It Starts with a Paycheck
In 1909, Grace Groner was born on a small farm in rural Lake Forest, Illinois. Orphaned at age twelve, Grace had humble beginnings and eventually went to work as a secretary at Abbott Laboratories, earning a modest salary for over four decades. After Grace passed away in 2010, at the age of 100, the town of Lake Forest discovered that she left $7.2 million to a foundation she had formed years before her death.
One simple action at the start of Grace’s employment made all the difference in her accumulation of wealth. It was during her first year at Abbott that Grace purchased three shares of the company’s stock for $60 each, a $180 total investment. She never bought another share, but simply held on to her original stock through thirteen recessions, wars, and countless economic downturns, never wavering from her investment strategy. With the help of dividend reinvestments, stock splits, and the natural appreciation of her shares, Grace’s investment grew over time, eventually building her fortune.
The Lake Forest community was shocked when they learned of Grace’s wealth because she never gave any impression that she was a millionaire. During the Great Depression, Grace learned to live frugally, and for the rest of her life she continued these habits. She lived in a small one-bedroom cottage, and it is even said that after her car was stolen, Grace walked everywhere instead of buying another vehicle. This lifestyle is not what comes to mind when most people picture a multimillionaire.
Grace’s story is a reminder that wealth can be built through consistent, long-term investing and smart financial planning, regardless of income level. Like Grace, what you do with your first paychecks can have a profound impact on the direction of your life.
Money Management for Young Adults is dedicated to teaching you the principles that Grace lived by so you, too, can take control of your money and build a brighter financial future. What Grace chose to do with her first paychecks changed her life, and her legacy, forever.
Turning your first paychecks into over a million dollars does not require any special degree, a genius IQ, or a ton of work. What it does require is for you to educate yourself about the basics of money management and to live within your means, the first of which you will accomplish with the book, and the second of which is completely up to you.
I do, however, want to be transparent with you—the transformation to financial abundance won’t take place overnight. It takes time to grow wealth. The good news is that, as a young adult, you do have plenty of time on your side. And as you are about to learn, time will be a massive advantage for you on this journey.
As a young adult, how do you view money? Do you notice differences in the way you yourself handle money in comparison to your friends? You are not alone. To many, money management seems to be a black box full of conflicting advice from parents, friends, media influencers, and coworkers.
Why does everyone have a different opinion? The answer to this was powerfully revealed in Morgan Housel’s best-selling book, The Psychology of Money. It is worth a read, but I’ll summarize an important takeaway for you here: our money habits are passed down to us by our families, and the economic times of their past upbringings have an outsized influence on their unique perspective on money and how to handle it.
Quite obviously, two children—one born into poverty and the other raised with multigenerational wealth—will grow up with different habits of spending and saving. But even as we advance to adulthood, our views depend on personal experience. A person who came of age during the Great Depression would likely invest more cautiously than someone who entered the roaring stock market in the 1980s. So keep in mind that our own biases exist when it comes to money and work to educate yourself as much as possible—as you are doing now—to get all the facts before you make a financial decision.
What You Will Learn
Personal finance is—well—personal. It isn’t the same for every person. People have different goals and values in life, which translate into money habits and strategies that are unique to their own situations. However, kind of like how a standard handful of doctor-recommended principles are the foundation for a healthy body (such as balanced diet, regular exercise, and adequate rest), there is also a set of widely accepted actions within the personal finance community that a young person should take to achieve a healthy bank account and, eventually, financial freedom.
In this book, I have done my best to bucket these steps into seven chapters for you. The steps, which are intended to be accomplished in sequential order, include these:
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- Budget, Reduce Expenses, and Set Realistic Goals
- Build an Emergency Fund
- Max Out Your Employer-Matched Savings Plan
- Pay Down High-Interest Debt
- Begin Saving for Retirement in an IRA
- Accelerate Retirement Savings and Plan Your Financial Independence
- Save for Other Goals and Deploy Advanced Methods
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Please note that this book is not going to teach you to get rich quickly, nor will it encourage you to seek ways to accomplish that futile effort. Sacrifice in the present will be required if you expect to have a greater standard of living later.
What about those stories you hear of friends of friends getting paid thousands of dollars by trading options contracts on triple-leveraged ETFs? It’s all noise. You’ll hear about their wins but never the significant losses that go hand in hand. In reality, there are very few ways to get rich quickly, and they all require a ton of work. You won’t learn any of that here, but I bring it up so that you know to stay away from anything other than slow and steady—especially when it comes to managing your money after you’ve earned it.
Now, if you are reading this, chances are you have just started working your first “real” job; maybe you just graduated from high school and got kicked out of your parents’ house to fend for yourself, or perhaps you are attending or recently finished college or trade school. Whatever the case, you now have skills to create a reliable source of income for the first time in your life. Congrats! And welcome to the world of adulting.
You may have never been taught how to manage money (we certainly know that most schools do not teach personal finance to the degree that would be helpful), and I’m sure you want to know how to handle all that cash now that you are finally raking it in. It is likely that you have heard talk of investing and saving for retirement but don’t know where to start or how much to put aside for later in life. Also consider the dirty D word—debt. How do you handle it, and is it okay to have some? I’ll cover all of these topics in depth.
