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“Broke Millennial” is a Smart Money Management Reference for Young Professionals
Erin is grateful. She makes that very clear up front. She knows her upbringing was not the type of upbringing most of her peers received. Not only did she spend years living abroad with her family, but she is the member of a family who talks openly about money and who exemplify superior money management.
And it gets even better: they also offered their kids tough love by making them work for everything they got. Want to buy some cool stuff? Get a job. Want to go to college? You’ll have to pay half. Want to move back in after graduation? You’ll be paying rent. Some might not think this is love but Erin would disagree. To her, it’s the best she could have hoped for because it taught her the value of money and the value of the independence it can bring.
In a way, Erin is paying it forward with this book. In it, she offers straightforward advice, along with an appropriate level of empathy or admonishment depending on what’s warranted to get the reader to take action. She does not go into the level of specific “how to”s you may find in more involved books, but the information is solid and it’s complemented by a focus on behavioral psychology issues around money that’s too often absent from more detailed, step-by-step debt management and investment advice.
Here’s what you’ll find in this book:
- How to better understand your relationship with money and how it’s influencing your saving and spending behavior
- Guidance on the personal finance topics to address first, based on your current behaviors and financial situation
- A cheerleader along the way who genuinely wants you to succeed at this thing called “money”
#1. Understanding Your Relationship with Money
Erin wants you to think about the kind of saver or spender you are. That matters more than most of us appreciate because the stories we tell ourselves about money and its role in our lives dictate much of our behavior and, unfortunately, we tend not to question them.
The author suggests that much of our beliefs about money come from how we grew up and that it’s a good idea to do some introspection to get real about whether our behaviors are working for us. By waking up to our personal finance outlook and beliefs, we can start to question the status quo and change what isn’t helping us be successful with money and keep doing, or doing more of, what is helping us succeed.
#2. Guidance Based on Behaviors and Financial Situation
Addressing Our Current Beliefs
True to her audience, the book provides shortcuts to the most useful information based on the reader’s current beliefs and financial situation.
If we’re a “live for today” type of a person, the author suggests that a personal review of debt, spending patterns and credit worthiness might be in order. There’s no problem with having a focus on the present and getting the most out of life, as long as it doesn’t involve mortgaging our future wellness in the process.
If we’re a “life will get rosy when [insert event or earning level here]” type of individual, her advice skews toward the idea that yes, at some point in the future it might be easier to pay down debt, save and invest. But learning these habits now only makes the behaviors easier to maintain over time. We can grow into good money habits as income grows, but there’s no need to wait for some magic future date.
Finally, if we’re a “live for the future” type of person, the advice for us is to keep up our great habits without feeling the need to sacrifice everything that’s great about being in the here and now.
Addressing Our Current Financial Situation
According to the author, personal finance is, well, personal. That’s why she invites us as readers to select the topics in the book à la carte based on our beliefs, but also based on our financial situation. (And the book is organized with a significant number of cross-references that makes it easy to hop around—the paperback version of following hyperlinks if you will.)
To assess our financial wellness, Erin suggests we use the following benchmarks (based on traditional retirement timelines):
- The ratio of savings to salary we should have based on your age – for example, by thirty it should be between 0.6 and 0.8:1
- Emergency savings – we want to shoot for savings representing 3 to 6 months of expenses, more if we’re are a freelancer
- Debt to equity ratio – we want to have our monthly debt payment represent no more than 36% of our gross income if we want to hope to be seen as a good credit risk
- Credit score – we want a credit score of at least 650+ , which leads to more favourable terms when we’re needing to secure financing to take some important steps in life (paying for school, a car, a home), many of which are still ahead for members of the millennial generation
- Net worth – we want to strive for a growing positive net worth, which is the net value derived from subtracting our liabilities (everything we owe) from our total assets (everything we own that has significant monetary value, such as bank accounts, investments, larger physical assets)
What do we do with the results?
If we find our current situation to be less than rosy, the author suggests:
- Improving our understanding of our spending habits by tracking our spending for a number of months to understand where the money is going
- Figuring out what needs to be cut/reduced
- Take advantage of the 401(k) company match at work (if there is one)
- Starting an emergency savings account
- Setting up a plan to pay down our consumer debt
You can practice all sorts of delusional techniques about how you value eating well and pride yourself on only making purchases you actually use, but when you notice you’re buying two pints of ice cream a week and you never actually read the USA Today you pay for each morning, well, maybe your priorities and money aren’t completely in sync. (pg. 34)
If we’re working on all of the above and we’re humming along, Erin suggests:
- Forging ahead and getting more aggressive with our debt repayment by setting a “debt-free by” date
- Maximizing our savings vehicles, including short-term savings, emergency fund top ups, retirement savings and other long-term savings and investments
How do we maximize our savings vehicles? By selecting the best banking and investment products available to suit our needs and by getting the best advice available, including seeking advice from a fee-only financial planner. (Hint: advice from someone who is selling us the solution is not usually in our best interest.)
A constant message throughout the book? When it comes to financial service providers, look for decent interest rates for your savings accounts, no-fee banking and very low fees for investment services.
#3. A Cheerleader Who Wants Us to Succeed
It’s clear that Erin understands that nothing beats an encouraging word when we need it most. The stories she’s included along the way – both from her experience and from those of friends and family members – offer context and a good dose of “you can do it too”.
Whether we’re following the bouncing ball in this book or going it alone on the path to financial wellness, it doesn’t hurt to remember that along with the hard work involved in doing the right things, a dose of kindness and empathy can reenergize us along the way. And this book does just that.
This is a great book for millennials trying to figure out how to manage money, now and for the future, from a peer who walks the talk.
Books on saving and investing: “The Total Money Makeover” by Dave Ramsey, “The Little Book of Common Sense Investing” by John C. Bogle, “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko, “Unshakeable” by Tony Robbins, and “The Index Card” by Harold Pollack and Helaine Olen
Books on questioning our relationship with money and how we use it to live our best life: “Your Money or Your Life” by Vicki Robin and Joe Dominguez, “Happy Money” by Elizabeth Dunn and Michael Norton and “Early Retirement Extreme” by Jacob Lund Fisker
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