Besides the fact that there’s a massive generational wealth transfer underway, another reason why I’m not too worried about the financial future of our kids is because they are much more financially savvy than we once were.
Thanks to the internet, there is an endless amount of free information to consume. The information uptake compared to when I was a kid in the 1980s (pre-internet) must be 1,000X greater. Further, the ability to invest smaller sums of money is much easier and access to once unaccessible deals is much more available.
It used to cost $200 to trade a stock. Now you can build a 30 position portfolio for only $7.95 through Motif Investing. You used to have to spend $500 to buy Microsoft Excel software to help track your finances. Holy crap! Now you can just sign up for Personal Capital and manage your net worth and analyze your investments for free. Those who’ve taken advantage of such democratization have tremendously outperformed those who couldn’t be bothered.
Given the stock market is at an all-time high, here’s an interesting question I received from a 13 year old cryptocurrency trader who wants to know what financial mistakes to avoid. Perhaps you can give this middle schooler some advice after I’m done as well.
Question: I’m 13, live in an upper middle-class family, have good grades in school, and want to start planning out my future now. I want to learn the major mistakes other people have made before I can even grasp the chance to do the same.
I run an eBay account where I make ~$400 gross a month buying and reselling high tier shoes and clothing. The money usually ends up in my desk drawer, but I have been dabbling in the investment of cryptocurrency and I have turned around a $2,200 profit so far.
I know that money comes with work and gambling for it is the worst thing you could do. I want to be able to live a happy and wealthy life and I know I have all the utilities but I don’t know what to do. I am willing to work and take risks to sustain financial growth but I don’t know where to start.
If anyone is willing to give me three pieces of advice for my future I will take them with full consideration. Thanks! Daniel
My Answer:
Hi Daniel,
Congratulations! You are well ahead of your peers when it comes to planning for your financial future. Most folks in the US don’t care until it’s too late. When I was 13 years old all I did was chase girls, skateboard for hours after school, drink beer and occasionally sneak my parent’s car out for a spin! It was a helluva fun time living in Kuala Lumpur, Malaysia back in the late 1980s.
Your parents will cringe at my first piece of advice, but do know that your grades don’t really matter until high school. In other words, have fun in middle school. You get to start all over freshman year in high school. Freshman year is when you really need to start hitting the books because your GPA gets averaged over the next four years. Better grades mean an easier time getting into college and setting yourself up for an easier life.
The people today who complain about life not being fair more often than not didn’t take school extremely seriously. Education is what will set you free. Get the best grades and test scores possible to give yourself as many options as possible.
Related: Public Or Private University? Depends On Your Guilt And Risk Tolerance
My second piece of advice is to lose money early and learn from your mistakes. It’s much better losing $1,000 than losing $100,000. Investing in cryptocurrencies sounds like a great way to make and lose everything. If you end up losing your $2,200 profit by not at least taking some profits, you’ll always be reminded about this loss before making more significant investments.
The people who are in for a rude awakening are those who feel they just can’t lose because they only started investing after 2009. Never ever confuse brains with a bull market. Study the previous bubble implosions to better prepare yourself for the next one.
Related: The Proper Asset Allocation Of Stocks And Bonds By Age
Tulips, internet stocks, property, cryptocurrencies. History repeats itself.
My final piece of advice is to always focus on building your personal brand. The easiest way to do so is to establish a presence online that organically grows over time. What do you want people to think when they search for you online? Don’t post compromising pictures of yourself that might come back to haunt you. Don’t write hateful commentary, only love or nothing at all. Focus on helping someone first before asking for help. Be resilient. Learn how to speak in a calm, clear, and professional manner. And never fail due to a lack of effort. If you can consistently tilt towards the positive, you will surround yourself with other positive people in return.
The abundance mindset will make you much wealthier than someone who holds onto a welfare mentality. There are janitors and elevator repairmen who make over $250,000. There are bloggers who make over $1,000,000. You don’t have to go the traditional route to make good money.
Oh yeah, and listen to your parents. The easiest way to never say, “I wish I knew then what I know now,” is to listen to the people who’ve been there. Find a mentor. Constantly ask yourself whether your next purchase will improve or hurt your lifestyle and net worth. I’ve done my best to share my experience and expertise on everything I’ve been through, good and bad, on Financial Samurai. Don’t let all the free advice go to waste!
Good luck! And thanks for reading. Your question has encouraged me to take some money off the table.
Sam
Related:
Perpetual Failure: The Reason Why I Save So Much
The One Ingredient Necessary For Achieving Financial Independence
The First Million Might Be The Easiest (the post where Daniel asked the question)
Readers, any more advice for this forward thinking young man? What are some of the financial mistakes you’ve made?
I would suggest to all people and especially this guy:
Keep a detailed financial journal. Keep exact numbers, dates and your thoughts at that point. Review this later in life and apply the learnings to other investment decisions.
I know one guy who was doing this with a $15k net worth in 2006 and now has 1.2m in assets. Your history does not need to repeat itself and your investment decisions should have a memory.
100% agree with the financial journal. From the age of about 8 on, I wrote down every single expense (rounded up to the nearest dollar) in a steno notebook, and every spec of income (rounded down). Every ice cream cone and every Bazooka Joe, every fire cracker and every Barbie Doll & Hot Wheel. Raking leaves, birthday card money, babysitting, yard sale and lemonade. It all added up. For about the next 25 years I was able to estimate my monthly cashflow within $10.
Wow! That’s a bit extreme, but not in a bad way. I doubt too many teenagers will actually do this, but if even one or two do this and understand their personal financial situation better, they’ll be better off financially, I suppose.