“So why is it so important that I start worrying about money while I’m young?” you might ask. “I FINALLY have cash coming in and I’m ready to SPEND it. I have been waiting my whole life for this.”
Look, I get that you want to have fun. You worked hard to get where you are and now you want to live a little, go out, try trendy restaurants, buy a new car, and stock your wardrobe with designer logos. But there is a simple answer to why being young and making a plan for your money now will pay off in the future—the phenomenon of compounding.
The Magic of Compounding
Compounding plays an important role in how your money and wealth grows, and one of the most influential variables in this equation is the amount of time you allow it to grow. If you read my prequel to this book, A Teenager’s Guide to Investing in the Stock Market: Invest Hard Now | Play Hard Later, you have already received a thorough lesson on what compounding is and why it is critical to start taking advantage of it while you are young, so enjoy this refresher.
If you are starting this book with no or limited background on investing and compounding, that’s okay—I believe you will find it addressed adequately enough here to be brought up to speed on the basics.
Another note: the tactics specific to investing and growing your money are contained in about half of the chapters in this book, and compounding rates greatly impact long-term investing strategies and financial planning, which is why I bring up the topic in this book’s introduction.
First, what is investing? Let’s keep it simple. Investing is when you put your resources into something now so that you generate more of something later. For example, you can invest in studying now to get a degree later. You can also invest in going to the gym now to be in the physical shape you want later. And, of course, you can invest financially by purchasing things now that will generate much more money for you later. Now, back to compounding and why you want an investment that does just that.
Compounding occurs when an object’s current growth is impacted by the sum of all its prior growth. If your money is invested, such as in the stock market, it will be subjected to compounding growth. This means that when your invested cash experiences compounding, your money makes you money, and then that extra money makes you even more money, and then that money makes money, which makes money, which makes more money, and this goes on and on and on over time—it is an exponential increase.
And interestingly, compounding shows that the amount of time that an investment is allowed to grow is often much more important than even the amount of initial money invested.
For example, the 10% annual compounded growth of an initial $1,000 investment would look like this:
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Year 0 (starting amount) = $1,000
Year 1: $1,000 + ($1,000 x 10%) = $1,100
Year 2: $1,100 + ($1,100 x 10%) = $1,210
Year 3: $1,210 + ($1,210 x 10%) = $1,331
Year 4: $1,331 + ($1,331 x 10%) = $1,464
Year 5: $1,464 + ($1,464 x 10%) = $1,611
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You’ll notice that the account balance does not just increase by $100 (10% of the initial $1,000) each year. Instead, with compounding, the yearly 10% increase continues to lift up the prior growth as well. This phenomenon intensifies over time. While it may not appear overly impressive after only five years, here is a fast forward of this example to show future year-end balances:
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Year 10: $2,594
       Year 20: $6,728
       Year 40: $45,259
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The most noticeable growth in a set of compounding numbers is always going to be at the very end of the timeline—it’s in the math. This is why you want to start compounding your money as soon as possible.
Of course, the percentage increase (aka rate) matters too. If you have a regular savings account at a bank, you are likely being paid interest every month; this money is also experiencing compounding. However, the interest rate paid by banks has generally been much less than the average 9.7% annual growth of the stock market.
Throughout this text, you’ll find that 9.7% is the yearly compounding rate assumed in examples because this is widely accepted as what a stock investor could have reasonably earned over the past decades. Just note the quick disclaimer that this historical average does not necessarily guarantee what will happen in the future.
To help visualize how huge of an impact compounding could have on the amount of money your investments generate, check out Figure 1, which depicts a hypothetical investment account where the owner saves and invests one tenth of their $50,000 salary ($5,000 per year), beginning at age twenty-five. Investments in the owner’s account earn 9.7% annually. Because of compounding, the total interest earned quickly surpasses the amount of money that the investor ever even puts into the account. This is truly putting money to work.
Other Reasons to Manage Your Money
If my spiel on compounding doesn’t have you convinced on the importance of getting your money matters sorted out starting soon, I will add in one last point—having a bunch of money when you are older isn’t the only reason to get your finances in order. Also consider your mental health.
The American Psychological Association conducted a survey in 2022 that showed 72% of Americans report stressing about money at least some time each month. And according to CreditWise, finances are the leading cause of stress in Americans, occurring more often than stress about politics, work, and family.
High levels of financial stress, as with other stressors, can manifest through physical symptoms such as anxiety, compromised immune systems, headaches/migraines, high blood pressure, digestive issues, heart arrhythmia, muscle tension, depression, and a feeling of being overwhelmed.
In a similar vein, think about how money affects your personal relationships. When you are a young adult, marriage is potentially something you have entered into or are considering entering into. If so, consider this: research shows that money is the number one reason couples cite when filing for divorce in America. Think about that. Around 50% of marriages end in divorce and money is the top reason.
This stuff is important, so having a good grasp of money management can affect your relationships, happiness, and overall mental health—starting now and lasting well into your future.
