# What are the best financial descisions a person can make before 25?



## cardinalfire (Dec 10, 2009)

I've recently been reading a lot about different aspects of finance, including savings, investments, interest rates etc. I also want to learn more about stocks and shares, how they work and how to make money from them. 

Out of curiosity, what do the members of PerC feel are some good financial decisions to make? Or what do you recommend or would you avoid? I guess this is mainly for older members with a bit of experience on their side.

I heard a good one is to start saving for a pension before the age of twenty five, which seems sensible in today's world.


----------



## Jojo (Jul 5, 2010)

If at all possible avoid credit cards. I say avoid lease cars and right now used cars you can find deals. I say avoid the market. Invest in tangibles things you can see. The best thing you can do is budget and don't stray.


----------



## cardinalfire (Dec 10, 2009)

btw love your avatar! Potato head = Legend.


----------



## GiGi (Aug 13, 2010)

Always save for the future, but the BIGGEST thing to do financially is to learn to live within your means and stay that way as you earn more money. Later, you will need to learn to live on a lot less then your means so that retirement will not be such a shock financially.


----------



## Agile (Sep 27, 2010)

GiGi said:


> Always save for the future, but the BIGGEST thing to do financially is to learn to live within your means and stay that way as you earn more money. Later, you will need to learn to live on a lot less then your means so that retirement will not be such a shock financially.


The key is to save in what form. Even when you save cash in the old savings account (ie US dollars), you are making a bet that the US dollar will not significantly decrease in value. These are interesting times that are bringing these savings into question. I think it's wise to have a small percentage of savings in hard assets like gold, silver, agriculture, and minerals as a protection of wealth.


----------



## GiGi (Aug 13, 2010)

BassClef said:


> The key is to save in what form. Even when you save cash in the old savings account (ie US dollars), you are making a bet that the US dollar will not significantly decrease in value. These are interesting times that are bringing these savings into question. I think it's wise to have a small percentage of savings in hard assets like gold, silver, agriculture, and minerals as a protection of wealth.


Great question. I really can't say that I'm the smartest source of information on this or I would have a bigger nest egg. I think it is wise to spread the savings out. The hard assets that you noted are great, but even the gold market has gone bust in the past. From what I understand well off people tend to buy items that retain their value well over the years. Certain paintings, jewelry, antiques, etc. 

Like I said, I'm not the person to give advise for diversifying your savings.


----------



## reyesaaronringo (Dec 27, 2009)

i would say opening a roth ira. let the power of compounding interest work for you.


----------



## cardinalfire (Dec 10, 2009)

reyesaaronringo said:


> i would say opening a roth ira. let the power of compounding interest work for you.


What is a roth ira? Bear in mind i'm a UK citizen, so if this is a product offered state side, I won't know what you are talking about. 

I am aware of what compound interest is, and I do look around for high interest rates here.


----------



## Jojo (Jul 5, 2010)

The one thing that is also hit and miss is cheap or foreclosed land. Land will be valuable always. Timing makes the difference.


----------



## Filigeedreamer (Sep 4, 2010)

Jojo said:


> The one thing that is also hit and miss is cheap or foreclosed land. Land will be valuable always. Timing makes the difference.


I was going to say exactly the same thing...people will always need land, and there is a limited amount, with a population which is expanding and living longer, land will roughly hold it's value for the foreseeable future, though in all markets there a peaks and troughs. 

While only in my early 20's myself, I'd also avoide seeing my home as a finacial asset or investment. 

I'd also say investment wise, you probably need to be in things for the long term, not short. 

I also intend to have my savings both invested in tangible comodities, and spread between several different banks. Then if anything goes wrong with one, I would not lose everything. 

Always have an emergency fund for unexpected expenses, and start a pension or saving plan as early as possible. 

Avoide too much debt, do not take on just what you can afford to repay now, but what you should be able to repay if things went wrong. Work at paying off debt and not living on credit. 

