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Laura Rowley Money & Happiness

Laura Rowley, Money & Happiness

Graduating to a Happy, Financially Secure Future

by Laura Rowley

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Posted on Wednesday, June 25, 2008, 12:00AM

Every year around this time, the New York Times prints a roundup of commencement addresses. I always find a little inspiration there to cut out and stick on my office wall. This year, its author J.K. Rowling's address to Harvard grads about the benefits of failure -- although if I were to nominate a group for the "least likely to fail" award, it would probably be that audience.

In any case, I had some thoughts for my own commencement address. Here's what I would tell the class of 2008 about money.

Believe the Clichés

Personal finance advice is so similar, and so often repeated, it's become a cliché:

• Live within your means.

• Set up an emergency fund with three months of living expenses.

• Stay out of debt.

• Join your company's 401(k) plan or open an individual retirement account; set aside at least 10 percent of your pre-tax income every year.

• Invest in a diversified portfolio of mutual funds to help your money grow over time, and make sure you're not paying too much in fees.

Clichés are easy to take for granted and easy to tune out. But here's the truth: Believe these clichés. Because if you actually follow the advice, it will transform your life.

The Roaring 20s

I'm convinced that real happiness comes from identifying your values, and then being brave enough to expend your strongest talents and best energy in their service. I think genuine happiness comes from naming what you care about most deeply, setting priorities around those values, and then translating them into real, concrete goals. Money is one instrument in the toolbox of resources and people and experiences that help you journey down that path toward the person you were meant to be.

Your 20s represent a personal finance paradox: You have the most financial power that you may ever have because of the phenomenon of compounding. (Someone who saves $2,000 a year for retirement between age 21 and 30 and then stops will have a bigger nest egg than someone who starts at 31 and saves until they're 65.) At the same time, your 20s can be a bit of a bust in terms of figuring out why you were put on the planet.

It's a confusing decade -- you charge out of college knowing everything and ready to rule the world, and spend the next decade realizing you know almost nothing at all. Then, in your 30s and 40s, you recognize that it's OK to know almost nothing -- and is actually a finer way to approach life, because you really listen to and learn from other people, take risks, and benefit from mistakes and failure. (If you continue to simply know everything, you don't grow and become an arrogant bore.)

The Ghosts of Purchases Past

So here's the problem: Many people lurch around in their 20s trying to establish their identities. One day, you pick up a magazine or see a television show that suggests one can establish an identity by buying $500 designer shoes. Or $900 designer golf clubs. Or some other stupid thing that costs a whole lot less to manufacture than you paid for it. Because you weren't just paying for straps of leather or sticks of iron but for an identity attached to a lifestyle that somebody made up in a brainstorming session in an advertising firm somewhere in New York, or in a scriptwriting meeting in Los Angeles.

And this isn't entirely your fault. You're bombarded with signals to buy in a way previous generations were not. There are 1,000 cable channels telling you on a daily basis that your face, body, home, and possessions are in need of an extreme makeover. Technology and credit card companies have made it effortless to act on those impulses.

And then you get into your 30s and 40s and have a better understanding of who you are and why you were put on the planet. You're now ready to use money as a tool to help walk down that road. That's when your 20s can come back to haunt you. Maybe you're still paying the credit card for the $500 shoes and the $900 golf clubs (or for all the money spent in chic bars showing off the shoes, and at golf courses showing off the clubs).

Reality Bites

So you had some fun, but now you're playing catch up. That's usually when the magical thinking starts. You do things like buy a house with an adjustable rate mortgage (because you didn't save up a home down payment). Or you listen to some guru who tells you to put everything you have in gold or oil, or to buy stocks on margin or speculative real estate with no money down.

And maybe you have a couple of kids, and the media that told you to buy the shoes and golf clubs is now suggesting you invest in Suzuki violin lessons, private tutors, and traveling sports teams.

You're scrambling to save for retirement, scrambling to meet your rising mortgage payments, getting in deeper on that credit card to take a few fun vacations with your kids before they grow up and leave you, and God knows how you'll pay for college (since the gold-oil-stocks-real estate thing didn't work for you the way it did for the guru).

And it's really hard to follow your deepest values, and pursue that thing you were meant to do and become that person you were meant to be, because you're really stressed out about money.

Happiness Gained

I was a naïve kid from the Midwest living in New York City in my 20s -- naïve enough to believe all those clichés my father told me about staying out of debt and saving for retirement. So I did both -- it was just something I made a requirement, as routine as brushing my teeth. (And I had a lot of fun at the same time; I just bought my shoes at sample sales, frequented bars with free happy-hour buffets, and traveled to Europe on a shoestring.)

