Jane Bryant Quinn in New York, Nov. 16, 2015. Quinn and two other personal finance authors offer tips for young people to follow during this financial crisis, and after it is over. (Robert Wright/The New York Times)I believe the technical term for what we have been experiencing in the financial markets is: Aargh! (“Bloodsuckingly bad” also works.) I’m not sure how much it helps, but I’ve been through something like this before, during the market meltdown of 2008, when the S&P 500 fell more than 38% in just that year. But most millennials, the people born from 1981 to 1996, have not experienced these kind of losses as investors. How should they be thinking about their financial future? To find out, I asked the authors of three of my favorite personal finance books for their most important pieces of long-term advice. I contacted Ramit Sethi, who wrote “I Will Teach You to Be Rich” (Workman, $15.95); Tina Hay, author of “Napkin Finance: Build Your Wealth in 30 Seconds or Less” (Dey Street Books, $25.99); and Jane Bryant Quinn, whose latest book is “How to Make Your Money Last” (Simon and Schuster, $18). They all agreed that millennials should be investing for the long term and so should simply ride out the current market turmoil the best they can. “Historically, markets have always recovered and gone higher,” Quinn said. Ramit Sethi, 37 Sethi said many people are mistakenly obsessed about owning a home. “Don’t feel guilty about not buying a house,” he said. “You are not throwing your money away on rent.” Sethi continued: “When I go out to eat at a restaurant and have a great meal, I’m not throwing my money away. It’s the same if I pay rent and I enjoy where I live. I’m paying for value. I have rented for the last 10 years by choice. There are other things in life besides homeownership, and there are many other ways to make substantial amounts of money than counting on your house increasing in value.” He is right about that. U.S. house prices over the last 45 years have appreciated at an annualized rate of 4.6%, according to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac and has data going back to 1975. The S&P 500 over that time, according to Morningstar Direct, a web-based financial research platform, had a total annualized return — appreciation plus dividends — of 11.88%. Sethi recommends focusing on earning and not just on cutting costs. “There is a limit to how much you can cut, but there is no limit to how much you can earn,” he said. “It’s really easy to tell people to cut back on $3 lattes. But most people are asking $3 questions when they really should be asking $30,000 questions, like how can I find a great job or negotiate a better salary.” His last point is my favorite. “Spend extravagantly on the things you love, and cut costs mercilessly everywhere else,” Sethi said. “The most common word in all of personal finance is no. No, you can’t buy lattes. No, you can’t buy new clothes. No, you can’t go on vacation. It’s such a turnoff. If you want a huge wedding, yes, use your money for that. If you like to eat out, do it. But cut back dramatically on everything else that really doesn’t move you.” Tina Hay, 45 For Hay, it is critical that you understand the power, “both the good and the bad,” of compound interest. “If you are in your 20s and 30s,” she said, “time is your biggest asset. Your money has time to grow thanks to compound interest. You’re earning money from the interest that you’ve already earned. But it is also important to understand the downside. The interest you owe on things like credit card debt and student loans can compound as well. That’s why your loan balance can go up, even if you don’t borrow more. There’s a reason compound interest has been called the most powerful force in the universe.” She places an immense emphasis on monitoring your own credit. “It’s your reputation as a borrower,” she said. “A good credit score gives you financial flexibility, such as getting a lower rate on a mortgage or taking on more debt.” Finally, especially in difficult times like these, she stresses the importance of building an emergency fund. “It is the cornerstone of financial security, because you can’t necessarily rely on credit cards or retirement savings for emergencies,” she said. “You should have three to six months of living expenses saved up.” What you earn on that emergency money is far less important than the requirement that it must be liquid, she added. So keeping the money in a money-market fund or savings account is fine. Jane Bryant Quinn, 81 For younger people, she said, it is natural to “pay a lot of attention to creating the building blocks of their professional life. They need to do that with their financial life, too, and understand living within your means and not going overboard on credit card debt.” Start putting money away as soon as you can, Quinn says. She recommends “automatic savings, especially for retirement. Having money taken out of your paycheck and put into your 401(k), or whatever retirement plan you have, is a wonderful idea,” she said. “This is the only magical thing about personal finance and everyone should do it. The money is invested before you see it.” “I hate it when people tell me they can’t afford it,” she added, “because if they took 5% of your paycheck and put it in your 401(k) or an IRA, you would be able to live on the rest. And once you realize that, you could try to increase it to 6% and eventually could get it up to 10%.” Quinn suggests that the money be invested in low-cost index funds. Her last thought is a warning. “A dear friend of mine bought a house in a floodplain that never flooded,” Quinn said, “and then, of course, she got completely washed out in a flood. You need to pay attention to where you live — or where you plan to move to — if the warming trend continues as I think it will.”
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