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Financial success advice for young people
Tuesday, 21 November 2006
I received an email from a young man who lives in a tough community in the US. He wanted to know how he can break out of his difficult circumstances and live a comfortable middle-class lifestyle. Rather than responding to him individually, I thought I'd write a general success article for young people.
I think most young people in developed countries face similar challenges. Sure, those from rich homes have it easier than those from poor communities, but the problems are often of a similar - if less intense - type. In fact, if you come from a poor background and manage some level of financial success in life, it can actually give you an edge over your more spoilt rivals.
Financial success is mostly about clever management of scarce resources. Those who've succeeded despite early difficulties are usually forced to develop this skill quick-smart. It's a valuable thing to have which will serve you well throughout life.
The challenges of being young
Being young carries challenges that are difficult to overcome. Regardless of your background, if you're young you're almost guaranteed to be broke. Sure, rich kids get good allowances, but these often come with all sorts of strings attached. Young people usually have very little control over their finances.
You are also often exposed to random and nasty emotional challenges. Young people are statistically much more likely to be victims of violence than adults. My own experience tells me that emotional harassment, and the like, is more commonly aimed at young people, and more difficult for them to escape.
The opportunities of being young
When you're young, you have control over few resources. You're unlikely to have much in the way of income or assets. However, you do have one enormous resource at your disposal. It's so vast, that most young people don't appreciate it as much as they should.
That resource is, of course, time.
You're generally unlikely to have many responsibilities when you're young. You won't be forced to make difficult financial choices because you have children, a mortgage, sick parents, or a business to run. This gives you a lot of freedom that isn't available to adults.
If you really want to succeed when young, it's mostly about making use of the fantastic resource of time. Even better, when your time investments eventually pay off, you're likely to have a lot of opportunity to enjoy them.
A person who builds a good career for themselves at 25, will enjoy fifty years of prosperity. Someone who does so at 60 will only get 15 years worth.
You also have more opportunity to fail and pick yourself up again. If you lose everything at 20, it's usually not that hard to rebuild. Losing everything at 50 is a much more daunting prospect.
So what should you do with your time? The smartest investment to make with it is in education - both formal and informal. But, of course, you also need an income in order to live.
Getting an income
The first-step to financial success is securing a good income. And income mostly comes from having something to sell that people are willing to pay for.
With young people, this generally means their labor. You sell your time and effort to a business, and they give you a paycheck in return. Of course, how much you receive for your labor depends on how valuable it is. If you have no skills, you'll be paid minimum wage or a little better if you're lucky.
That first job can be difficult to secure, even if it's a minimum wage one. Many businesses consider most young people unemployable, even if they're cheap. A low-paid worker isn't worth having unless you feel they can deliver value. There's often a lot of competition for low-wage jobs, simply because there are so many unskilled people out there.
If you're having trouble securing such a job, then you have to figure out a way of beating the competition and making yourself appear suitable as an employee. Good strategies for doing this are as follows:
- Present yourself well. Dress conservatively in a tie, business shirt, trousers, and business shoes. Press your clothes well, be clean, and keep your hair tidy. Get rid of flashy jewelry and cover up tattoos.
- Be well spoken and polite.
- Have an enthusiastic attitude, show them that you're willing to do what's necessary to get the job.
- Don't come across as someone with emotional problems.
- Be willing to commute to an area other than the one you live in if necessary.
That first job is important. Not just for the income, but because it's where most young people first learn how to work. Being paid to perform forces a discipline on you that few other experiences can.
It's often a bit of a shock for many young people just how hard they'll be expected to work for the money, and to what lengths they'll have to go to keep their job. This hurts at the time, but is ultimately a very valuable lesson.
Getting a formal education
When you get your first job, you'll learn something else very quickly - it sucks to be at the bottom. This can be a powerful motivator to get a formal education.
Before entering the world of work, many young people suffer from the delusion that they're somehow better than everybody else. They think they'll leave school, put in a little effort in some field, be immediately recognized as a person of genius, and the world will fall over itself to offer them every reward imaginable.
Dream on cowboy (or cowgirl).