That’s great advice. I wish I was back at his age with the investing knowledge I have now…I would have had the joy of picking up Netflix when it was dirt cheap. When his initial returns are high enough he should look at pulling out his original investment and placing it in a safer account. Cryptocurrency is doing great right now but is a very high risk investment.
Reed Hastings spoke at my Berkeley MBA commencement ceremony when Netflix stock was at nine dollars a share. Analyst were calling for its death.
There’s money making opportunities every single day. Don’t always listen to consensus!
I **totally agree** with the keeping track comment… but use a tool to do it — I started using Quicken back in 1995 and have every financial transaction since. Using reporting, I know my own rate of inflation, I know where my savings ‘leaks’ are and even what my Net Worth CAGR is :o) and it definitely helps me set achievable goals and make smart decisions.
There are now a lot of on-line options that Sam often talks about in addition to Quicken, but having your history allows you to know where you’re likely going and how fast you can get there with real facts! It’s a real financial confidence builder with just a small investment of time to set up.
Pretty sound advice in my opinion. It’s sad but you don’t realize how little grades matter early on. Maybe it’s better though if we make good grades and take everything very serious because that sets us up for our work ethic when it does matter. Then again, maybe it sets us up for burnout earlier.
Is an NIH grant for a study in there for someone?
For what it’s worth, as far as taking money off the table. I was talking to a realtor friend of mine and he said he’s had an uptick in investors selling some of their real estate holdings here in Texas. He says they like the prices.
Maybe things are gettting frothy or then again maybe we shouldn’t worry until our Uber driver starts talking about buying a rental property.
Tom @ HIP
Considering the blog is run by an ex? Uber driver and he talks a lot about buyin property this may be the sign. :)
Wow this is such a great question from a 13-year-old. If I didn’t know, I would have thought Daniel was in his 20s since he sounds so mature.
I totally agree with Sam that a good education is one of the best things you can invest in. Don’t stress out too much over grades and drive yourself crazy, but do try to get the best grades you can. It could mean a $150k scholarship for your undergrad. I wish I had leaned more about investment and personal finance when I was younger. But Sam is right, it’s never too late.
Sounds like a question his parents could’ve written. ? ! # @ It does sound uncharacteristic of a 13-year old, doesn’t it?
However, I know there are those who want to be successful early, especially because information is so readily available on the internet.
A 13 year old! I thought the 21 year olds who started saving had it together.
1. Do more of the things Sam did at your age! Leave high school without regrets – sports, experiences, clubs…. anything that is easier to do when you are younger with little responsibility
2. Building off Sam’s advice of building a brand, continue exploring the entrepreneurial tendencies you clearly already have. Making money on your own terms is something I am pursuing now – the younger the better
3. Avoid debt – specifically taking out student loans for general living expenses and anything credit card (obvious, but it puts people behind early)
Daniel:
Wow, $400 gross per month at 13 years old. That’s awesome! You’re already way ahead of the game. In fact, just by virtue of your questions, I can tell that you’re going to do well in life. You’re smart to ask older folks, too. We’ve had plenty of time to make a LOT of mistakes!
Here are some of mine:
1. I waited far too long to get into the stock market. When I was younger, I foolishly spent almost everything I made, figuring I’d get around to investing later. I can’t tell you how much that decision cost me – probably hundreds of thousands of dollars! Even if you put a small portion of your earnings into the market now, you’re likely to see huge growth over your lifetime due to compound interest.
2. When I finally did get into the stock market, I bought individual stocks instead of low-cost index funds. I would have been far better off if I’d purchased low-cost index funds instead of trying to pick and choose a handful of individual stocks. In fact, I eventually sold my individual stock positions (at hardly any gain) and purchased index funds instead. That has been working much better.
3. I underestimated the value of learning from others. In fact, this wasn’t even on my radar until my early 20s. Eventually, I discovered books, motivational tapes (the equivalent of many podcasts today), peer groups, and the power of just asking people I admired out for coffee or lunch. (By the way, you may think you’re too young to ask an adult out for coffee or lunch, but I don’t think that’s true. I think almost any adult would love to sit down with a young person to share their experiences. All you have to do is ask!)
Ok, those are three of the many, many thousands of mistakes I’ve made in my life. But, if I may, let me leave you with just one more piece of advice…
Don’t be afraid to make mistakes! Mistakes are valuable learning tools. When you make one – especially a big one – pick yourself up, dust yourself off, pat yourself of the back and say “Wow! What an amazing learning opportunity that was!”
Good luck to you, Daniel!
I agree with the advice Sam offered. Especially the part about the importance education and losing money early to learn from your mistakes. Sam also offered some great examples with the janitor, elevator repairmen, and bloggers who can all make great money. Here’s the advice I plan to give to my daughters as they grow up.
1) Keep trying new things to find out what you really enjoy are passionate about (these will likely change as you get older). Then figure out how to get someone to pay you to do those things you love.
2) Talk to and hang out with the people you look up to and admire. There is a saying that we are all the average of our five closest friends. I think there is some truth to that.
3) While the importance of hard work can’t be overstated, be sure take time to share as many fun experiences with friends and family as possible. These are the moments you truly live for in life. You will always regret what you didn’t do rather than what you did.
Sounds like you are a pretty creative young man well on your way to finding success. Best of luck!
I would have just said “go out and play!”
Great advice Sam! Thanks for sharing. Sounds like this kid is leaps and bounds ahead of his peers!
That is great advice.
I’d also include that while your career is likely your biggest asset, especially if you focus on education and open doors early in life, side hustles and side income streams that are passive and automatic are the way to go. It’s tough to get to the big assets at a young age but you can start planting seeds that can grow into mighty trees over time.