These are my personal aims and advise as a young adult, just starting out in life.


----------



## viva (Aug 13, 2010)

I think a really important thing is developing good credit. When you're in your early 20s, it's likely you're going to be paying off student loans, probably attempting to get your own place or car for the first time, etc. and you will have a very difficult time doing that if you have no credit history.


----------



## Black Rabbit (Apr 15, 2010)

Learning to follow the stock market wouldn't be a bad idea. I'm starting to learn how to read stock charts and it's been paying off nicely so far. Of course, trading stocks is a riskier investment decision. But remember, the greater the risk, the greater _potential _return. Typically it's better to take riskier investment decisions early in life rather than when you're approaching retirement age.


----------



## Agile (Sep 27, 2010)

I personally like to sell puts with stocks that I am interested in. If the price dips to below the strike price, then whatever.... I can buy a stock that I believe in for the cheaper price. If the price stays or continues to rise than you just keep collecting the put premiums and using those returns to sell more puts and this snowballs.

However, ALWAYS, ALWAYS, ALWAYS be aware of your reserves and margin requirements. When trading on margin, always make sure to be conservative and never be in a position to get a margin call or overextend your reserves with too many bets. High frequency trading algorithms leaves the market incredibly susceptible to volatile price swings.


----------



## cardinalfire (Dec 10, 2009)

BassClef said:


> I personally like to sell puts with stocks that I am interested in. If the price dips to below the strike price, then whatever.... I can buy a stock that I believe in for the cheaper price. If the price stays or continues to rise than you just keep collecting the put premiums and using those returns to sell more puts and this snowballs.
> 
> However, ALWAYS, ALWAYS, ALWAYS be aware of your reserves and margin requirements. When trading on margin, always make sure to be conservative and never be in a position to get a margin call or overextend your reserves with too many bets. High frequency trading algorithms leaves the market incredibly susceptible to volatile price swings.


what do you mean 'puts', were you meant to say stock? lol.


----------



## RedFairy (Aug 16, 2010)

If it's at all within your grasp, buy property!


----------



## perennialurker (Oct 1, 2009)

Here is by far the BEST financial decision you can possibly make before 25: Get a degree that will help you to be gainfully employed.These days one of the biggest problems facing people our age is unemployment. Saving is much easier if you have a source of income.


----------



## perennialurker (Oct 1, 2009)

cardinalfire said:


> what do you mean 'puts', were you meant to say stock? lol.


Also if you have to ask, I wouldn't recommend attempting Bass' suggestion. Too many people who don't know what they're doing try options and margin and always end up getting burnt. A basic retirement savings plan would probably be best.


----------



## Agile (Sep 27, 2010)

I wouldn't recommend it either unless you know what you are doing. I've had family members lose everything because they they didn't realize the risks they were taking. The key component is understanding what value is - whether a stock is overvalued or undervalued. This took a lot of education and knowing how to read a balance sheet, and having a contrarian view. 

On that note: here is some info on put options. The opposite is a Call option. Again, to reiterate I don't recommend it unless you know what you are doing. However I think its important to know what these instruments are and how they work.

Put option - Wikipedia, the free encyclopedia
Call option - Wikipedia, the free encyclopedia


----------



## Diphenhydramine (Apr 9, 2010)

Never ever, ever, under any circumstances ever, never ever ever get an overdraft.


----------



## calmgreen (Oct 26, 2010)

-Spend less than you earn.
-Pay off any debts (except don't pay off student loan at more than minimum repayments), then start your private/company pension.
-When you have your non-student loan debts paid off, save/invest at least 10% of your earnings.
-Don't get a mortgage. Rent. Buy property only if you can buy outright. In other words, never borrow money unless the repayment is interest fee.
-As for what to save/invest in, it depends how much of a risk taker you are.
-Give a little of your time and/or money.
-Make sure you develop a valuable skill/ service to offer


----------



## Filo (Aug 11, 2010)

> I personally like to sell puts with stocks that I am interested in. If the price dips to below the strike price, then whatever.... I can buy a stock that I believe in for the cheaper price. If the price stays or continues to rise than you just keep collecting the put premiums and using those returns to sell more puts and this snowballs.


