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Making Cents of Life

Photo: The Game of Life

The Game of Life (Used with permission of Hasbro, Inc.)

In our earliest years and often in our last ones, we’re utterly dependent on loved ones for financial support. In between — the game of life — we’re left to fend for ourselves.

An allowance becomes a paycheck. The spring break fund morphs into an account for our own kids’ college educations. Mortgages, investments, retirement — the world of personal finance can seem like a dizzying maze. Let AU professor Mark Waldman help you.

“This course is my personal crusade,” says Mark Waldman, who has taught Personal Finance 200 to “civilians — not business majors” at AU for 25 years. His students, freshmen to seniors, want the same real world knowledge as the clients he’s been advising for 30 years.

“What I really teach them is what Eleanor Roosevelt said when they asked her philosophy of life: she said ‘choose and pay the price.’ The problem is most people don’t even know that they’re making choices. Then they wake up in their 40s or 50s and the range of what they can achieve is so reduced.

"That’s why I teach."

The big ticket idea

I tell students they ought to take life seriously. It’s not just get drunk and get laid.

The people who get a lot work for it every day. It’s not luck.

Once they have goals, I teach them time-value of money techniques so that they can figure out what those goals are going to cost when they want to achieve them, and how much it’s going to cost them each month to reach those goals.

You’d be surprised how little it can be over a 50-year period. Once you know that you need to be putting away, let’s say $120 a month, well, where are you going to get it? You look at your budget, your personal cash flow. It’s not just, oh, this is money I don’t get to enjoy.

You’re buying financial freedom later on. To the extent you can do it that way, then your saving becomes a positive experience, and not just, oh man, I don’t get to go out with my friends this weekend.

I tell them, if your friends try to convince you not to do this, you need new friends.

On getting rich

There’s no secret to getting rich.

I try to get them to start investing as soon as possible, and to keep investing, no matter what happens. Do it in a Roth IRA, a traditional IRA. Just do it. Whether or not you do it is more important than how you do it.

If you start investing in your early 20s, pick either a good index or mutual fund or buy large dividend-paying stocks — like Johnson and Johnson, Proctor and Gamble, Coca-Cola, McDonald’s — and keep buying those every month for 50 years, I think you’re going to be rich.

Choose and pay the price

Everybody knows they need to save, just like everybody knows they need to eat better. Saving money for the future is not something that most people are motivated to do.

Most people wake up to this in their 40s. Then they know work sucks, you’re starting to feel a little older, you feel the pressure of time.

I tell students, envision what you want your life to be like, and that’s hard for a 22-year-old. Imagine that you can have what you want from life — what is that? Hardest question in the world.

If you can’t tell me, you don’t get it. It’s like sitting on Santa’s knee. But do it seriously. You owe it to yourself.

Suppose your target income for financial independence is $40,000 a year. Obviously not here in the Washington area, but you could live in North Dakota or South Carolina decently on $40,000 a year. There are a lot of people who do.

If $40,000 is your goal, you need to save a certain amount of money. Suppose $200,000 is your goal, then you have to save more and it’s going to take you longer.

Is your partner a financial fit?

I talk about how to get married successfully from a financial point of view. Two things about getting married are really important: People have different styles with money. Divorce is financially one of the most destructive things you can ever have happen.

So if you’re going to get married, you should try your hardest to stay married. Arguments over money are one of the leading causes of divorce in America. So what can you do to help it be financially successful?

Watch your beloved’s style with money. Are they responsible? Are they reliable? Are they honest? If they’re not, you’re taking a huge risk by marrying them. Do they tend to be a saver or a spender? What’s your style? What fits with you?

Show each other your credit reports before you’re married to see if you’re marrying someone’s financial problems, too. Talk about financial goals. What are you planning to work towards as a couple? Is it, we’re going to spend every penny and have the most fun we can possibly have before we burn out, or are we going to work together for a shared future?

I don’t make value judgments about people’s goals. What I preach is, you need to have goals and you should work toward those goals.

The math is very clear

As a financial advisor I have a lot of people come in, they’re 50 years old, and they say, ‘Tell me what I need to do to be able to retire.’

I look at what they have and I say, ‘You’re never retiring. You haven’t saved enough.’

People will just be sobbing in my office. It’s terribly painful, but it’s true. I owe it to them to tell them the truth. ‘If your goal is to have this much money in retirement, it’s not possible because you have done nothing up to now.’ Maybe they raised kids, everybody has reasons, but the math is very, very clear.

If these students start saving and investing now or in their early 20s, and do it right, it would take an asteroid hitting the planet to keep them from being wealthy later on.

Surprise! You’ll work 50 years

Jaws drop a bit when I tell people that they’re probably going to live to be 100 years old because of advances in health care. Then their jaws really drop when I tell them that their working life is going to be until about 75. That means they’re going to work for 50 to 55 years, longer than any previous generation.

The biggest loser

Getting into debt is the biggest mistake, not just for young people. They’re copying what they see their parents do. We put everything on our credit cards. It’s so easy to spend more than you make.

Is a mortgage still “good debt?”

Mortgages are in the future. For a while, real estate prices were going up so fast, it was, ‘Hey, stabilize your life, get on the ladder.’ Well, the ladder is broken. Prices are not going up anytime soon. Some of these kids may never own a house.

Owning a house was always overrated. If you really do the numbers, there’s maintenance, new furniture — you add in everything and the rate of return in real estate is about six percent. That’s not great. The reason it seemed so dramatic was, people would own it for long periods of time. Well, the same thing happens if you own stocks for long periods of a time.

You have to live in your real estate. You can’t sell off the rec room. A lot of these students are going to have to move around. In America today, if you want to get jobs, you have to be very mobile.