Always be saving a large percentage of your earnings and income, and invest conservatively and intelligently. The power of compounding will take care of the rest.
-Mike
Daniel,
My suggestion would be to start and investment club with friends your own age. You may need a parent to open the account but if you start out small and pool your money with a small group of friends, (my suggestion no more then 5) you may be surprised how fast things can grow. Treat it as a business and have yearly votes for President, vice, treasurer ect. It will give you a good experience as to how to deal with people and possibly run a business and this way you have a larger amount of money to invest but also multiple inputs for investments.
Best of luck
I would just add that all people learn from their mistakes and remember them, they might not remember good advise….so set yourself to test with small risks (e.g. small amounts of money you can afford to lose) and if you fail you will learn from it without risking everything.
Awesome! I love hearing stories of kids that are interested in investing and have made some progress! I suggest all parents put $1000 in an investment account before their child is born, then when they’re old enough to understand, start explaining the concept of interest, compounding, and other investing concepts!
Great article, and nice to see a good story about the upcoming generation. Since he has real income I would have him invest in a Roth iRA. The investments would grow tax free, and after 5 years he can take the principal out if he needs to spend the money on college. Think about 50+ years of tax free growth! If my 13 year old child showed this much drive I would probably give a match to whatever they put in the Roth, and that is a discussion he should have with his parents. Parents should encourage early investing, and a match of some type makes perfect sense.
Good advice. I’d add some addendums.
There are some good argument for busting ass in middle school (especially the last year of middle school), including:
1) Developing good habits.
2) Getting yourself up the intellectual curve.
3) Making yourself eligible for honors and AP classes.
School should be treated as a competitive sport. You want to be better than everyone else, no matter how much work it takes. Getting into a top tier university will do a ton to set you on a trajectory to be a member of the 1%. Flipping sneakers and screwing around with cryptocurrency is a fine way to start understanding things like market dynamics, and I wouldn’t discourage them, but I wouldn’t let them become a major distraction.
Making mistakes early is to be encouraged, but that doesn’t mean one shouldn’t start learning investing best-practices early, including the powers of things like diversification, low-fee index investing, and compound returns. Some people make big mistakes but never grow from them. The lessons of mistakes are easier to learn when contextualized against proper investing practices.
Building a personal brand is great, but remember that the internet is forever and teenagers are dumb. Sam helpfully advises keeping things positive, and that will steer you right in most situations. Very few teenagers would take this advise, but running any posts by your parents first would be a good way to filter out material that could be compromising later.
Couldn’t agree more with you John, especially when it comes to good habits. Just like grades don’t ‘matter’ in elementary school, developing the skills and habits (daily supplemental reading & math, etc) that inevitably lead to good grades has been very beneficial as my kids are now going through middle school and will very soon be starting high school, where, as Sam points out, the stakes only rise that much more.
YES!
Agreed. Some kids may be able to “turn it on” as soon they hit high school, but old habits are hard to break. A slacker in 8th grade is likely to be a slacker in 9th. Furthermore, many academic skills, especially reading comprehension and writing, are learned cumulatively over thousands of hours. It might takes years to close the gap with the bookworms.
In my own school experience, the academic hot shots in 6th grade were the same as the academic hot shots in 12th grade. You occasionally get a late bloomer, but it’s the nature of many schools to “track” kids as remedial, average, and advanced early on. It can be tough to break out of your “caste”, so it makes a ton of sense to aim high early.
All very good points! Maybe I should rephrase my advice by saying, “don’t overly stressed about your grades in middle school because they don’t count until high school.”
Because I was allowed to play aggressively in middle school, and I mean aggressively, I got 80% of the naughtiness out of my system in high school. I still got suspended, and that other bad stuff, but it would’ve been worse if I didn’t experience things earlier.
Yeah. At the end of the day, every kid is different, and every kid’s path is different.
I was a hard working geek in middle school and high school. My social skills were probably way behind where they should have been by the end of high school, but I did land a slot at an Ivy League school which led to a seat on Wall St. I cringe a little when I look back at my awkward high school self, but I wouldn’t change it. I was able to develop the social skills in ensuing years, and sacrificing my social life early on gave me an invaluable on-ramp to achievement in my adult life.
There’s a lot to be said about being a well rounded person, but I think early on, a maniacally intense focus on academics pays huge dividends. It’s a lot easier to get the social stuff down later than to try to become a anesthesiologist, management consultant, or investment banker out of a third tier university (not that that those are the only paths to success, but they’re low-risk high reward paths that you should give yourself a shot at).
My advice to any kid coming through school is to outwork all your classmates. That smart kid outscoring you? Work twice as hard as him and take back the crown.
John, we must be brothers from another mother… very similar life experience, and it has worked out pretty well for me too!
I know you have an ebay presence but have you thought about branching out with an easy job that will cost little and make you a lot of money for the time you spend. I knew a person, back in the day, that put themselves through college by painting house numbers for people on the curb in front of their house. All you need is a spray can of paint and some templates. If you sell it as an easy way for an ambulance to find their house in an emergency, as he did, more people bought. It may not work in your upscale neighborhood but there are many houses in nice, safe neighborhoods that would probably pay $10-15 or more for your service. Good luck in any thing you try. You have made a great start.
I would add to not do anything that will get you arrested. You never know what you may want to do in the future (work for the FBI, become an astronaut, etc.). Don’t get caught drinking under age and definitely do not drink and drive. I have seen the headache both cause for my friends in the past.
Your doing great and keep it up. You could be boring and just put your cash in a index fund and let it grow slowly but surely.
