What are important financial tips to give to young adults?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 299.6 million views in recent years.

In the answers below I focused on the following topics and issues:

  • What are important financial tips to give to young adults?
  • A new study says you might need $1.9m to retire. Is it accurate?
  • If you want to spend $1,000 a month, what’s the best city to live in as an expat? I look at South East Asia, Eastern Europe and some other regions.
  • If you won the lottery and made $20m, is buying a $3m mansion affordable in the long-term?
  • What investment advice is no longer applicable, which used to be true? I look at some outdated ideas surrounding bond allocations in a portfolio.

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What are important financial tips to give to young adults? 2021

Source: Quora

The main ones are:

  1. Keep it simple. At least until you have reached a certain point of success
  2. Spend more than you earn
  3. Invest from a young age into productive assets like some kinds of ETFs, but also invest into yourself
  4. Focus on your income, spending habits relative to that income, and investing. Focusing on your financial planning as a holistic process makes more sense than only focusing on income. That doesn’t automatically mean doing things like taking frugality to the extreme.
  5. Be yourself. Don’t give into peer pressure. If you do, you will get into the trap shown below:

6. Get a job first. Get good at it. Then start your own business. Not the other way around

7. Read a lot, or listen to podcasts if you don’t like reading. University is the start of the learning process, not the end.

8. Get rid of toxic people. Spend more time with people who want the best for you.

9. Take loads of calculated risks. Take as many as you can when you are young. That is better than taking stupid risks or no risks at all. If people try to take no risks, they often indirectly take more. For example, staying in a job you hate isn’t sustainable for many people. Putting money in the bank is also risky due to inflation.

10. Be focused and persistent.

11. Try to live overseas at least once. You will learn a lot.

12. Adapt to the times. What works today in business, often didn’t work ten years ago. Things in 2030 will be different.

If I was told all of these things at 16, it would have been very valuable.

found that $1 million retirement savings is no longer enough, Americans will now need at least $1.9 million dollars in order to retire. Do you agree with this?

Source: Quora

It isn’t always useful to come up with an exact figure for retirement, because everybody will have:

  • Different circumstances. Some people will have higher medical costs, and others will retire overseas.
  • Contrasting views about what retirement is. Some might want a quiet life, and others prefer to travel the world.
  • Different assets already. Somebody who has a lot of cash or property won’t need as much as somebody who has $0, even though being cash-rich is very risky considering inflation.

It is possible for a certain percentage of people to retire with little or no investment savings, if they have passive income streams, even though it isn’t as safe as having assets.

What is useful is to ask this basic question – how much money will people need on average to retire if they live in the country (or another developed country which is relatively expensive) and don’t have many other assets?

This excludes those people who will retire overseas for cheaper living expenses, and people with other assets to rely on.

In these cases, you often need much less than $1.9m

Let’s look at that question

  • Most people want to retire in their 60s or 70. These days, people could live over thirty years in either circumstance
  • The per capita income in the US is about $70,000. Most people need a 70% replacement rate in retirement ($49,000)
  • It is possible to get 4%-5% income from a portfolio, safely, adjusted for inflation. To use the more conservative metric, that is $40,000 for every $1million.
  • However, a conservative buffer is probably needed in case people overspend or something else happens

Therefore, somebody who wants $49,000 in retirement, needs an investment portfolio of over $1.2m.

We would probably need to go up to $1.4m-$1.5m at least due to the aforementioned conservative buffer.

Therefore, I could see why they have gone up to $1.9m, but I think it will probably depend on where people live.

In New York or California, it is probably higher. In other parts of the country, it is lower.

As a final point, healthcare is a huge question. In the UK, most parts of Mainland Europe, and large parts of developed Asia, healthcare is either free at the point of use, or very cheap.

Therefore, one of the big unknown costs is mainly taken care of. Many people can live cheaply in relatively in the UK for this reason.

In the US, healthcare inflation is huge, and I can understand why some people plan for the worst but hope for the best.

In any case, most people underestimate how much they need in retirement, rather than overestimate.

What’s the best city to live in abroad for $1,000 a month?

Source: Quora

It depends on your exact circumstances.

If you are in the EU

If you live in the EU, or in some cases EEC, then some of the countries in Central and Eastern Europe will be the best.

Places like Bulgaria:

And Romania:

It depends on your lifestyle though, and where you live. If you are a couple and have $1,000 each, it will be easier.

With $1,000 as a single person, a smaller city like Plovdiv will be better than the capital cities.

These places are often cheaper due to health insurance. This isn’t a big cost for younger people.

When you get older, it becomes a huge cost. Let’s say you live in some parts of Malaysia or Cambodia in SE Asia.