The reality of not properly managing your money can manifest itself in these ways:
 Living paycheck to paycheck: When you don’t manage your money, you might end up spending more than you earn, which can lead to a cycle of living paycheck to paycheck. This can be extremely stressful and leave you vulnerable to unexpected expenses you can’t afford, such as medical bills or car repairs.
Debt accumulation: Taking out loans, using credit cards, and not paying them off in full can result in a never-ending cycle of debt. This can negatively impact your credit score, making it difficult to qualify for loans or credit in the future. Additionally, the interest on these loans can accumulate, making it harder to pay off your debt in the long run.
Limited financial opportunities: When you don’t manage your money, you miss out on opportunities to invest in your future, such as saving for retirement or buying a house. This can limit your financial options in the future and lead to feelings of regret or missed opportunities.
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To avoid ending up in these tough situations, it’s important to develop a vision of consequence. This means taking a hard look at the potential consequences of not managing your money and using that as motivation to make better financial decisions.
For example, if you don’t manage your money, you might end up living a life of financial stress and struggle, which can lead to missed opportunities, such as being unable to afford to travel or take time off work.
On the other hand, if you do manage your money, you can create a life of financial stability and freedom, where you have the resources to pursue your dreams and take advantage of new opportunities as they arise.
By developing a vision of consequence, you can stay motivated to make smart financial decisions, even when faced with temptation from savvy marketing or peer pressure. Ultimately, the key to managing your money is to stay focused on your goals and to make decisions that align with your vision for your future.
Now, I do want to acknowledge that for many young adults, the accumulation of money is not necessarily a primary driver in life. If you tend to agree, you likely feel more focused on defining your purpose and finding fulfillment in your work and personal life. This is fine, but it’s also important to recognize that money can play a significant role in achieving these goals.
Without financial stability and security, what exactly is your plan to pursue your aspirations, unlock your full potential, and contribute everything you have to offer to society? You may still manage to accomplish goals while living paycheck to paycheck, but the odds certainly won’t be in your favor.
Money can either serve as a tool to help you achieve your goals and live the life you want, or it can become a source of stress and unhappiness if you become too attached to it (either by not ever having enough, or by having an overabundance with no purpose).
Can we agree that striving toward a healthy relationship with money and getting your finances in order is a worthwhile endeavor to focus on?
Why I Wrote This Book
I wrote my first book, A Teenager’s Guide to Investing in the Stock Market, to encourage teens to start earning income and investing in what’s called a Roth IRA (more on this later) as early as possible. The book received great feedback and hit the bestseller list not long after publication. However, I realize that as teenagers transition to young adulthood, they not only find themselves with more money than they’ve ever had, they also are surrounded by more pressure to spend that money.
In this book, I aim to lay out a practical and more holistic guide to personal finance for young people—not solely focused on investing, though that topic is certainly still heavily discussed.
What I intend is for this text to be a workable approach to managing your money as a young adult; after one bucket is filled, move your extra cash over to the next one. If you read this book cover to cover and do your best to digest it, I am certain you will walk away fully understanding the importance of saving and tracking your money and will have the desire to start investing your money to take advantage of compounding, ASAP.
How to Approach the Following Chapters
Your success and speed at which you accomplish this book’s essential money management steps in your own life will largely boil down to two things:
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1. Your income (the more money you bring in, the easier it will be to enact these steps, especially the later ones—obvious, I know);
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and more importantly
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2. Your commitment to living below your means.
What does it mean to live below your means? Well, living within your means implies that you are only spending money on things you can afford; basically, you aren’t borrowing money to pay for what you need such as rent, food, and car insurance.
Living below your means takes it a step further—you must not buy things you want (let’s say a new video game), even though you know you can afford them. This takes discipline, self-control, and good habits, but the reward is high. The more you are able to save from each paycheck, the faster you will be able to progress through the steps in this book, and the quicker you’ll reach your first million dollars.
You cannot expect to make any progress on your financial situation if you do not have a handle on your spending; except for extreme situations, don’t allow yourself to spend more than you make.
Living below your means is especially difficult when you are a young adult because there is no shortage of enticements for you to spend money on, coupled with the fact that your means are most likely not very high. In other words, your income is limited.
The way I recommend you approach this is to read through the book in its entirety and perform the simple exercises in each chapter. Then, leverage the road map in the back of the book to serve as your checklist for enacting these steps in the correct order.
Also, a fair warning—I’ve done my best to make the steps and accompanying examples in this text as relatable and easy to read as possible. However, building wealth is a slow and steady process, and excluding a handful of super-nerds like myself, it is exceptionally boring to most people.
Sure, turning your extra cash into millions of dollars is exciting, but as you’ll see later, it takes decades to get to that point with the average salary. That may seem too far in the future to be worth the effort, but I would argue that other than finishing this book, opening the recommended accounts and regularly funding them, and occasionally sprucing up your personal finance education knowledge, there is not much effort involved at all. Time, the collective progression of the economy, and compounding will do all the heavy lifting for you.
Buckle up and brace yourself for the most boring (but real) million dollars you’ve ever made. Let’s dive right in.