I’d add heaps of encouragement — Daniel is doing great because he has the right mindset. We’ve all probably read Hill’s Think and Grow Rich. I hope Daniel gets a copy form the library right away.
Yeah I think this kid is going to be okay. What a stud making $400 a month on eBay at 13.
The only advice I would give is similar to yours. Start now and be fearless. Don’t wait for something perfect because that doesn’t exist. Just start. You will learn as you go. By the time you are graduating college you will be an expert with endless options.
I can only imagine what I would have done with $2200 at that age.
Whatever your career be the best at it.
Excellent post and excellent advice, Sam!
I would tweak a couple things: Your job now is to learn how to learn. Grades be damned, you can learn a lot from your mistakes but you have to see them as the opportunity they are. You can also learn from your successes, obviously. Learn /how/ to learn more about what you’re interested in. Learn how to slog through learning about things you’re less interested in.
Find a mentor, or several mentors. Learn how to be happy from happy people. learn how to get rich from rich people (and so on). Try not to confuse the two.
I agree with others about getting into the stock market and I generally agree about index funds. But I think you learn more and are more engaged by picking a couple of stocks so you can keep an eye on how they’re moving, especially at a young age. My very first stocks were Coca Cola, Disney, GE, P&G, and Harley Davidson. Easy to track and made sense to me at the time (I was 8 and this was in the mid-80s).
If your school has a Junior Achievement economics curriculum, I would suggest that. There are a lot of people offering one size fits all financial advice. Learning the basics is important, but you are starting from a totally different point than a risk intolerant lifelong spender with multiple dependents who may be easily overwhelmed by complex market forces and decision making–so don’t let other people’s issues become your issues and always consider the source.
I really have to disagree with the attitude of, “grades be damned!”
It makes no sense not to give yourself as many options as possible. You can obviously still get good grades and learn as you go.
After you make your mark in the working world or in the entrepreneurial world, then you can say grades be damned. But not before.
Hi Daniel! Boy that’s impressive and to be featured on FS at 13! Straight outta the gate like a lightning bolt! I really like all the advice above me and I’ll add… (this is for when you’re older :p) make sure whoever you’re with has the same dollar ideology as you. Don’t get too distracted by hormones.
Teenagers are nuts.
When I was in high school I purposefully avoided all the romance. I knew I wanted out and I knew teenagers can be full of hormones and bat crazy. So I just pretended to exist (I became very good with rejecting external stimuli) as a way of making out of high school without a scratch (bullying, drama, unnecessary heartache, drugs, peer pressure.)
I just kept telling myself the drama will be over but the decisions (grades) I make here will stay with me for a lifetime.
Daniel,
I applaud you for planning for a great future at such a young age! My advice is to “Not make any big decisions when emotions are high, whether extremely happy or sad” because I didn’t get this advice as early as I would have liked and it got me into some financial trouble. For example, in my 20’s I really wanted to own a bunch of investment properties to eventually be able to live off the passive rental income. So I jumped at an opportunity to attend a free seminar on how to make this happen. I paid $25,000 for the course because the speaker convinced me that I would be able to make that $25,000 back when I flipped the first house. Of course, the presentation included stories of “people just like me” who bought and sold properties successfully. How exciting and easy this sounded! I let my emotions get the best of me and never did get my money’s worth for that course. I was so stupid to pay such a large amount of money when there are countless blogs out there sharing how to be successful in real estate. Another situation to not let your emotions get the best of you is in love. It’s easy at the beginning of a relationship to be totally enamored with the person you’re with and I can understand why some people get married within a couple months of knowing each other. This isn’t to say that there aren’t couples who’ve done this and are still happily married but there are many more examples of those who had a short courtship and ended up divorced. Divorce is one of the best ways to cause financial ruin. If you and your love are meant to be together it will be so regardless of when you get that marriage certificate. If you haven’t already done so, I highly recommend reading all the articles on Financial Samurai. Sam has covered all the important aspects of living a happy and wealthy life by addressing the importance of having the right mindset, emotional intelligence, being prepared for various life events, and so many other tips that you can only pick up by reading his work. Wishing the best of luck to you!
Your advice is spot on and extremely important. Emotional decisions turn out to be good decisions. Writing out my thoughts, and surveying the audience has really allowed me to see different perspectives and make better choices.
Also, I really hate those snake oil salesman will charge an arm and a leg to sell a pipe dream. They are praying on people and they should be regulated. One of the best things I love about blogging is that everything is free. I hate asking anybody for money, and it gives me so much joy to also, I really hate those snake oil salesman will charge an arm and a leg to sell a pipe dream. They are preying on people and they should be regulated. One of the best things I love about blogging is that everything is free. I hate asking anybody for money, and it gives me so much joy to just provide my thoughts and experiences to help other people who might have questions.
When you run a business that’s free to consume, there’s really no downside except for your time. But if you love what you do and you don’t really care! And when you don’t care because you love spending time on your business, there’s only upside!
https://www.financialsamurai.com/why-blogging-is-the-best-business-in-the-world/
It is very refreshing to hear young people being so interested in their financial futures. I started to get really interested in money during my first couple years of high school, which lead me to start my first business before graduating. I learned so much from that first business and it really set me up for success later on in life.
People who start out that early are giving themselves the best odds for success! The sooner someone gets started, the more room they have to make mistakes and learn from them.
One caveat, if I may, which may only apply if Daniel is planning on going to a private HS… Grades DO matter! I graduated at the top of my class in 8th grade (hold your applause, please) and therefore was awarded a merit-based scholarship for high school which covered about 20% of my tuition. Additionally, coming into HS already at the top of my class bestowed a “Scholar” title/distinction that carried with me all four years and onto my college applications. Students that didn’t come in with this title didn’t get it later on, even if their grades surpassed everyone else. Who knows if the title helped me to get into colleges, but it certainly didn’t hurt!