It is true you can live cheaply, and well, in some areas. Let’s say that you are 55 though.

You will have two options:

  • Basic local insurance. A risk
  • Expat and quality coverage which are OK when you are younger, but start getting expensive above 50 or 55.

For Canadians/Americans

Properly some places in the Americas like:

  • Mexico
  • Colombia
  • Peru
  • Ecuador
  • Bolivia
  • The Dominican Republic

Again though, it depends on your lifestyle and where you want to live in these countries.

The issue with some of these places is safety. Unlike say Eastern Europe or some of the SE Asian countries, safety is an issue.

I have a good friend in the Dominican Republic. He lives in a nice area due to safety, which naturally pushes up costs.

For Asian expats

Properly SE Asia. If you are Singaporean, it will be easier, and maybe cheaper, to retire in Thailand or Cambodia than in Latin America or Europe.

Often if you move nearby as well, there are more expats from your home country and greater availability of information.

For the same reason, if you have a family link to a place, like a spouse or a parent, then it will be easier and cheaper to live there in many cases.

Other off-the-beaten-track ideas would be North Africa, like Morroco or Egypt.

Let’s say I won the lottery for 20 million and wanted to buy a 3 million USD mansion cash. I’d still have a regular job making 120k a year. Can I afford it?

Source: Quora

It is a great question as most people assume the answer is yes. That isn’t automatically the case.

Firstly, it depends where you live, because $20m could become $13m or $15m after tax.

In some countries, lottery winnings aren’t taxed. Let’s just assume $15m for the sake of this answer.

Now if you buy the mansion, you are down to $12m. If you invest this money wisely, you should be able to get $500,000-$600,000 of safe income per year.

You could go for higher-risk options, but the above is conservative and can be adjusted higher for inflation over time.

If we add your $120,000, that means $620,000-$720,000 a year, and let’s assume it rises with inflation which is possible with most investment portfolios.

It depends on the mansion whether this is affordable. I guess it is with many, but might not be if you own some old, leaking one.

People also need to factor in other costs as well, like cars, education and so on.

The bigger issue for most lottery winnings is actually managing the money properly.

If you can manage the money properly and get a decent income from it, and be relatively frugal elsewhere, living in a big house and having the odd luxury is affordable.

What isn’t affordable is a big house, an expensive car and loads of regular expensive hobbies, if the money isn’t being managed properly.

That is one reason why so many lottery winners go broke. In some countries, it is even the majority, which is why the lottery is now introducing winners to financial experts to deal with the issue.

What investment advice that used to be accurate, should no longer be followed by most?

Source: Quora

There are numerous ones. One idea that is wrong is that wide diversification is always good.

Diversification is good in many situations. It can increase your risk-adjusted return.

However, the idea that we should own as many bonds as we age is outdated. If you are 30, 30%, or even 20% in bonds is probably too much.

If you are a retiree, 50% or even 40% is probably too much. There is an obvious reason for that – 0% interest rates and QE.

Now the historical difference between stocks and bonds is larger than ever before.

There has always been a big difference as this graph shows:

The gap has just widened. With that being said, there have been predictions about “the death of bonds” for decades.

The same predictions were made about stocks. After about seventeen years of low performance, Business Week predicted “the death of stocks”

Many people didn’t want to own stocks after bonds had beaten them for close to two decades.

What happened in the next eighteen years? Stocks had one of its best periods ever.

The point is, just because an asset class is performing badly now, doesn’t mean it always will.

I am sure bonds won’t be at these low levels forever. Therefore, a middle ground is often best for many investors.

Being only 10% in bonds when you are young or relatively young can still make sense. I would still want to hold more bonds in retirement.

I also don’t think that holding 5%-10% in gold makes sense.

Pained by financial indecision? Want to invest with Adam?

Financial Planner - Adam Fayed

Adam is an internationally recognised author on financial matters, with over 299.6 million answers views on Quora.com and a widely sold book on Amazon

Further Reading 

In the article below, taken directly from my online Quora answers, I spoke about the following issues and subjects:

  • Is the entrepreneurial path the only fast way to wealth? Is doing business actually a fast lane (like The Millionaire Fastlane book describes) or does it take time? In particular, is starting a business always a better approach than the “get-rich-slow” through investing route?
  • What is something useful I didn’t learn at school apart from financial planning? 
  • How can you be a successful investor with zero knowledge? Is it even possible, or should everybody just outsource it to an expert in finance?
  • If everybody had the same knowledge as wealthier people, would we all naturally grow wealthy? I explain why that is unlikely, even though knowledge is power and very useful.

To read more click on the link below

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