With the so-called demise of the U.S. economic forecast I am optimistic. Whenever the indexes plunge my first reaction is to grimace, knowing that I likely lost some money for the day, but then I realize it is an excellent buying opportunity. Remember Economics 101? Buy low, sell high. Anyway no, I am not a financial whiz, but now that I am in my mid-thirties I thought I would jot down some financial advice that I have learned and am still learning. Keep in mind that in discussing this it is not my goal to merely be “rich,” but rather to create financial independence. Remember, too, that I am not a financial expert, but merely thought I would ramble a little about my experiences:

• Save and Invest Early. Let me give you some $1/mo investment examples, assuming 10% average return:
  – $1/mo invested at 10 years old = $28,581 at age 65
  – $1/mo invested at 20 years old = $10,483 at age 65
  – $1/mo invested at 30 years old = $3,797 at age 65
  – $1/mo invested at 40 years old = $1,327 at age 65
  – $1/mo invested at 50 years old = $414 age age 65

  Notice how the $1 really compounds in those later years. So if you have not started, start now, at this very moment. I sure wish I would’ve started $50/mo back when I was 16. It would be worth over $40,000 today without considering the “serious” investments I am doing now.

• Do Not Invest in Index Funds. I am surprised at how many people are happy with their investment being tied to the Dow Jones, NASDAQ, or the S&P 500. Why would anyone be happy with anything that just gives you the norm? Of course your tolerance for risk will affect your decision. If you’re not a risk-taker, you will have to stick to savings accounts, savings bonds, etc. But remember that these types of investments will only give you 3-5% returns. If you’re happy earning rates similar to inflation rates, then have at it. But the best investor will spread his/her risk among several risk levels, from low to high, from gold to the latest technologies. As retirement becomes closer to reality then a shift to the lower risk levels is in order. Being in my mid-thirties I tend to have a medium-high risk portfolio. As I breach forty to forty-five years of age I will shift my investments to medium to low risk (hoping to retire in my fifties). A good place to start are the recommendations of Bruce Lefavi. He is a finance talk show host based here in Salt Lake City (you can hear him Sunday afternoons on KSL 102.7 FM) and he provides wonderful investment advice. One particular mutual fund Mr. Lefavi recommended in 2006 made a 31% return in the last year.
• A Dollar Invested Today is Two Dollars in Seven Years. A general rule of thumb I learned in college finance classes is that if you invest today it will double in value in 7 years (based on 10% earnings). Now if you consider the impact of inflation over 7 years (on $1 invested), by the time it reaches that 7-year point it’s present or real value is $1.60. But hey, it still grew by 60% in real value! Here is a practical example where I blew it this last year. I just couldn’t stand not having an all-wheel-drive vehicle for the winters here in Utah, so I broke down and purchased a brand new 2007 Ford Freestyle from a local dealership. The cost was around $33,000 (after incentives/deals and including sales tax). It has only been 7 months and you know what? Kelley Blue Book places the value of my Freestyle today at $23,000. Yes, I have lost $10,000 in 7 months! Talk about a bad investment. Had I purchased a 1-year used vehicle for $10,000 less and invested the $10,000 saved it would be worth $41,772 in 15 years (the time I hope to retire). That’s $26,812 present value! I could not only have gotten the 1-year old vehicle today, but I could purchase another one in 15 years with the money saved. Learn from my mistake and remember to invest as what you can now.
• Go Into Debt Only for the Essentials. The general rule of thumb in the finance world is to go into debt only for a home, auto, and education. Coincidentally this is the same advice that has been echoed by LDS Church authorities. Even though these items are listed as the possible debts, it does not mean you should make them debts. Purchase a home that is practical. Do not adhere to the practice of purchasing a home that costs four to five times your annual salary. Should you lose your employment you are only asking for problems. Again, purchase auto that is practical. Do not purchase a Lexus if your budget only fits a Honda Accord. And of course avoid education loans if it all possible. If not, apply for loan amounts that are reasonable. Somehow I managed to get a bachelor’s degree over seven years while working full-time. By extending school out a few years I never went into debt to complete that portion of my education. All other debts should be avoided (within reason). It is understandable that emergencies come and go, but if you make it a practice to not carry debt you will live a much healthier lifestyle.
• Invest Now. If you are not investing into your future yet, do it now. Every day gone by is a day lost in compounding. There are about 10,000 working days in a 40-year employment span (say age 20 to 60). If you wait one more day that’s .01% of your life’s investments gone forever, excluding compounding.
• Becoming a Millionaire is Not as Hard as you Think. With an investment as little as $96/month beginning at age 20 will equate to an astounding $1,000,000 by age 65 (again, assuming 10% returns). If you start later in life or are going to end earlier, you will need to change the formula, but these are good guidelines:

  – To make a $million in 35 years = $264/mo
  – To make a $million in 25 years = $754/mo
  – To make a $million in 15 years = $2,413/mo

Good luck everyone in creating your own financial independence!