Whatever you do, DON'T DO THAT. I'm a professional options trader (in fact, I manage traders, I'm senior) at a top-10 trading firm; I know what I'm talking about. Your loss is virtually unlimited. You could literally bankrupt yourself on that.The problem with call options and put options that their price is dependent on:
-Interest
-Future expected dividend
-Stock lending costs
-Future expected volatility
-The value of the underlying
-Time

You are making a complex and correlated bet on all these factors. Bluntly put, if you have to ask questions like you just did, you shouldn't be touching options, or any other derivative, with a 10-foot pole.

Best advice I could give you would be to put away some money in an emerging markets fund or tracker, and in a developed wold tracker, like 50/50. Because it's long-term, stocks are the way to go. Make sure you get cheap trackers, though, and reinvest the dividend. If you want to know my asset mix, /msg.


----------



## Agile (Sep 27, 2010)

I thought its ok provided I am conservative with the number of options. I sell puts in mining shares, however I assume that shares could decrease 300% during the lifecycle of an option contract. So the amount of puts compared to actual reserves is very small as I make sure that I take into account black swans. The price of the stocks could all go to 0 and I still wouldn't get a margin call, so I don't see how the losses are unlimited since as you can't get lower than 0.

However, I can see your point if the reserves are overextended with too many options.


----------



## dagnytaggart (Jun 6, 2010)

Ok, good...so I have 5 years to stop making accidental overdrafts, maxing out my credit cards and making impulsive purchases and attempting to start businesses with next to nothing.

Oh, and for the record, these are the thing I suggest people NOT do. Whatever I do, do the opposite. :crazy:

Luckily, I'm great at MAKING money and finding loopholes and ways of making money that are TECHNICALLY legal, even if perhaps some Fe type deems them "immoral"...but I also spend the money faster than I make it.


----------



## Filo (Aug 11, 2010)

> I thought its ok provided I am conservative with the number of options. I sell puts in mining shares, however I assume that shares could decrease 300% during the lifecycle of an option contract. So the amount of puts compared to actual reserves is very small as I make sure that I take into account black swans. The price of the stocks could all go to 0 and I still wouldn't get a margin call, so I don't see how the losses are unlimited since as you can't get lower than 0.


Yes, the limit is 0. This does mean you'd have to reserve quite a bit of capital. It may be better to do covered call writing in that case. I'm considering doing that, do a few DAX futures (like 2) and sell 10 calls on it. That would require some extra margin though.


----------



## njchick (Apr 8, 2010)

Obviously, income is first and foremost. I assume you have an income. 
In our society your credit score is key, don't avoid credit cards. Use just one major credit card on normal purchases that you normally pay with cash. At the end of the month pay it off. This increases your credit score and over time you will gain buying power. Also, don't close out credit cards, the longer you have a good account with available credit, the better.
Buying power is important, when you reach about 30 and you hopefully have a savings, you may want to start a business, buy investment homes, etc.
Categorize your purchases in three: Gotta, Wanna and Manna. In other words, is it something got to have (normal things in order to live), something you want to have (something special you saved up for) or Manna (can only buy if money fell from the heavens after bills were paid). This helps prioritize things. You realize how little you "gotta." Most are wanna and manna. Tell yourself you will allow yourself a wanna when there is excess in your bank, above and beyond your regular budget.


----------



## Filo (Aug 11, 2010)

> In our society your credit score is key, don't avoid credit cards.


No, cash is key. Income is a second. Credit is the third.


