Elizabeth Erickson

“An investment in knowledge always pays the best interest.”
-Benjamin Franklin

There is no time like the present to prepare for your financial future. I will not pretend to be a financial expert, and I know I make my own share of financial faux pas. But more and more I see ambitious young people setting themselves up poorly for the future. I am not a trust funder, no one handed me a golden ticket, and I am definitely not earning big money. But somehow I still manage to go places, do things, and travel frequently. My secret is to live as frugally as possible, save money starting at a young age, and never turn down an opportunity to earn extra cash. There are three main factors to think about: time, how much to save, and where to save it.

Time:

This is a really simple statistic that I think most financial investors try to get across to people. The more you put away and the sooner you put it away, the more money you will have later. This is the longest game. And it is the most rewarding game. Here is the simple math in three scenarios:

1. Michael is 35 years old. He starts saving $1,000 per year for the next 30 years at a 5% interest. He started with $0 in savings. At the age of 65, Michael will have deposited $30,000. Interest, however, will have earned off itself. So the account will have $72,053.64. That’s $42,053.64 of free money! Pretty nice.
2. Joanna is 25 years old. She starts saving $1,000 per year for 10 years only, then lets her account sit. Her money also grows at 5% compound interest and began at $0. At the age of 65, Joanna will have deposited $10,000. The account will have $60,576.05. That’s $50,576.05 of free money! Yes, Joanna’s account has $11,477.59 less in it, but she also contributed $20,000 less overall and made $8,522.41 more in interest. That means Joanna increased her earnings by $28,522.41 compared to Michael.
3. Kimie is a baby. Her parents set aside $50 per month until Kimie was 18 years old. At that time the account sat with no further additions. Kimie’s parents contributed $10,800. When Kimie turns 65, her account will have $182,946.54. That’s $172,146.54 in free money! 

I think you can hopefully see the power of time and compound interest. The key here is to start saving today. Are you already 35 and haven’t saved anything? It’s ok. You will still be better off if you start putting away money now than if you wait. If you wait, you will have nothing.

How much to save:

The above example is great, but let’s think seriously about retirement. There are several factors involved. When do you want to retire? The legal age may go up, but that doesn’t mean you want to actually work that long. Let’s use 65 for this example. How much do you need to live each year? Let’s go with the idealized $30,000 per year. Though personally I think that is way too high. How many years will you need to support yourself for retirement? Another 20-30 years maybe? Let’s go with 95. At $30,000 per year, for 30 years, you need $900,000 in retirement savings. And that is only for one person. You may still have children to support during that time, big expenses to pay off, and unforeseen health expenses. So let’s add another $100,000 of cushion. Now, for some, this might not seem too unfeasible yet. But there is also the important detail of inflation. How will the cost of living change from now until you retire, and from when you retire to when you will die? Inflation goes up about 1.9% each year (based on averages since 1914). Based on current projections, if I live on $30,000 per year now at the age of 28, and I want to continue that lifestyle until I die at age 95, then I should expect to spend about $89,000 per year in 2053, and be spending about $218,000 per year by the time I die in 2083. I don’t know enough to do this math off the top of my brain, but that puts the required amount of savings required to actually support yourself in retirement at a significantly higher amount. I will ballpark at $4.4 million dollars! That begins to seem impossible even with savings. But would having a nice nest egg do any harm? I think not.  And if you re-evaluate how much money you actually need each year, that amount can significantly come down. Not to mention that as I put money away now, that beautiful compound interest can help pad the rest.

So I won’t tell you what amount you should aim for. But you can check out this nifty Vanguard tool for your Retirement Income Calculator. Everyone’s needs are different. I try to save as much as I possibly can. It never hurts to have more money building that sweet sweet compound interest for you.

Where to save it:

I personally like to spread my money out in a few options. I have a Whole Life plan through New York Life. This is a life insurance plan coupled with retirement plan. I will not argue for nor against the higher rates I pay. That is the company I went with when I turned 23, and that is the company I will probably stay with. I also opened a Roth IRA and made regular monthly payments. I prefer Roth IRA’s and any investment plan that is post-tax money, because the amount I watch grow is the amount I will someday have all to myself. Though there are a lot of benefits to pre-tax money investment, I do not actually see the advantage. When I am older I can only assume I will be making more money and be earning off my smart investing, so I will be in a much higher tax bracket. That means that when I do finally withdrawal the Traditional IRA monies, they will also be taxed at that higher bracket. Whereas all the money I take post tax now, while I am poor and in a really low bracket, will not be taxed later. Both will be subject to the magic on compound interest, but in my mind the post-tax money will result in higher payouts longterm. When I worked for three years, my company had a 401(k) plan with matching. I obviously took advantage of that free money. And when I left that company in 2015 to come back to graduate school, I rolled over the account into a Traditional IRA. I could transfer that account into a Roth at some point, but for now I am happy where it is. I still make regular payments to my Roth IRA. And like any insurance, that also is paid on a monthly basis. But I view both of these accounts as “bills,” so I never really think about my building nest egg. I see it as money not available to me now, so it fleetingly leaves my psyche and I live within what remains.

