Always save something.  The Fred Young rule – saving something is always better than nothing.

There are lots of categories of savings, but let’s start with savings for unexpected events or emergency savings.  These savings give you a sense of control over your finances and they give you options on how to handle whatever the financial emergency may be.

There are all kinds of rules of thumb for emergency savings:

*Save your age plus 2 zeroes every year

*Save your age every week

*3 months of your take home pay

*2% of gross income

*10% of your take home pay

Some of you may be saying – great, I am okay and others are saying OMG!  The important thing to remember is another hard and fast rule – start with small goals.  Take one of those rules of thumb and adjust it to something that you can achieve at this time.

What sacrifices are you willing to make to meet your savings goal?  Some sacrifices are tough to make, others are much easier.

Financial Fact:  If you save $50 each month starting at age 25 and you earn a 5% return, you will have almost $8,000 by age 35 and over $76,000 by age 65.  (USAA Magazine Winter 2003 – Power of Compounding)

Comment:  “A Penny Saved is a Partner Earned:  The Romantic Appeal of Savers” is a working paper from U of Michigan’s Ross School of Business.

 

How do you make sure that you can financially survive on your own?  Fred Young, a business acquaintance, began a successful second career on the speaking circuit with the simple premise, always save some part of your income, no matter what the amount.  Something is always better than nothing.

Saving money involves big and small sacrifices.  You have to stop spending money on something to begin saving.  But those sacrifices will provide you with a safety net of savings.

The Urban Institute published a recent study finding that adults under age 40 have accrued less wealth than their parents did at the same age.  During the recent economic downturn younger Americans have faced stagnant pay, a housing collapse, a brutal job market and soaring student loan debt.  So, building savings may take even more sacrifice than past generations.

In MoneyYOYO I will throw out hard and fast rules such as the Fred Young rule – always save something.  I will also use rules of thumb.  Rules of thumb are not intended to be accurate or reliable for every situation, but it is a good place to start.

Improving your financial literacy through hard and fast rules and rules of thumb will give you the ability to manage your savings more effectively and make sound financial decisions about how you spend your money.

Financial fact:  The unemployment rate fell to 7% in November, the lowest level since November 2008. (WSJ)

Comment:  According to the Pew Research Center 34% of Americans aged 18 to 32 lived at home this year.

Millennials and Gen Ys – YOYO – you’re on your own when it concerns money.  Everyone needs money and it is critical that you save for expected and unexpected events.

It is also important that you become financially literate.  You do not need to become a financial wizard, but you do need to learn to make sound financial decisions.

Studies have shown that Gen Ys and Millennials are woefully under informed about basic financial concepts with serious implications for managing your finances.  So I plan to blog to improve your financial literacy.

A recent paper by Professors Fernandes, Lynch and Netelmeyer concluded that financial education is not very helpful, but three efforts may be useful.

*First is just-in-time education.  My blog will rarely deliver information just in time.

*Second is delivery of rules of thumb and this blog will use them regularly.

*Third is to make the financial system more user-friendly.  I will try  to make it easier for you to understand the financial world. (NYT Oct. 6, 2013 Economic View, Thaler)

I will use my hard and fast rules, general rules of thumb and direct you to financial resources to help you become financially literate.

Why me?  I worked in the financial services industry for 30 years. I have two daughters who are 29 and 31 and hear first hand how they and their friends should know much more about financial matters.

Fact:  Last week the Nasdaq closed above 4000 for the first time in 13 years.  This stock index is up 33% for the year. (WSJ Nov. 26, 2013)

Comment:  YOYO comes from my friend, Tim.  He and his siblings would come home and ask Mom, “What’s for dinner?”  Mom would occasionally reply, “You’re on you own.”  Those nights became YOYO meals in Tim’s family.