someone is to always work for someone else. Don’t just try to find a job, put yourself in position to CREATE a job. Start your own business as soon as you can. Remember: when you are working for someone else, they are usually earning $10 for every dollar they pay you. That is what they would technically call “getting screwed.”
Rule #3: Save at least 10% of your money every time you get paid, NO EXCUSES. You should pay yourself first by having the money come right out of your check. A person who saves $200 per week starting at the age of 22 and invests that money in the stock market for a 10% return every year will have roughly $43,000 by the time they are 32, $434,000 by the time they are 52, and $1.6 million when they are 65. That’s enough money to help Britney Spears find a replacement for Kevin.
Rule #4: Create multiple streams of income. Your salary should only be one. I don’t care if you sell comic books, Avon or rotten fish. Remember the words of a relatively wise hip-hop star: “If the grapes don’t sell, I dry ‘em up and sell raisins.” Financial side shows provide job security, in case your boss hands you the pink slip. If you are smart, you can hand the pink slip to your boss.
Rule #5: Love is creepy sometimes, so watch who you hook up with. Merging your money with someone is like having sex with them: it can be an amazing experience, or it can leave you burned and bitter. Whether it is marriage or starting a business together, only merge your money with someone who cares about your best interest. In other words, don’t waste your life with losers.
Read my lips and follow these tips, and your future will have so much shine that Stevie Wonder will need to put on his sunglasses. Now that’s what I call a bright future!
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I totally agree with you, but the hardest part is where do we get money at the first place? It is so difficult to save money especially that we have to pay for all those bills and our own expenses.
Opening up your own business is more risky but greater return, so I totally agree with you about opening up your own business as soon as you can. If I have enough experiences and resources, then I will take that move now.
huali22 - September 1, 2008 at 5:04 pm
All of these rules make sense but I particularly agree with Rule #4. I have run an ebay based venture that provides me with some supplemental income to the money that I make while working over the summer. This is extremely beneficial for a couple different reasons, the first reason is rather obvious: the more money the better, and the 2nd reason is that it provides me with a degree of flexibility that a lot of people my age don’t have.
This past summer I didn’t feel the financial need to get a 9-5 job because I knew that I could make more than enough money on ebay to cover my expenses. As a result of this flexibility I was able to backpack through Southeast Asia for the entire month of June, a unique and eye-opening experience that has affected me tremendously.
zackpien - September 1, 2008 at 11:11 pm
When it comes to owning a home many get caught up with trying to live above their means. Many don’t take into account many of the other expenses that go along with owning a home. These can range anywhere from simple maintinance to expensive property and school taxes. I guess when looking to buy your first place don’t try to get every luxury you ever dreamed of or can barely afford, and rather stay well within your budget. By staying on budget when your young and saving your benefiting in the long run.
patricksullivan - September 2, 2008 at 6:41 pm
I especially agree with rule #1. If you don’t own anything then there is no way for you to acquire assets and in turn net worth. On top of that if you don’t own a home especially, which is historically an appreciating asset, you will not be able to have your money work for you and retire the way many people want to retire. For that reason, I intend to purchase a home as soon as possible as suggested in the article, which is probably the best investment one can make early on in their lives in addition to putting 10% of their paychecks aside for unforeseen issues in the future.
chadingalls - September 3, 2008 at 12:28 am
I particularly agree with Rule #5. From my experience dating, you can notice how a person chooses to spend their money. Many people come from different socioeconomic backgrounds which deeply impact their financial decisions. Choosing to spend money or be stingy can affect a relationship. Jealousy over one’s flexibility with money or the other way around can put a strain on relations. That is why I believe that it is important to have an understanding of each others financial opinions and be prepared for the possible turmoils ahead.
stephaniehan - September 4, 2008 at 2:57 pm
Powerful stuff. I think its not only safe to say that this all makes perfect sense but this also should be read by most young Americans. On the other hand, these are five examples where people cant help to go wrong. Its much easier said than done. If EVERYONE saved 10% we wouldnt have retirement issues and be a country in debt. If we all kept our money seperate until MR./MRS right came along than we wouldnt have Britney and kevin to make fun of as we all like to.
adsander123 - September 4, 2008 at 3:10 pm
I think that a little more needs to be said about buying a house. According to the standard definition, a house is an asset. However, according to best-selling-author of “Rich Dad, Poor Dad”, Robert Kiyosaki calls a house a liability.
Why is a house sometimes considered a liability? Because in Robert’s definition of asset, an “asset is something that produces Future Cash Flows (FCF). A liability is something that incurs expenses, and doesn’t produce FCF.”
A house has expenses; property taxes, maintenance, mortgage payments, and other various fees are all expenses. And the larger the house one buys, the more expenses one incurs.
Yes, a house is something one must have, but one has to really realize that a house is not an asset, but a liability according to Robert’s definition and the previous example.
Of course everybody needs a house, but according to the standard definition of asset and liability, the larger the house one bought, the more their asset category would grow. However, the truth is that the larger the house one buys, the larger the liability category grows, because the larger the expenses! If one were to buy a house 10 times their net worth, this wouldn’t really make them wealthy, but in fact but them into a large debt with expenses they could never pay off.
