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A Luxury Of Time - Financial Advice For Millennials

Editorial Budgeting, General 07 Apr 2017

By Michal Bodi

When was the last time you challenged your beliefs? You know, the ones you grew up with...especially when it comes to using money. Because I think it's really easy NOT to manage your money differently to people around you. Instead, just simply do what everyone else is doing. 

The majority of people behave like everyone else. Consequently, most people around you can't help you - they've done more money mistakes in their lives they would ever admit to...

But you don’t have to copy what they do.

When you’re young, living at home, you have less commitments and more flexibility. If you don’t want to waste your early years, learn your good money habits early, your life will be full of options later on. Options like doing what you love (owning your own business, living closer to your work, going on holidays, being home early every night so you can read your kids a book before they go to bed). Isn’t that what you want to remember, spending memorable moments with your loved ones?

In order to get there, you need to stop living for today only.

Although it sounds exciting and hippy, it will only create late start and feeling of regret down the track.

Instead, start looking at your life in ten-year blocks. This means looking at a consequence of every decision you make with your money - what will it be in ten years’ time?

For example – How much do you spend on coffees, lunches, dinners, drinks, parties, clothes every week? Let’s make assumptions, but be fairly conservative, shall we?

One coffee a day ($4)

Three lunches a week including weekends ($60)

Trendy café brunch on Saturday ($20)

Poached egg and smashed avocado - some say eating this is the reason you can't buy a house...

One dinner a week ($40)

Drinks on the weekend ($100)

One new lifestyle expense (clothing, shoes, new gadget, holidays) per month ($150).

The assumed expenditure totals at staggering $282 per week! Once that $282 leaves your wallet, it’s gone forever. The opportunity you had is lost.

Now, let’s imagine you’ll keep doing most of those things, but only spend $132 per week – meaning you save, deduct and invest $150 every week.

Starting at zero, investing in any share index fund, in ten years you would end up with a portfolio worth over $145,000!

Yes, I used moderate assumptions and averages. But don’t get distracted. Please notice the critical difference in what happened – you took action.

You didn’t over-analyse when and how, the marginal differences between products, portfolio construction and all the hundreds of variables outside your control.

Someone has influenced you to the extent that you simply took action. 

The automatic direct debit which was implemented and kept being debited to fund your portfolio has created the options most people around you don’t have.

Many young people say that it’s hard to buy a home in Sydney. It can be, if you do what everyone else around you is doing. But if you start this exercise at 18, you’ll have some options available to you at 28, right?

Or you may not want to buy a home, but you can invest this money for income and have a perpetual passive income portfolio generating over $7,000 per year (whilst still fully preserving the capital). Sounds like a great way to fund a ski-trip to me. There’s no extra work required. Ever.

Everything you’ve just read is simple and easy to understand. But is it easy to do? Theoretically yes, but practically no way!

Three main reasons:

  •  We procrastinate – it can take years between us thinking about something and actually doing it.
  • We get lost in details – looking for the best time to invest, the best investments, the best performance.
  • We stop - even simple concepts can be hard to do consistently for a long time – patience and discipline play huge roles and require constant encouragement 

All predictable and I would argue also avoidable. If you hire objective, third party advice and coaching professional.

What are you planning to do with your opportunity? One thing is clear – it’s never too late to start.

Will you overthink it?

 

Michal Bodi is a Senior Financial Planner at Sydney Financial Planning based in the Sydney CBD

Was this article helpful?

7 comments

"This is a great article. An old adviser of mine said to live life in four year blocks (he was a huge cricket fan and the English team tour every four years - so it made sense for him). I suspect your 10 year blocks is much better. I am old enough now to know that the Tortoise does in fact beat the Hare - just set a little aside every month and keep at it for the long haul."

David B 16:13 on 10 Apr 17

"I earn $60K a year and I live with my parents. I guess they like to have their daughter at home, I don't save a cent because I love my current lifestyle and hanging out with my friends. I've been telling myself I need to start saving. But I don't really want to give up anything. And I think that's the biggest problem of our generation, we kind of want it all. Everybody wants the prize, but nobody wants to pay the price. "

Mia 19:03 on 09 Apr 17

"This has actually opened my eyes. Definitely need to watch my expenditure better. Most of us get lost in detail and tend to overthink it which helps us justify our procrastination. Helpful insights!"

Ben - also Millenial 18:41 on 09 Apr 17

"I tend to agree with Milennial - I note that your offices are based in Double Bay in Sydney. Perhaps this is how you think Milennials live today, and that may be the case for sons and daughters of wealthy baby boomers of the Eastern Suburbs folk. But, the majority of us, with university qualifications can't find full time jobs and don't have even close to $282 a week that we're spending "frivolously". And then there's the 8-10 times income to be saved on average wage to even get close to buying a house (v 4-5 times for the baby boomers). Appreciate underlying sentiments on saving but more needs to be done on the generation divide that exists. "

Baby Boomers - Bugger Off 00:39 on 09 Apr 17

"This is insulting. Enticing low-income workers to buy volatile shares with returns being comparatively low when examined next to to high-yield and safe RE investments which we are locked out of. Work harder? We're already at high underemployment levels. Nobody I know can get more hours and are often on 2-3 jobs and an unpaid internship as icing on the cake. Wage growth is the lowest its been in decades, so its only going to get worse with consumer price indexes rising every day. Not everyone can just pick up more hours, and not everyone can just cut expenses when the cost of living rises every day. Besides, your advice is vague and embarrassingly anecdotal. Directed to inner-city yuppies who you think constitute the whole of young Australia: eat crap food, never drink a coffee with your friends (older gens can splurge though, despite working less and getting paid more). This article: "Get your measly $50 in savings through cutting creature comforts I take for granted, so that you can gamble those dollars on the stock market while I collect your $500 in rent money and put it towards paying off my 4th house. I'll also wipe a few hundred bucks off my taxable income and claim depreciation on those houses while I'm at it." When gen X hits government, the financial and tax regime will change dramatically to benefit the younger gens. It might happen earlier when ALP wins, or it might even induce a housing market collapse if it takes too long to come around. Wait until then, watch the apartment and housing glut kick in, investors bail, buy a house or a unit for half what they want now. There you go, some shady bona fide advice from a stranger on the internet. Worth about as much as this article."

Millennial 17:54 on 08 Apr 17

"Great story , well said , I've been a Fin Planner for almost 30 years , and i have to get my 24 year old daughter to read this . In short go without somethings now , invest now , spend less , and stop complaining how hard it is .We all had 2 or 3 jobs , and were savers , not spenders , its tough , but the rewards are great . "

Bill Bracey 10:12 on 08 Apr 17

"This is great avice but i'm really over the smashed avo story that Newscorp pushed. as this shows there is more to it than smashed avo!"

kyle s 12:49 on 07 Apr 17

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