And when I was 37 (which happened a hell of lot sooner than I expected) and working 14 hours a day in television with two kids under age three, I could walk away from my full-time job and start my own thing. My values had shifted, and I knew I had to find a better balance between work and family. I had the luxury of using money to journey down the road in pursuit of my values -- not because I had a big win in oil or gold or sold a bazillion get-rich-quick books, but because I had stayed out of debt and consistently saved for almost two decades.

And that has made me happy.

Commence with Being Happy

So here's my advice:

• Live within your means.

• Set up an emergency fund with three months of living expenses.

• Stay out of debt.

• Join your company's 401(k) plan or open an individual retirement account, and save at least 10 percent of your pre-tax income every year.

• Invest in a diversified portfolio of stocks and bonds to help your money grow over time, and make sure you're not paying too much in fees.

Believe in the clichés. Follow the advice, make it as routine as brushing your teeth. Because one day it will open up a world of options, and transform money from a potentially huge source of stress into a resource to help you follow your values -- and hopefully figure out why you're on the planet.

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  • jim - Monday, June 30, 2008, 2:57PM ET  Report Abuse

    • Overall: 4/5

    Wish I was 20 again and know what I know now. Good advice in this article.

  • Stevie P - Sunday, June 29, 2008, 10:02PM ET  Report Abuse

    • Overall: 3/5

    For the most part, this article has resulted in several intelligent responses, regardless of the author's position; a big improvement over the days of the Trunkster. I think it is important to remember a couple of things. In 1980, the top one percentile in this country owned 30% of the country's wealth compared to 50% today. As a result, living within your means, while still being very important, is harder for people today than in earlier generations. And the standard of living that many middle class people enjoyed, was a direct result of the liberalization of credit policies in the early 80's. As credit becomes more difficult to obtain for some, and terms and conditions become less favorable for many, those people will have to learn to make the adjustments the hard way. In any case, the path to becoming successful, however one chooses to define that, requires many sacrifices and contains many obstacles. Those who make the smartest choices and decisions, attend the schools with the best reputations, get the best grades, develop marketable skills and specialized knowledge, possess emotional intelligence and street smarts and can build relationships will thrive. Those who don't will perish.

  • Lemon Bayette - Sunday, June 29, 2008, 4:00PM ET  Report Abuse

    • Overall: 5/5

    Laura is getting better with her articles. This is right on advice. When I started working in 1978, I was making a very good wage for the time- $11,000!!! My company gave me a pension projection showing that if I was a good worker bee, my pension at age 65 would be $220/ month, and social security would be $350. That is no typo! You just can't hope someone else will take care of you- get busy and learn how to invest. Time flies by when you're an adult, and by the time you catch your breath from child-rearing, you're almost retirement age.

  • William M - Sunday, June 29, 2008, 10:33AM ET  Report Abuse

    • Overall: 5/5

    I started saving for retirement at age 29. Now I'm 49. The only thing I regret is not starting my savings 3 years earlier when I started in my career (yeah, kind of late at 26). Also my income went up very substantially 8 years ago, which also means my employment is always on shakey ground, so I made a point to build a base of government securities and precious metals for a cushion the last 8 years. Because of that, I'm looking forward to continue to dollar cost average my maximum allowable into my 401k and IRA the next 6 years. Next year I will be 50 and can do the catch-up IRA and 401k. I will dutifully save the max. My tax-deferred savings are 100% stock mutual funds.

  • JOHN - Sunday, June 29, 2008, 10:22AM ET  Report Abuse

    • Overall: 5/5

    This is cliche advice. BUT STILL WORKS (WITH SOME MODIFICATIONS) WHEN YOU'RE OLDER. my advice to the old fogies in the crowd (I'm 73, about 9 years from stone cold broke, at which time I decided to put what little I had learned to work.) advice...it's never to late!!! read read read (I mean study like you never did in school.) invest, don't aim to trade tfor the quick buck, but be willing to so do. Probably to late for most funds,, except as you grow, to keep non leaky umbrella. go for GOOD dividends, and/or cg distributions . adjust life style, realizing you're trying to enjoy ALL of your. life more and that you can't take it with you. accept that we can't ALL make it BIG. learn learnlearn...learn learn learn...and then learn more, from any one and every one and remember, no guts, no glory. after nine years of this, (all cliche advice) (no full time job, adjusting life style to what pleased ME!!!) I" happy ,secure, probably unable to outlive my nest egg u nless i tried, and looking forward to 74. I don't always agree with Laura, but this time I do. the one thing she omitted---remember to assess risk (yours and the securities 'cause, no risk no reward.