----------



## reyesaaronringo (Dec 27, 2009)

cardinalfire said:


> What is a roth ira? Bear in mind i'm a UK citizen, so if this is a product offered state side, I won't know what you are talking about.
> 
> I am aware of what compound interest is, and I do look around for high interest rates here.


a roth is a type of retirement account that is available in the united states. retirement accounts are either taxed when the money is deposited or withdrawn. a roth taxes the money when it's coming in. this way when you retire the money you get from the IRA will be tax free. i'm sure there is an equivalent in the UK.

even if there is no equivalent the earlier you open a retirement account the better. i would try and put 5-10% of your annual income into one.


----------



## daydr3am (Oct 20, 2010)

Do NOT avoid credit! You ARE going to need credit sooner or later, unless you plan on depending on other people for credit and never being able to make large purchases in your own name.

I definitely second living within your means. Spend less than what you make. As a young person, definitely take advantage of time by investing in a retirement account, whether it be a 401k or Roth IRA. Time is your friend, as it will smooth out your gains AND losses (and you WILL lose money one way or another, it is inevitable). Time will compound your gains and interest so you make money off the money you just made. If you're awesome at spending less than what you make, then create an investment portfolio as well as build your savings account. Time will be friendly to your investment portfolio, and savings will help you make big purchases, such as buying a car or house. That's where credit comes in: you must establish a credit history . I would recommend starting off small, by opening a credit card account (if you don't already have one) and just make small purchases and pay your bill IN FULL on time, every month. Do not use a large percentage of your available credit. For example, if your credit limit is $1000, FICO (company that creates credit standards) recommends using 30% or less, so spend $300 at the most per month. Over TIME, your credit score will increase as you pay your bills IN FULL and ON TIME. When your score is high enough, you'll be less likely to be raped in fees and high interest rates and other BS when it's time to use a loan.

Also, never buy a brand new car with a loan. Once you drive away in your new car, your loan will be worth more than your asset (that is considered "upside down credit" or "being underwater" which is very bad).

Note: I see that you are from the UK, and I don't know how credit works over there, or if they have a credit system, but definitely make some investments sooner rather than later in order to build wealth. Do not spend more money than you make.


----------



## njchick (Apr 8, 2010)

Filo said:


> No, cash is key. Income is a second. Credit is the third.


Which is why I said income is FIRST AND FOREMOST. My point was you can't ignore credit. People were suggesting never buy on credit. That's not good advice. There are times when you need credit in order to generate more income.


----------



## Jwing24 (Aug 2, 2010)

I'm no finance wiz, but I think I am pretty careful with my money. What I do is max out my savings and shop cheap. I don't make impulse buys, but that doesn't mean I don't have some money to go out. 

I have one credit card and pay it off every time. 

Making the right financial decisions can be tough, I think the best thing you can do is to not make any quick, hasty decisions regarding money. Do some of your own research, seek out (sound) advice, and then make your own decision.


----------



## Jwing24 (Aug 2, 2010)

Filo said:


> Whatever you do, DON'T DO THAT. I'm a professional options trader (in fact, I manage traders, I'm senior) at a top-10 trading firm; I know what I'm talking about. Your loss is virtually unlimited. You could literally bankrupt yourself on that.The problem with call options and put options that their price is dependent on:
> -Interest
> -Future expected dividend
> -Stock lending costs
> ...


I like what you said here, financial instruments can be good if you really know what you are getting into. But there is always risk, a lot more if you don't know the ins and outs of the instruments you are dealing with.


----------



## trooper620 (Apr 14, 2011)

*Listen to ramsey*

For me 25 was not that long ago. I regret many financial decisions that I made. Ofcourse you need to have a savings plan that includes long term savings and short term savings (for bad luck). Long term is for retirement and the short term is for repairs, doctor bills, and other things that spring up. Stay away from credit cards. Don't purchase new vehicles when a used will do the same thing. Budget your income and expenses closely. Gambling is dangerous and the lottery is only good if you want to send someone elses child to college. I learned from trial and error and I suspect hat you will do the same.



cardinalfire said:


> I've recently been reading a lot about different aspects of finance, including savings, investments, interest rates etc. I also want to learn more about stocks and shares, how they work and how to make money from them.
> 
> Out of curiosity, what do the members of PerC feel are some good financial decisions to make? Or what do you recommend or would you avoid? I guess this is mainly for older members with a bit of experience on their side.
> 
> I heard a good one is to start saving for a pension before the age of twenty five, which seems sensible in today's world.