Dang! Well done for eighth-grade excellence! :-)
I actually didn’t think about that at all regarding scholarship to a high school because I want to public school and I feel that it’s unnecessary to go to private school in this day and age of free. BUT, if your parents can afford it, then why not.
I think you might hate one of my upcoming posts regarding private school. But before I publish it, I love to hear your perspective on where you went to college and whether you’re no change in the world? Another words, what are you doing for a living now?
I grew up in the suburbs slightly east of downtown Los Angeles, in what was 25 years ago a mediocre district. Both my parents are immigrants, though my mom came to the US as a young girl and my dad came as a young adult. My dad made a push for a Catholic education, like he had growing up in Central America. I stayed in LA for college (the private Pac-12 school down here). I was pretty undecided on what I wanted as I went through the application process, but I cried tears of joy when I got in, so I knew that was the one for me. (FWIW, I didn’t grow up with an allegiance to either of the local schools/football teams.) I’m incredibly fortunate and grateful that my parents paid for my education; that’s not lost on me. I’m a CPA for a niche firm, and living rent-free with my generous parents while I save for a house!
Thank you Financial Samurai for responding to my comment and giving me this opportunity. I loved the article and am enjoying reading everyone elses comments. The amount of knowledge and advice I have been able to soak in from this article from so many experienced individuals is just great. I’ve read everyones comments and replies and am going to be tuning back in everyday to check out all the new comments. I am facinated by all of the terms being used, and am going to start learning the basics of investing in stock. As many already know, crypto is indeed a risky road and in the past few weeks one of the major currencies I was invested in (etheruem), went from being at a stable $340-400 plummeting to ~$200 (I sure am glad I got out before that happened.) I have around $2500 I am going to start investing with and am so eager for my dad to set up an account so I can start. All throughout the comments I read,”you learn from your mistakes and it’s best to make them early on.” Through my lifetime I have heard this piece of advice so many times I cannot count but I never put it into effect being scared something bad would happen. I think now is the time to start enforcing that ideology and start taking risks. Once again I am ever so grateful for Financial Samurai writing a whole article on my comment. I am thankful for all the great people replying to the article giving me more advice to sift through. If anyone wants to give me anymore direct advice helpful stories I can use you can reply to this comment.
Regards,
Daniel
Learn coding and investing
Pick a few individual stocks and come back to it when u graduate from college
I was an expense tracking 13 year old as well
Better to realize young that u are not a stock picking whiz then go to index funds after 25
Don’t let friends/family talk you into investing in their start up companies. Most starts ups fail.
Sam had a blog post about his investment in a private gin company that was expecting big returns but in the end returned 1.64x after 10 years. High risk investment and small reward unless Sam found out where the rest of the proceeds from the sale of the company went. Or if you grow up to be George Clooney and make tequila and sell that company for $1 billion then be sure to send Sam lots of cases for him to drink to your success.
Sam said “Just Say NO to angel Investing”. Wise words.
1- Avoid alcohol and drugs
2- Work hard
3- Save
1. Save as much as you can.
2. Invest regularly (in a pretax account if possible) what you save after you have built a 3-6 month emergency fund. Do this by buying a low cost index fund (like vanguard).
3. Ignore the market ups and downs.
Sam,
I think the advice you gave him might not be what he wanted to hear; however, it is what he needs to hear. I’ll bet he wants to know what to invest in and what not to invest in.
Since he’s already asking these questions at 13, the advice you gave him was spot on:
1. have fun as a kid
2. take your education seriously when it counts
3. build and protect your brand
The advice given is already very good. I may add that if you’re choosing you’re eduction subject, choose one you like most. It will be easiest to fulfill and to build something up you enjoy and may it be necessary to fall back on. Don’t stick with one thing because other expect it of you, but make you’re own path and be confident about it.
My advice to the 13 year old is to learn as much math as you can, look for what folks are NOT saying about finance, and read John Bogle.
I agree with this advice.
Read: Bogle’s Little book of common sense investing – Invest in total market fund rather than wasting effort in stock picking + market timing. Life is short so go out and have fun while you’re a kid.
My standard advice is to get a job and become a productive member of society.
1. Attend a college that has a CO-OP internship program like in NorthernEastern University to get your foot in the door.
2. Invest like the Financial Samurai.
3. Save 50-85% of your income.
4. Invest in low cost S&P 500 index fund like the one from Vanguard.
5. If possible find a job that has a pension.
6. Look for a spouse/parnter that is on the same page financially and career wise as you.
7. Invest in tax free municipal bonds 4% or greater to generate passive income and strive to exceed expenses to reach FI.
8. Max out your 401K so that you will have a min of 1 million by age 5
9. Have 1-2 years of living expenses in savings so that you can leave your job anytime without feeling trapped.
10. Buy a house max of 3 times your gross income.
11. Don’t spend money on a new car every 3-4 years. Keep a car for a min for 10-15 years.
12. Strive to have passive incomes that cover at least 2-3 times expenses.
Think Sam’s advice is good – in college I turned $250 into $2000 by trading currencies online in the span of about 4-5 months but then ended up losing over $1000 in one weekend by betting too big. Take the time to question why you are making money – are you making it on both the long and short side or were you just lucky enough to catch the middle part of a bubble? Write out your decision making process – and if it’s limited to “buy cryptoccys until they go higher” then you’re likely better off taking some money off the table now. The more you can separate out your successes in the market based on real fundamental ideas that played out well as opposed to lucky wins, the better off you’ll be to replicate that success going forward. Also if you are enjoying the trading game take the time to read Reminiscences of a Stock Operator – it’ll help you realize that the path to success is never a straight line, but constant self reflection and hard work will get you there eventually
My son has been investing in cryptocurrency since he was 8 years old with money from Grandma and with gifts money, he will turns 10 in 3 months. He begs me by AMD when the stock was trading above 8 dollars. He does research on AMD and gave a full presentation on why I should invest in AMD and yes I took his advice. Also, yes he does have a youtube channel when he was 7 which he himself told me he should have the presence online. I honestly believe some children are just born with the financial savvy and it is up to the parents to guide them.