  • Yahoo! Finance User - Sunday, June 29, 2008, 4:28AM ET  Report Abuse

    • Overall: 5/5

    Great advice! Hit the nail on the head! You are here on this earth to make a positive difference. You have the talent, the desire - but you desperately need to think about the money that gives you the basis for realising your goals. It is the small amounts that make the difference between independence from the system or dependence on the wage-slave system. Nowadays with solar and wind power, you have more options that ever before to live in a simple (wooden?) house, have your electricity and heat paying no bills and stay connected to the web and internet etc Then you'll have the peace and mental space and time to find out who you are. These efforts take years not days or weeks like the media suggest. It's not a question of reading a book or making one resolution. It's a question of concentrated effort over years to work out your identity. Great, great advice in this column that is idealistic and realistic at the same time.

  • Yahoo! Finance User - Sunday, June 29, 2008, 2:09AM ET  Report Abuse

    • Overall: 5/5

    Wow...I think a couple of the folks on this board need either some serious therapy or a kick in the tukus. First - nothing is a lower class as envy and attacking "the rich" since you can't get your own act together. Second - Speaking as a hiring manager, it's amazing how few people in this day & age really want to apply themselves. By this, I mean taking a job where you have to work hard, learn, and take some risks (to get a shot at significant rewards). Plus I'm flabbergasted at the number of young people who are obsessed with the idea that certain types of tasks are "beneath them" - like being the one who goes to get food when you're the junior member of a team or getting coffee for a client. Laura is right. My wife and I are proof the advice works. We're in our mid-thirties, two kids, both college educated professionals who recently moved into senior management (something of a surprise for both of us, since we've been very unambitious on the career front since our first child was born - basically just trying to show up and do a good job w/o too much OT). We both started out at

  • jimsmename - Sunday, June 29, 2008, 12:23AM ET  Report Abuse

    • Overall: 5/5

    Excellent! I am now 48, and can honestly say that Laura is correct on all counts. Follow this advice and you will be OK.

  • Yahoo! Finance User - Saturday, June 28, 2008, 9:36PM ET  Report Abuse

    • Overall: 5/5

    I just want to add: Live below your mean & Buy index mutual funds.

  • Yahoo! Finance User - Saturday, June 28, 2008, 8:38PM ET  Report Abuse

    • Overall: 5/5

    Couldn't have said it better myself. Class of 2003, and spent the last five years not knowing what to do. Did all the correct things in college - got extremely good grades, worked in internships, got some good work experience under my belt. But, after graduation until now, none of the employers in my field would hire me. So, I'm still improving myself and trying to find a way to get a real steady professional job in my field.

  • Love2Fly - Saturday, June 28, 2008, 5:17PM ET  Report Abuse

    • Overall: 3/5

    Good advices for the middle class, not for the entrepreneurs looking to get rich. The rich entrepreneur will tell you that debt is good, just read Robert Kiyosaki from "Why the Rich Get Richer." I could never be an entrepreneur because it requires too much networking and socializing; I need to socialize as little as possible, so I follow these advices instead.

  • Mister Moose - Saturday, June 28, 2008, 11:51AM ET  Report Abuse

    • Overall: 5/5

    Debt is you enemy. You don’t need a new car or a big house. What you need are assets that grow in value, and don’t require to be insured, heated, or painted, assets that can be easily converted to cash to take advantage of the fears of others.

  • DavidO - Saturday, June 28, 2008, 10:47AM ET  Report Abuse

    • Overall: 4/5

    And one more old cliche choose a like minded person to marry. As a bachelor at age 28 I had already saved $40K well on my way to early retirement. I had a good job, paid cash for everything, and was debt free. Then I married a woman who didn't have a penny to her name but I thought she was frugal not a spendthrift. Once we were married her eyes got real big as she said, "we have good credit?" Oh and she wanted a house right away fully furnished too! After almost 18 years of of constant battle over money I am divorced, poor but again happy. A saver should never marry a spender.

  • Yahoo! Finance User - Saturday, June 28, 2008, 10:31AM ET  Report Abuse

    • Overall: 4/5

    This is so helpful. It is true that these advices are such cliches, yet so many of us don't abide by them. For the most part, it takes awhile for people to understand the impact and meaning. I do hope that someone write about money and relationships. For instance, hanging around people who value money such as a boyfriend or people who call themselves your friends. If people are abusive to yours and their money, then there are problems ahead besides money stuff. I frequently hear, "We don't solve money problem with money; It is just a symptom". Friends should only ask you for their time not your money, and if they do, then you should offer it and not be asked. If people don't respect your money, then they don't respect you.