----------



## TaylorP (Mar 22, 2011)

Best advise, do not buy a car. Get a road bike, and bike to work.

o yea, never buy a beer. 

=)


----------



## Thrifty Walrus (Jul 8, 2010)

Buy land, there will never be more of it!


----------



## TaylorP (Mar 22, 2011)

Thrifty Walrus said:


> Buy land, there will never be more of it!


Well being a architect student I can assure you, I can easily make more land.

Land is only a surface, it does not mean you own the volume of air above it. 
If I design a structure thats 300 feet above your land and then get enough organic compost to fill that structure.
Then I have created more land. One never said a time frame is applied. lol

Its all how you think about it.


----------



## Thrifty Walrus (Jul 8, 2010)

TaylorP said:


> Well being a architect student I can assure you, I can easily make more land.
> 
> Land is only a surface, it does not mean you own the volume of air above it.
> If I design a structure thats 300 feet above your land and then get enough organic compost to fill that structure.
> ...


Ha! That's awesome! Aren't they kind of doing that by making building farms or something?


----------



## TaylorP (Mar 22, 2011)

Thrifty Walrus said:


> Ha! That's awesome! Aren't they kind of doing that by making building farms or something?


Not really, its not feasible in todays economy.
People are to cheap.


----------



## Thrifty Walrus (Jul 8, 2010)

TaylorP said:


> Not really, its not feasible in todays economy.
> People are to cheap.


Well now I feel like a dumbass......must..............retaliate.....................to save.......face........... *it's *too


----------



## JMoney (Apr 16, 2011)

perennialurker said:


> Here is by far the BEST financial decision you can possibly make before 25: Get a degree that will help you to be gainfully employed.These days one of the biggest problems facing people our age is unemployment. Saving is much easier if you have a source of income.


any specific examples of ones to get?


----------



## perennialurker (Oct 1, 2009)

JMoney said:


> any specific examples of ones to get?


There are no specific examples. You must find something that you LOVE doing. Employers reward workers who put in extra hours, go the extra mile, and consistently churn out superior work. If you don't love what you do, this is impossible and you will always remain a mediocre worker at best, meaning that your prospects for promotion and success will be non-existent. Taking a job that you love will allow you to excel in this way, simply because you enjoy doing these things and this love will shine through in your work. As someone who took the "for money" path, I can tell you that you are better off finding something that you love doing and then focusing your energy into being the very best in your field rather than taking the kind of jobs you are "supposed to take". Best of luck.


----------



## curious0610 (Jun 27, 2010)

perennialurker said:


> There are no specific examples. You must find something that you LOVE doing. Employers reward workers who put in extra hours, go the extra mile, and consistently churn out superior work. If you don't love what you do, this is impossible and you will always remain a mediocre worker at best, meaning that your prospects for promotion and success will be non-existent. Taking a job that you love will allow you to excel in this way, simply because you enjoy doing these things and this love will shine through in your work. As someone who took the "for money" path, I can tell you that you are better off finding something that you love doing and then focusing your energy into being the very best in your field rather than taking the kind of jobs you are "supposed to take". Best of luck.


I agree with everything @perennialurker said =) 
Another thing to keep in mind is that sometimes these things are encountered by trial and error, and you might want to take a chance to "get things out" of your system. If you REALLY want to do something, and your fixated on an idea, go ahead and take a stab at it. It's better you at least DO something, rather than wondering "what if"


----------