I love your sound and down to earth advice because these savvy kids still need to be kids.
Hi Sam,
First of all Congrats to both Daniel and you, on your financial wisdom.
Truth be told – The 13 year old impresses me a lot more :-)
But this Q has been bothering me:
What if you are on track with your NW, but not with your passive income streams.
Personally, I have no idea what my various investment accounts generate as passive income. They are all mostly on DRIP, and there are quite a few based on past and present employments. Yes, consolidate, but I want to enjoy the variety in choices to invest as well at low fees.
Anyways, yes 20x your current income as NW goal, and a fixed $150K in passive income – while both make sense, I am unable to correlate the two in my situation. The rental income is easy to track, but I strongly feel that while my NW is on track (and I also fear its because we are in a persistent bull market), I do not feel comfortable with my passive income streams. Perhaps, this is the reason I am leaning towards rentals so I can have a clear picture on that front.
The thought of – I suddenly stop working, where am I getting the money from, then? In Pre-tax accounts like 401K, yeah – some passive income stream there, but so what? I cant touch it.
Thanks for your thoughts and guidance in this regard.
Hi Sam,
First of all Congrats to both Daniel and you, on your financial wisdom.
Truth be told – The 13 year old impresses me a lot more :-)
But this Q has been bothering me:
What if you are on track with your NW, but not with your passive income streams.
Personally, I have no idea what my various investment accounts generate as passive income. They are all mostly on DRIP, and there are quite a few based on past and present employments. Yes, consolidate, but I want to enjoy the variety in choices to invest as well at low fees.
Anyways, yes 20x your current income as NW goal, and a fixed $150K in passive income – while both make sense, I am unable to correlate the two in my situation. The rental income is easy to track, but I strongly feel that while my NW is on track (and I also fear its because we are in a persistent bull market), I do not feel comfortable with my passive income streams. Perhaps, this is the reason I am leaning towards rentals so I can have a clear picture on that front.
The thought of – I suddenly stop working, where am I getting the money from, then? In Pre-tax accounts like 401K, yeah – some passive income stream there, but so what? I cant touch it.
Thanks for your thoughts and guidance in this regard.
Hi Daniel
Congratulations on your achievements! I’m a lot jealous! I wish I had your financial savy-ness at 13! But then again I wish I had any money at 13! I didn’t even get to keep birthday money. My folks needed it.
So here’s a few kernels of experience that this financial fool has for you:
1) Learn all you can about taxes, how your income tax is calculated and how to file your income tax forms. Don’t be an idiot like me who was forced to figure all this out (over several years) when I found permanent employment in my twenties.
2) Take as much advantage now of tax free investment offerings, tax breaks and save, save, save! Every now and then compound interest will surprise you! This way, you will have enough money to fund your education and financial freedom if you ever need to. Believe you me, you will need the financial cushion eventually. The workplace is no longer what it was. People are mere tools and are used, abused and discarded as needed by the employer.
3) Treat money with respect. Don’t overvalue it, but don’t abuse it either.
I wish you all the best!
Ebay, cypto currency, banks your parents must be in on all the action cause snapchat and fb don’t allow 12 and unders. Coming from an upper class why not do as your parents do it seems to be working out great. Spending time on ebay, cypto currency, financial blogs at 13 is better than drugs, playing with stuff animals, sports. Just continue doing ebay, cypto currency, financial blogs through 14-18 and stray away from dating or starting a band. You’ll be ahead by 4 yrs to, now your 18, people your age by not changing a thing and continuing what it is you’re doing today.
Really a big difference from upper class parents versus middle class parents.
Great advice Sam. I especially like the advice to find a mentor as I think that a mentor can provide a great deal of knowledge and motivation if you found someone that you can look up to.
My three pieces of advice would be:
1) To always believe in yourself.
2) To find your passion early and build your skill sets around your passion so that you can do what you enjoy for a living.
3) Be positive as positive attitude produces positive results.
Do your best in school but remember to also constantly improve your social skills. Doing well in school right now allows you to get into a better college later which will provide more opportunities. However, once you’re done with college, the reality is that social skills matter. A LOT. Take my wife for example – she sucked at school but she’s a super charming person. She also has an extremely high emotional IQ (which is a better predictor of income in life than regular IQ). So even though she had a 2.8 GPA in high school, then a 3.1 GPA in college, she is killing it in life now because of her social skills. She’s 28 years old and makes 350k as an outside recruiter for a recruiting company. In 2-3 years, she’ll be making 500k. I mention this to highlight the fact that soft people skills and sales skills are very important. Get the best grades you can but don’t forget that learning how to manage/manipulate people can pay huge dividends. One last piece of advice – consider signing up for a company like Cutco and learning to sell for a year or two. My wife did Avon sales in college which I think really helped her to get comfortable with sales in general.
(My apologies if you receive this comment 2X. My computer fritzed just as I hit Submit the first time)
“but do know that your grades don’t really matter until high school. In other words, have fun in middle school.”
Sam, I hope Daniel and his parents cringed at this bit of advice; I know I certainly did.
