Millennials Don't Follow Your Parents Financial Path!

Millennials shouldn’t sacrifice as much as their parents to retire well ... here's the alternative to what their parents did. What you are about to read cuts across almost everything the over 40’s generations will tell you, especially those working in financial services.

I should know, I am a member of both!.

They will instruct thus;

“Go without today for a tomorrow that’s hopefully better…. and don’t take risks”

This path necessitates the following (and it also suits the financial industry);

1. Trade in your for (dreams are childish and not practical)

2. Work at a sensible job that is secure and pays well (be safe, be dependable)

3. Volatile investments are bad (avoid them)

4. Keep up-selling your house (that’s how you make money and show everyone you’re successful)

5. Consume a lot of toys and pleasure seeking goods and services (use debt to fund it all)

A lack of risk taking and not pursuing what would make you sustainably happy now is seen as ‘good’. The over forties didn’t have a way to pursue happiness yet have long term security financially too. All else is irresponsible or pie in the sky according to them. Its’ generated by their experiences and vested interests (just like the ones you’ll have with your children one day).

The benefit of what their good intentions advise is……. At age 25 you begin saving 15% of your income so you will ‘safely’ retire on 75% of your final income at age 65, 40 years away! That’s +5.5% on top of your super or +12% of Kiwi Saver contributions! It requires following the unspoken mantras above, never being out of work and sacrificing what you rather be doing now to put up with doing and being on the pathway you’re on today. Sadly this usually means a life of toiling away at a job or career that you don’t like. All too often it dominates every other aspect of your life and that sucks. “Change? How can I! I’ve got debts, a mortgage, kids…..blah blah.”

And what for? What’s it all add up to? A bigger TV screen, a shinier car in an address where other ‘Urban Autobots’ are all doing the same thing? I heard a saying that encapsulates it well….

“Buying things you don’t need, with money you don’t have, to impress people you don’t know, and who don’t care.”

Parents good intentions = HUGE risk for you! A parent may say “Sacrifice the most vital 25 -40 years of your life so you can enjoy the last 25 years. It’s not all bad, you’ll have a nice house and car.“ There is a problem with this strategy and a much bigger risk they aren’t aware of if you succumb;

1. That markets and institutions won’t have reduced your wealth in a catastrophe prior to retirement by the time you get there (then again for the preceding 20 odd years too)

2. That life won’t have beaten you down to the extent that you will no longer want or have the energy to then ‘live’ and ‘do’ what you really wanted all those years ago.

3. That our welfare system will somehow still be functioning as it is today to subsidise your tomorrow, and nothing bad will have happened to you for the next 25 years.

4. The impact of technology won’t reduce your value in the work you do (or replace you altogether)

5. You’ll still be healthy enough to go do it!

These are massive assumptions and carry massive risks. Certainly it means a life of squandering the real opportunity that your parents’ generation of hard work and achievement created. Each generation should not mirror the last, but build upon it……

Try this way.....

There is an alternative, one that is not less risky than the conventional way. It probably has a similar level of risk, but is way more satisfying during your prime years. It also enables the pursuit of doing and being what you love most.

4 golden rules still apply in choosing this path (simple but not always easy to abide by);

Rule 1: Spend less than you earn

Rule 2: Borrow less than what can

Rule 3: Never borrow for anything that depreciates in value; cars, decorating, holidays etc.

Rule 4: Forget the Jones….. they prevent you getting the life you want!

Simply ask yourself if your next expenditure really fulfils you and advances your welfare? Most of it does not; it temporarily fills holes within us- that’s all. They’re called Pleasures- not Gratifications.

By the way financial prosperity bears almost zero relation to how much you earn once basic food, shelter and health is taken care of. Studies prove it. It’s about what you do with the money passing through your hands.

6 steps to live how and where you want, doing what you love and retiring securely WITHOUT big sacrifice!

Step 1: Put enough away to buy a small respectable home in a lower cost area, that you pay off as fast as you can (then never promise it to a bank for another loan). Don’t upgrade and don’t do any significant renovations or additions. Own it for at least 15 years, but you may find you won’t be living there all that much. It can be your home or a rental income source, but will always be your bolt-hole.

Step 2: Go without the latest, the biggest, the trendiest of anything in entertainment, fashion, technology or machinery. The savings in a typical dual income urban household on these items adds up to many tens of thousands a year. You won’t miss it once you learn the differences between pleasures and gratifications.

Step 3: Acknowledge you don’t have a right to own anything nice or go anywhere nice until you have built enough passive income to fund them. The use this if you like to do so all the time.

By the away this also applies especially to those selfish adult children that have their parents caring for their kids (or them) as they live in a nice neighbourhood, take nice holidays, owning nice cars at the same time! Children will always take advantage of weakness in parents- even as adults. Parents never stop believing their kids welfare comes first. This is a poisonous combination that ultimately doesn’t serve either party well.

Step 4: Build passive income that supplements then eventually replaces personal exertion income. There are two ways to consider;

One involving investments that drive sustainable cash based compounding income streams (Read Peter Thornhills book Motivated Money)

Starting small ventures that sell things (with little invested capital required) requiring little of your time and emotional energy. This is NOT being Self Employed. Tim Ferriss’ ‘The Four Hour Work Week’ sets out what this is and how to do it. It also provides a roadmap on how to jump ship from being self-employed or an employee to lead the life you really want.

Step 5: Decide what really makes you happy in friends, leisure, family, health, spiritually and work. What are you willing to alter (at least for now) in order to get it? Seriously think about it. It’s a common malaise to build our own treadmills that we then use as an excuse for not being able to purse and be what we really want (or perhaps used to want).

Step 6: Work on being mentally and physically healthy. Insure your income always. This also reduces the size of a nest egg you will ever require and also the income you will need later in life.

Step 7: Be smart de-risk what you can sensibly do. For example if you are earning income from personal exertion; insure it. A no-brainer. Don’t place all your money in a couple of big bets (e.g. 3 stocks or a few residential investments) that promise a big gain if they come off. De-risking means becoming financially literate too so join the 1% who are!

Step 8: Use, not own the toys in the life you desire. Like flash cars, then hire one when you want to enjoy it. A nice home for part of a year? Lease it! I’m sure you get the picture. The money for this comes not from your personal labour in deriving an income; it comes from the passive income you build. Focus on this figure, not how big a nest egg/ asset pile you create.

Do all this and you reduce the size of your nest egg by ½ as a minimum. This removes unhealthy pressures in life and the ball and chains we usually place on ourselves.

It’s not for everyone by any means, but it will suit those that have a bit of courage and imagination to lead a more useful and fulfilling life. It certainly won’t be boring or full of regrets.

My Dad said to me as he died, “Son have a full life as you end up spending a long time at the end lying in a bed. Make memories from what you did, not the regrets of what could have been.”

People now in their twenties are the first generation which has the means, the awareness and the opportunity to do just this. No regrets and all the power! Don’t squander it.

#money #choices #millennials #saving #investing #financialadvice