The principles of money

I must say, I get excited to see youth on the path to financial success.  Here is a question recently posted by a reddit user.

The first thing I would want them to know is, you are doing better than majority of people. Give your family thanks because they set you up for success.  The goal is to keep as much money in your possession as possible.  Develop a defensive mindset when it comes to your finances. 

No Credit Cards…For Now

The first thing I would say is you don’t need credit cards, yet.  Most people only use credit cards to pay for things they cannot afford.  Eventually, you will need credit to build credit history. If you don’t have any major purchases upcoming, skip this step for now.  When it is time to get a credit card. Add a subscription (ex. Netflix, Amazon Prime) and set it to autopay.  Pay in full, at the end of every month. Put the card in your closet and forget about it.

Pay For Higher Education Cost

You are a senior in high school.  Is there any higher education cost upcoming?  If not, skip to the next section.  If so, decide on how you are going to pay for that.  Time to play defense.  Is your family helping to contribute to your education?  If not, apply for grants and scholarships.  Find a college that is reasonably priced with a major that can pay for your degree.  Working and attending community college for most classes are excellent ways to save on college cost.  The last resort is using a portion of your money to pay for college.  

Start an emergency fund

You are still in a position of having your parents as a safety net. Still, I would keep $10,000 in your savings account for emergencies.  This could include a new car, injury, or accident. You are moving into adulthood. Now is the time to learn to take care of yourself and your needs.

Invest in your future

I would dollar cost average (DCA) $65,000 into a brokerage account.  This is different from your retirement account.  This account is for after tax dollars.  I would set up the account to withdraw $1,250 weekly.  The breakdown would be 80% ($1000) going to a S&P 500 index fund, 10% ($125) in a total stock market fund and the last 10% in a bond fund.  It will take 12 months to invest your $65,000.  At an average 10% rate of return, adding nothing else, by 50 years old you will have $1.3 million. It may not feel like it, but you are set. 

Do Something Aspirational 

Finally, with the last $5,000, I want you to spend it freely.  Go on a trip with your friends, donate to a good cause.  Do both.  Do something memorable. Something you will dote on for the rest of your life.  As I approach 40, there are some things I wish I would have done earlier in my life.  Do them before your knees start to hurt and the responsibilities of life get too heavy. Life is to be enjoyed.