While I understand you to mean that a 4.0 in HS will be a 4.0 in HS whether one had in middle school all As or all Cs, still grades do matter in middle school because the grades in those years permit (if high) or foreclose (if low) many options downstream in HS (I have 3 in HS right now, one in middle school).
For example, in many (if not most) school districts around the country, the students will be “tracked” into either a higher level or an on-level set of classes, particularly math and sciences classes, based on their 7th and 8th grade performance in those types of classes.
I’m not saying kids should obsess over grades, but if they are capable of As then they should get those As to avoid getting stuck in on-level classes in HS and also potentially being shut out of AP classes (particularly freshmen/soph years) and/or IB programs if their HS has IB.
Great advice! Make the mistakes now, the quicker you make them, the quicker you can recover and learn from them. I don’t know a lot about crypto-currency so I can’t really comment on that. But I am impressed with this kid’s maturity. The best advice I can give is to do something you enjoy doing. If you enjoy it, you will want to and eventually will become great at it and then success is not too far away :-)
Hi Daniel, (and Sam)
I am a computer science faculty, and a reader of Sam’s blog.
Some thoughts I have based on my life experience:
1. I personally find it good to do something that I am both passionate about and has good economics. Passion with bad economics causes a lot of financial stress in life, but good economics without passion causes burnout and career switches. Fields with generally good economics are business, medicine, law, computer science, finance, and other generally technical areas.
2. I found it beneficial to relentlessly keep improving at a few chosen subjects (for me mostly, computer science) since a teenager, and just stick to them, because over the years, the slight improvements of one’s knowledge keep compounding. In the global economy, it is specialization rather than generalization that is generally rewarded.
3. I personally think it is beneficial to study hard in school and get good grades, while not overpaying for college degrees (i.e. apply for lots of scholarships). Like anything, a degree has a rate of return associated with it, so it is important to get a great education, but not be trapped by enormous amounts of college debt.
4. I find it really important to focus on outdoor activities, health, fitness, nutrition, and keep those as very high priority items in my life. It is really important to establish these habits early and stick with them because they also cause compounding effects in one’s health and lifestyle. For example, many people are unfortunately not in so good of health, fitness, or live in areas with not much access to beautiful outdoors places, so they have a hard time actually enjoying their life and the money that they work hard to earn.
Great advice Sam! I thought 13 was a typo ,very impressive!!
Daniel, I admit that below advice would not be appropriate for your age, but I still want to share this with you as you are very financially mature.
There will be major market crashes/financial meltdowns (like 2008) almost every decade. Please don’t be panic but continue saving diligently and invest as usual because market always recovers and goes up. Never underestimate the power of compounding so start early and be persistent. For someone like myself, a subpar investor, an index fund (a total stock market or S&P 500) has been the best choice (S&P 500 was 100.18 in 1977 and it is now 2459.27), but if you are like Sam, be creative and diversify as much as possible.
Wish you the best!!
My biggest mistake was I thought that I couldn’t replicate the successful person in the book/article that I was reading because my situation didn’t fit theirs.
It never occurred to me that their blessings were different but I had my own blessings that they didn’t have. For example, I thought that because they got to live at home after college and I didn’t and therefore my bills were higher so I couldn’t save like they could that I wouldn’t be successful. I didn’t see that my living in a garage apt for six years totaled up less than their much nicer apt for two years after they left home.
It also never occurred to me I could succeed with the idea I was reading about because my bumps in the road were different from theirs. For example, oh, I can’t retire in 9 years like Mr. Money Mustache because I don’t have a high salary. It didn’t occur to me that I could have retired in 14 years, not nine, by applying the same principles. I just gave up completely on early retirement. I didn’t persist and find a way to make an idea work.
So if you like an idea, think outside the box and get help from a trusted person who won’t put your idea down and discourage you. Figure out how to make it work. If the journey is not worth it after you have the best plan then at least you tried and you learned how to go thru the process of thinking it thru. The next idea you want to implement will be easier from your first experience.
My second biggest mistake was that I didn’t realize I had allowed myself to take on the fears of prior generations’ issues that have changed without heeding their advice on things that didn’t change.
For example my grandparents grew up in an era where your mortgage could be called at any time. If you couldn’t pay the balance of the mortgage in full immediately, you lost the house. That has changed but I still let their fear make me heed them and we paid off our house and all other debt after eight years of marriage.
What hasn’t changed is credit card and car loans are bad ideas. Save up and pay cash for stuff. I did not heed that advice unfortunately.
You may think, what’s wrong with paying off the mortgage and other debt? Other debt is bad, rt? After all, I now get to be a stay at home mom even tho my husband is a lowly paid teacher
From the time we married 10 years ago we lived on my husband’s income and put 100% of mine on the debt. If we had instead 1) paid the minimum amounts on our credit cards, car loans, house, etc, (and of course not added to the debt) and 2) just invested our money (in stocks, bonds, etc) we would still have had the mortgage (just the mortgage. The other debts would have been paid after eight years) but we would also have had $750k in assets aside from the house.
I would rather have $750k and a $730 mortgage payment on a house now worth $200k than $65k in retirement funds (acquired because one employer matched and we only put enough in to get the match) and no mortgage. It just never occurred to me to not pay off the mortgage or the other debt. (Now if this were the 1970s with crazy high rates that would be different.)
Also, my parents’ fear of financial advisers ripping me off prevented me from getting help that would have made me see that investing my salary, not accelerating debt payoff, would have me be a stay at home mom and also put us on the road to early retirement. It takes 7 to 10 years (roughly!) for your money to double. That $750k could have had my husband retired in a decade or so while our son is still in school and we wouldn’t have had to contribute another dime to get there. (Barring anything drastic happening of course).