This is not to say that one should rent. One really just needs to think more deeply about whether something should be considered an “asset”
For more information, please read “Rich Dad, Poor Dad” by Robert Kiyosaki
Ben Kriger
bmkriger - September 4, 2008 at 3:16 pm
The quote in rule #4 about how “if the grapes don’t sell, then I dry em up and sell raisins” stood out to me because it is definitely necessary to be creative when it comes to personal finance. You need to find innovative ways to generate income and manage your finances. If you just let your money sit there without doing anything with it but pay expenses, you won’t go very far.
cnestler5688 - September 4, 2008 at 3:18 pm
Personally, I think rule number 3 is best applied to people our age. While owning your own home as soon as possible is obviously great advice, in many cases it is somewhat impossible for recent graduates. One thing that my parents have always told me is to put the maximum amount the company you work for will allow into your 401k every year, a luxury my parents were unable to do dealing with three kids early into their marriage. However, our generation generally gets married much later than our parents did, therefore many of us will have the privilege of saving money if we are smart about it.
tmsiverd - September 4, 2008 at 3:20 pm
I find that rule #2, which states “Start your own business as soon as you can”, is not necessarily a good idea if you are a young graduate trying to get your feet wet. Most people who try to start new businesses fail and the very few that have made it (ex: creators of facebook, Bill Gates) did not even need an undergrad degree. So for those who plan on graduating from college especially with accounting or finance degrees, I believe it would be a better idea to get a feel what it is like out there in the real world before investing your time and money (which may be very limited as a young adult) into starting a new business which, unfortunately, will probably fail (according to statistics). Also, as we get older our wealth expands, we get more connections, and most importantly, we think more seriously about making money because somebody has to feed the children, and pay the mortgage (not the rent because we have obeyed rule #1). So, I feel that rule #2 becomes more relevant in a later stage of our lives.
pierrecarras - September 4, 2008 at 3:26 pm
I do agree with everything in this article, although it may be harder to do then it sounds. Not everyone can be their own boss, and not everyone can own expensive assets when they’re young. I think the most important thing to take away from this artice is to have income from more than one place. Don’t rely on your salary 100% and keep involved in other activities. If you make some extra money on eBay you never know, you might want to quit your job because its so profitable!
tessamacdougall - September 4, 2008 at 3:27 pm
When reading these rules I think it is very important to remember to keep focused on money in the right way and look at it in the right way. Even though we all want to open our own businesses and be our own boss, the reality is that out of college we will all probably be working for some type of firm. Although Money is one of the most important things to many, a boss of mine this summer at my internship said keep it to yourself. He explained that of course everyone wants to make more money but if your only out to make money for yourself then what are you doing for the company. He explained that if you added value and made a name for yourself as a performer than personal success would surely follow. I know this sounds like a typical answer but although I probably sound nieve I believe this is true. If your worried about your paycheck all day at work and not on your actual work then you may not be as efficient as others. In turn maybe they will get the raise that you keep thinking about and the higher positions that pay the money you want to make.
jonweinstein - September 4, 2008 at 3:28 pm
I agree with all the rules in this article. They really are encouraging people to not just sit back and follow other people’s lead but to think outside the box and make things happen. Rule #3 may be the only one that can be put into action immediately for people our age, while the others may be difficult the start up, especially at this time in our lives. The last rule may be kinda funny but it’s also true, you never know who may be after you solely because of your money, no matter what kind of relationship you are forming with them.
mwettje - September 4, 2008 at 3:38 pm
I would be lying if I said that I’ve never heard all of that before at some point in my life. But in my eyes, not enough people heed these instructions. My dad has always told me to save a percentage of my income every year, and I think that 10% is about perfect to build a nice little piggy bank. I recently opened an IRA and am planning on investing as much money in it annually as I am legally allowed; I had figured that at a relatively aggressive mutual fund would net me about almost a million dollars in a little over 35 years. So I agree it is never to early to let your money work for you. The other part of this article that especially speaks to me is rule #1. After working for a real-estate lending firm this summer, I’ve decided that I need to build up assets and start collecting rent and equity in a house as soon as possible…hopefully while housing prices are still in the dump!
scottcraft - September 4, 2008 at 3:41 pm
I also agree with rule #1. For the longest time my father was always telling me to make sure im on the right side of a business deal, the side that I will profit from the most. I feel that for young kids this is a great lessen to learn from the get go if you plan on making any kind of money. I also agree with the saving 10% of your paycheck everytime. By doing this you will save yourself a lot of hassle when you need money later on.
joshwilliams11 - September 4, 2008 at 3:44 pm
These rules can be the key to success but the fact of the matter is how many people are going to actually follow through with them through out life. It is obvious that we live in a society where bigger is better and flashy things are almost a necessity. I sometimes compare those with high paying careers such as Doctor in America to being a Doctor in Germany; It is hard to find a Doctor in America who doesn’t have a new fancy car, when there are many Doctors in Germany who make more money then Doctors in America but at the same time they will not possess have as many cars or luxury items compared to that of Americans. I once had a Doctor from Germany speak in one of my classes and he stated that it is more important for him to save his money and invest than it is fro him to have the more luxury items, and this is the mind frame of a lot of Doctors where he is from, so this leads me to believe that being able to avoid “parishiltonitis” is one of those things that is more easier said then done at least in America.
kush5 - September 4, 2008 at 3:55 pm
I definitely agree with rule number one and three. The more you own and the less you borrow/rent/ etc. the better off you are for your personal net worth and in the dire situation (hope it never arrives for anybody) that you have to liquidize your assets. The more you invest at a young age by saving and not carelessly spending, the more you will have in your older years. Investment combined with owning starting at a young age is a great formula. With rule number two, some people are not motivated to start their own business, enjoy working for other people, or have no knowledge on how to start a business. The question is how could one in this situation become more knowledgeable or gain interest?
jakekuss - September 4, 2008 at 4:16 pm