The world of work is where reality bites, and you'll soon discover that no-one has any interest in your hopes and dreams, or your imagined talents. All they care about is if you can help them solve the problem they're having right there, right now. That problem may be as simple as wanting a cup of coffee, or as difficult as suffering from brain cancer.
What will determine your reward in the world of work is largely a factor of two things - how important the problem you're being paid to solve is, and how confident the person paying you to solve it is in your ability to do so. A formal education can help you gain the second thing, which will then likely allow you to move onto the first.
A trained financial analyst, with a formal education to prove it, will be paid big-bucks by a bank to manage portfolios worth millions of dollars. A person with a high-school education and nothing else will be assessed as qualified to serve hamburgers, no matter how smart they think they are.
That's why getting a formal education in a field that helps you solve real world problems is so important. Even better, such an education will teach you to think, and provide you skills and discipline that will last you a lifetime.
I encourage any young person to use their time to get one.
I understand that for people from some backgrounds, such an education can be difficult to achieve. But usually, in developed countries, it's not impossible. The millions of poor immigrants who manage to do so every year speaks volumes about what can be achieved with a determination to overcome the obstacles faced by being born poor.
I also know a lot of people have succeeded without a formal education. It's certainly not impossible to do so. However, the stories you here about such people are passed around because they're remarkable. Statistically, a good formal education is the best indicator of a person's likely level of success.
Getting an informal education
Many people have a formal education, and still manage not to get on top of their finances. As well as being professionally trained, any smart, young person should also have the discipline to train themselves.
And the best way to do this is read lots of books - particularly books that teach you practical skills. Read about things like personal finance, writing skills, business, marketing, time management, job hunting and technical skills. If you can discipline yourself to read 10 pages a day on practical topics like these, you'll quickly leap ahead of most people on the success scale.
Books are expensive, but pretty much any town in any developed society has a wonderful and often under-used resource - a public library. All young people should go to their nearest library at least once a month and start giving themselves the type of informal education I've outlined above.
This being a website, many people will read this and think: "Why read books when I can just teach myself from the web?" I believe this is a mistake.
The web is a wonderful tool for self-education, but what you get from it just can't compete with book-learning. There isn't much you'll find in books that isn't available online, but there's a problem of self-discipline in internet learning.
If you sit down with a book on personal finance, you've pretty much committed yourself to spending a chunk of time on that topic. If you force yourself to read through a 300 page book on that subject, you'll learn a lot. If you try the same trick on the web, it's too easy to surf over to a music site, or only concentrate on the bits you like, and skip over the bits you don't.
Some things that are important to learn just aren't that interesting, unfortunately. The web is a tool that's used with impatience. The tolerance for boredom of most web-surfers is close to zero, that level raises a lot with book-learning.
You're also unlikely to get the good overall framework of a topic from the web in a way that a book can provide.
Staying away from the temptations of youth
Most young people are full of energy and impatient. This gives them tremendous drive, but can also expose them to great dangers. Many of the mistakes of youth come from this energy and impatience. It's a tragedy that so many young people sacrifice their long-term success in pursuit of short-term gains.
Don't try and solve your short-term money problems by dealing in drugs; don't try and release your sexual frustration by risking teenage pregnancy; don't try to relieve boredom or earn respect by engaging in crime; and so on. An ability to assess risk is an important part of succeeding, and nowhere is it more needed than when you're young.
Try your best to stay away from the impatient frustrations of youth - drugs, crime, violence, dangerous driving, unprotected sex, skipping school etc. The short-term gains you get from engaging in such activities can have big long-term costs that just aren't worth it.
Learning money-management
When you're young is when your attitude to money is likely to be formed. The main thing to concentrate on at this stage is spending less than you earn. No matter how little you're paid, put a bit away somewhere every week.
This will give you a sense of pride in what you can achieve, and also teach you lifetime skills. Virtually nobody thinks they make enough money, and the temptation of consumer debt is always there no matter how high your income. If you can teach yourself financial discipline when you're young and poor, it will be a lesson that will serve you well throughout life.
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