Well meaning advice may have helped the advice giver in their situation but it won’t necessarily help you in your situation. so you need to think it thru to ensure it will help you with your goals.
Learn how to be kind, learn another language, and take care of your body. Those three will get you very far. Folks actually like to network with kind and interesting people. If you spend time learning how to understand new perspectives, you’ll be one of the most valuable people in any room.
My advice…
1) Become extremely knowledgeable by reading books on stocks, real estate, personal finance, taxes, sales, etc.
2) Don’t daytrade or gamble. 99% chance of losing a lot of money and it’s stressful.
3) Set targets for yourself that are 10X greater than what you believe you can achieve. Take actions that are 10X greater than what you believe are necessary to achieve your goals.
4) Don’t hang out with kids that do drugs, drink, and waste time. Find the kids who work hard.
-Brian CPA, CFP
Wow! quite a kid. I agree with your second tip – Losing money is the most important thing that could happen to a person, in terms of his financial future, as long as it’s relatively low amount.
In fact, I think kids should get some money to “play” in the market, and thus understand the dynamics of it and be more careful when they are older and putting larger amounts in the market.
Regarding cryptocurrencies, it just strengths my thesis that most investors in them don’t really understand what they are investing in. The marketing of cryptos really got into people, with the promises of a new technology.
As new technology by itself is not a bad thing and the world economy sees new developments all the time, what really intensifies the possibility of a bubble is when the market starts to be crowded with unsophisticated investors. When professionals are successful enough to attract average people with promises of easy money, then a bubble could be triggered because the asset’s price loses correlation with the real value of the price. The market can easily behave as a pyramid scheme where those on top ultimately stay happy.
I’m afraid this is the story of cryptocurrencies and this post is just another proof for that.
Hi Solid Investor
Since you let slip that you’ve done a thesis on cryptocurrency, can I ask you a few questions? (And could you please use small words to explain?)
I understand that this cryptocurrency is a currency that someone made up. Is that even legal?
And now you can use real money to buy cryptocurrency to buy stuff. But what does investing in cryptocurrency really mean?
Are you investing in a share of the company who owns this made up money?
Thanks in advance
QK
Hi QK,
Personally, I am not investing in cryptocurrencies, as I am not investing in assets I cannot evaluate. For that reason, I also not engaged in forex trading.
Cryptocurrencies are legal and the trading is regulated to some extent in most Western world. However, they are not regulated to the extent the securities or currencies are regulated, but that might happen in the near future.
You can invest in cryptocurrencies if you believe that its price would rise. For instance, those who invested in Bitcoin a few years ago (or even a few months ago) have made enormous profits. The problem is that most people enter this market for the wrong reasons – Trying to gain easy and fast money. In that sense, it has the characteristics of a pyramid scheme. The technology which the cryptos laying on is definitely a game changer in many industries, and it has a deep and profound value, but it does not necessarily mean that the same goes for cryptocurrencies.
I hope I answered your questions.
Hi Solid Investor
Thank you for the information. It reaffirmed my vague thoughts. I do have one more question (sorry!), you wrote:
The technology which the cryptos laying on is definitely a game changer in many industries, and it has a deep and profound value, but it does not necessarily mean that the same goes for cryptocurrencies.
What technology is that? Is it a financial “technology”? We’re not talking physical things like batteries and computer electronics, right?
Hi
I can refer you to Wikipedia that probably explains it better than me – https://en.wikipedia.org/wiki/Blockchain , but essentially, it’s a sophisticated way to transmit data in a secure and cryptographic way. It can definitely be used for financial purposes, as it can be used in any field that requires confidentiality and security, such as the financial, medical and governmental fields.
It’s not something physical, I’d say that it’s more of a mathematical innovation, but again, I’m not expert for it.
Sam – I know you mean very well and I get the gist of what you’re saying, but I would advise him to be “weary” who he listens to. Some parents (although) relatively successful, can be closed minded or give bad advice. My parents had a successful business, for example but were too scared to invest in the stock market and real estate and were always talking about it as “gambling.”So, although they were successful in their business, they had NO IDEA what they were talking about in other areas and would spew misinformation and garbage, and sadly even do so today even though I have shown them that the stock market and real estate are great investments!
Although, I did get a lot of my knowledge from sort of advice hacking – listening to those who had done what I wanted to do and learn from their mistakes instead of making them myself. Just a thought as Tony Robbins says, “Your family can have the best intentions, but if they accidentally slip you poison, you’re still dead.” Some family members, while well meaning, don’t always give the best advice. Just a thought. I was always advised by others to listen to my parents and I’ve been very successful financially actually doing almost the opposite of what my parents did b/c they were so “fearful.” Not to say all parents are like that,but just to consider their knowledge b/f accepting advice blindly I guess.
Sounds good and makes sense. What would you advise him to do instead?
Hi Sam – I would advise him to take advice only from people (regardless of who they are) that have done what he wants to do AND are successful at it and strongly IGNORE advice from people who give advice on things they haven’t done or have done but never created success. (i.e. divorced people giving relationship advice, broke people giving financial advice, failed actors giving acting advice, etc).
I believe that many are afraid to fail. So, they never try, and failure is a GREAT teacher, but ONLY if you create success and knowledge from that failure. A lot of people sadly DO NOT and they think b/c they have failed at something that that gives them the authority to talk about it. I met a guy who was married 4 times (yes, 4!) and he was trying to give me relationship advice when I told him I was getting married. I saw him again a year later and he was on wife number 5 now saying, “This one really is the ONE.” SMH. He was clueless.