Smarter, Better, Faster Millennial

             In the last century, following the social, economic and political crisis of the Great Depression, the federal government put in place a series of programs and reforms to prevent that kind of devastation from ever happening again.  A safety net was established in the form of Social Security and Medicaid and new regulations were imposed to create stability in the banking and finance industries. The economy slowly recovered, and then took off after World War II—generating widespread prosperity and making things like home ownership a reality for an ever-growing middle class.

            But in the new century, the American economy—and with it, the American Dream—has taken a couple of stiff blows to the gut. The longest bull market in the history of the stock market ballooned into a bubble, and in 2000, that bubble burst. A housing bubble built up soon after that, and the bursting of that bubble in 2008 set off a worldwide financial crisis and recession. The crisis not only destroyed wealth and devastated retirement accounts but, also, stalled and hobbled the ability of young people to build earning potential and begin generating wealth.

            The economy and the market have bounced back (for now). For those who are enterprising and can adapt to an ever-changing economy, the possibilities are endless. Yet the old certainties of previous generations are gone. The likelihood that you will stay in one job, or even one career, is slim. The employer-funded pension plans that used to promise an early and comfortable retirement are the exception rather than the rule. Workers increasingly must take steer their own retirement plans, and can expect less from the safety net of Social Security. 

            I point out these realities not to discourage you but to light a fire. Millennials, more than any previous generation, have to take charge of their long-term financial health. And to get where you want to go, you’re going to have to save smarter, earn smarter, and invest smarter. In spite of the tough hand you’ve been dealt economically, you have time is on your side and the opportunities and tools for doing so have never been greater.

 

Save Smarter

            It’s important to start a program of saving and investing however imperfect or incomplete the plan. But once you’ve done so you’ll find, if you project the numbers out into the future, that at some point you’re going to have to step up and take it to a different level. If you can set aside 5% of your income to start, you can eventually double that—whether you do so by committing pay advances ahead of time or by seeking out additional ways to save.

            You can’t improve on what you don’t measure, so if you need to save more, I urge you to track your expenses and look for opportunities to cut back. You may find, for example, that you’re spending more than you realize on eating out—whether that be a $4 latte at Starbucks, a deli sandwich for lunch, or drinks and appetizers after work. Cutting back $50 a month may not seem like much, but it adds up.

            I advise identifying every potential expenditure in terms of future and not present value. That same $50 in today’s money, if saved and invested, can turn into ten times that in twenty years.

            There are a bunch of creative ways to save and set aside more for the future. These include accelerating payments on your mortgage to save thousands in interest and considering a move to an area with lower taxes and living expenses (such as Florida, or even somewhere abroad). There are dozens of books and websites with tips on saving. You can PM me on Facebook or LinkedIn for suggestions.  I can help you put it all on the table and figure out what’s right for you. Unless you’re extremely fortunate, the odds are you’re going to have to be creative and learn how to save more, and save smarter.

 

Invest Smarter

            One of the main choices you will face as an investor is whether to try to ride the market through a largely passive approach, or to try to beat it by selectively going against the grain of conventional wisdom and the current mood of the market. I’ve suggested in a previous article that this is not an either/or choice and that you combine passive and active strategies in a way that best suits your situation and your temperament.

            Regardless of which route you choose, I encourage you to maintain a certain degree of independence and not tie yourself completely to the market. There are long stretches when being married to the market is sound and profitable. But there are other stretches when it can be disastrous.

 

Earn More

            Saving more and investing smarter will only get you so far. It also pays to get creative and figure out ways to increase your earnings. You can’t invest what you don’t save, but you only save what you’ve earned. And in a world where the Financial Crisis has had a dampening effect on wages and wage growth, taking the initiative to improve your earnings is critical.

            I want to plant a seed and encourage you to continually search for ways to make yourself more valuable. This is a point Tony Robbins makes in all his books: In the long run, success and wealth flow from making yourself valuable to others—offering a service or a set of skills that makes you stand out from the crowd. Warren Buffett is fond of saying that the most powerful investments he ever made were those he made in himself: “Invest in as much of yourself as you can,” he says, “you are your own biggest asset by far.”

            The great scientist Albert Einstein recognized this essential truth as well: “Try not to become a man of success, but rather try to become a man of value.”

            Entrepreneur and speaker Jim Rohn, who mentored countless businessmen, put it this way: “If you want to have more, you have to become more. Success is something you attract by the person you become.”

            The effort to increase your value can come in many forms: reading, attending classes, adding new skills to your toolbox, or just taking better care of yourself and developing a better daily routine.

            A big part of increasing your value is understanding where your present value comes from and then improving upon it. This is the power of focus. You may have learned about the Pareto Principle, also known as the 80/20 Rule: 20 percent of your tasks contribute 80 percent or more of your value. So, understand your unique strengths, where your value comes from; focus ruthlessly on that 20 percent; refine it; simplify and don’t let minor distractions dilute your focus.

Compound Habits

            One of the tricky things about developing a disciplined routine of saving and investing is that it will take a while to bear substantial fruit. Like the compounding example where you are given two choices: $3 million in cash upfront; or a single penny that doubles every day for a month.

            The magically doubling penny wins in the end…but it takes a while. More than half-way through, on Day 16, you’ve got only $327.68 while your friend who took the cash has the $3 million. You don’t even hit six figures and break $100,000 until Day 25. And as late as Day 29, you still fall short of the $3 million. But then on Day 30 you break through, and on Day 31 you’re over $10 million—a decisive victory over the upfront cash.

            Building long-term wealth can feel like that. In the book The Compound Effect, Darren Hardy likens it to an old-fashioned steam-powered locomotive: it takes a lot of energy at first just to get the thing going, and progress at first seems minimal; but once it picks up momentum (a head of steam, as they say) it becomes a nearly unstoppable force.

            Only with consistency, and only over time, do compound habits reveal their true power.  Consistent progress plus time equals massive accomplishments.

            Over the long haul, Hardy writes, you will reap “huge rewards from a series of small, smart choices.”

            The most successful (and happiest) people in life are usually those with productive and healthy routines. And good habits are the building block of good routines. I recommend taking the time to read up on the growing science of habit formation. Charles Duhigg’s The Power of Habit is a good place to start. He writes about what he calls “keystone habits” that spark “chain reactions that help other good habits take hold.” Gretchen Rubin’s Better Than Before is also worth a look.

            The effect of a small competitive advantage over a long period of time is a theme of Jeff Olson’s book The Slight Edge. He writes that the small differences that over time will give you an advantage over others (and over your old self as well) are easy to overlook and may seem insignificant. He calls them “simple daily disciplines…Little things that seem insignificant in the doing yet, when compounded over time, yield very big results.”