Those are all retirement accounts though, and tied to being mostly inaccessible until reaching a certain age. I also have money in an S&P 500 account with Betterment (wikipedia link and personal link). (Disclaimer: For each person who signs up with Betterment through my personal link, I receive 30 days without service fees and you receive 90 days without service fees. If three people sign up, I will receive one year without service fees. This is not a special deal to me. I am not paid by, sponsored through, or receive any royalties from Betterment. This is a standard deal offered to all customers of the company. That is, they give a nice perk for free publicizing.) Since I have had a good experience so far, I am happy to publicize of my own volition. I found Betterment through the wisdom of Mr. Money Mustache, a financial blogger I occasionally pour over enviously as I near the age 30 and wonder why I am not about to retire… He has a lot to say about Betterment (MMM post here, with an update here), as well as the stock company, Vanguard (MMM post here). I could rave about how interesting I find this blog and rantings of Mr. Money Mustache, but I will let you come to your own opinion. I will correct myself here though (**literally an update 29 June 2017**), I actually found Betterment through a podcast I greatly enjoy: Planet Money. I have been listening to this podcast for the past couple years. And they advertise Betterment on almost every episode. But, unlike a blog, hearing information about a company sort of flows out the other side because I cannot visually see it. Another textbook example of how powerful website advertisement is! Anyways, the combination of reading about Betterment on Mr. Money Mustache and having that reinforced by Planet Money, I felt confident in researching the company seriously.

But I thought this was about financial advice to travel more!

I will add that I observe MMM’s advice pragmatically to fit my desires of travel. It is never too late to save for retirement, but I also spoon off some of the fatty cream to finance my travels. The concepts are the same. I will not retire at 30 because of my meager student income savings, and the fact that 50% of those savings go directly into my travel fund. But that is the lifestyle I require to function happily. I also seek out opportunities for travel where some or all of the cost is covered. Though this will typically result in me not having a choice in where my vacation takes place. But isn’t all travel worth it? I think so!

Ways to have your travel paid for:

1. Work in the outdoors or in a high travel field or abroad: National Park System, land surveyor, landscape architect, archaeology crews, pest management technician, termite technician, environmental scientist, construction mason, outdoor instructor, camp recreation, trail crew, au pair, English/ESL teacher in foreign countries, wildlife management, nature photographer, National Geographic Explorer, island caretaker, park ranger, forest firefighter, guiding, freelance writer/photographer, travel agent, tour guide, travel nurse/doctor, WWOOFing, flight attendant, airline ready reserve agent, pilot, missionary, diplomat, importer/exporter, Peace Corps volunteer, Busker, cruise ship gigs, yacht sailor, Navy sailor, yoga instructor, and the list goes on. You can even look for non-outdoor employment abroad.
2. Become a professional adventurer/traveler/explorer. This is not very realistic. But if you think it is for you. Do your research and get out there. The pros are experts at what they do.
3. Look for unique volunteer positions that can lead to paid positions and resume bolstering. For example, if you know a camp that needs a cook. Volunteer to cook for free. If they like you, they may hire you back. The better option is to find a program through a university, school, church, that takes people/children out on trips. They often pay meager sums, but cover all your expenses. If you do a good job, you are more likely to be invited back, as well as word of mouth for other more exciting opportunities. I used cooking as an example, but this also works for guiding/trip leaders, musicians, travel companions, and others.
4. Odd jobs to earn extra cash: lawn maintenance, Airbnb, Uber/Lyft, Turo, ToursByLocals, general labor, personal assistant, house cleaning, pet sitting, child sitting, house sitting, errand runner, personal shopper, yoga instructor. My tip is to never turn down an odd job. They are a great reference for future opportunities.

Feel free to comment below for other opportunities, advice, or suggestions!