  • chicago3200000 - Friday, June 27, 2008, 8:21PM ET  Report Abuse

    • Overall: 4/5

    This is a pretty good article. The "old cliches" are old because they have worked for a good number of people. Thus far, I've always lived within my means and life has thrown a few curves in my direction. I went to school but managed to combine scholarships and work to get out without student loans. Then, I started working. I left work for six months to help out my parents after my father became ill. I managed to get by without loans or help from my parents. I wasn't out buying expensive stuff; most of my stuff came from a combination of Big Lots , Value City and the Salvation Army. The fact is that I did it. While I would probably have a hard time getting through school nowadays without loans, I certainly wouldn't be wasteful; that is the point of this article. If you are sitting around school and burning a hundred dollars a week on alcohol, that is an issue. You shouldn't go out and buy a $500 set of golf clubs; that's wasteful. The one thing a person should spend some money on is a nice suit because that will help a person get better internships and a better first job. Once a person gets that first job, they should invest in their companies 401K plan especially if there is any sort of corporate match. To those just starting out, let me give you the math. If your company gives $1 for every 2 that you put in, that is an automatic 50% return on your money (that's awesome). The money you put in is also not taxed so you save a bit of money that way too. Then, there is the joy of compounding that Laura mentions. Take 94% of your salary and miss a latte to get potentially a million in retirement. I did get a kick out of one of the posts below; the one about people whom sold their house at the top. A few years ago I invested in a stock and made a healthy profit by selling at the top. It wasn't skill; it was luck. So, the whole selling at the top thing has much more to do with luck than anything else. Besides that, most people that sell their house buy another one. So, the majority sold/bought at the top. As long as they lived within their means (another Laura point), they can probably wait out the storm. I wish everyone the best.

  • Traveler - Friday, June 27, 2008, 6:53PM ET  Report Abuse

    • Overall: 3/5

    Please forgive me if I miscalculate, but the idea of starting in your 20's & then stopping (w/the example given) is only true if you earn more than 5%/year, which isn't guaranteed. In addition, it assumes you leave that pile of money alone for the entire time in either case, which wasn't mentioned. Granted, either way, it's good advice: Start earlier and it makes a huge difference!

  • Yahoo! Finance User - Friday, June 27, 2008, 5:33PM ET  Report Abuse

    • Overall: 1/5

    What self-righteous drivel. Good for you, Rowley, that you apparently did everything right and now you are perfectly happy. What great advice for new graduates, because they must love getting lectures from the holier-than-thou! Please.

  • Manoj - Friday, June 27, 2008, 3:56PM ET  Report Abuse

    • Overall: 2/5

    We are at market correction stage and recession is a normal cycle of economics. There is nothing to fear about it. As usual with recession or depression comes opportunities. I myself is struggling to think that way but this is true. Instead of worrying about it, think by observing and reading and talking with other experts on how you can identify and grab an opportunities. Life is a game, play to win. Do not play to 'not loose'. eg. there are people who brought the house 4-5 years ago, at the peak they sold it. Why? because they are smart, they see and observe and have a strategy. Those who didn;t are stuck, esp those who bought in the last two years. It is important to think in a right way. Imagine you are in a jungle and there is nobody who will help you. You have to help somebody to get help. Actually you don;t have to imagine. We are in a jungle and only the fittest survive, Note : I said fittest not richest.

  • Yahoo! Finance User - Friday, June 27, 2008, 3:15PM ET  Report Abuse

    • Overall: 5/5

    nice article...lots of young people really should read this article.

  • Zoia Adam - Friday, June 27, 2008, 2:43PM ET  Report Abuse

    • Overall: 5/5

    This was an awesome article, thank you Laura. I am an agent for Primerica Financial Services, I am in my midtwenties and this article made me so proud of my decision to be a member of this wonderful company, because Primerica taught me all the values of saving and smart planning, financially. Especially helping others, educating my families and friends to become financially free. Your article made me realize that what I do, and where I am today is not a coincidence. I am just grateful that I am a part of a Company that's does the right thing one hundred percent of the time. I believe, I really believe.... looking forward to reading more of your articles....thank you again.

  • Yahoo! Finance User - Friday, June 27, 2008, 1:46PM ET  Report Abuse

    • Overall: 5/5

    This column is blue-chip. Made me glad to take a chance on the columnist-of-the day. Great job, Rowley~!

  • Yahoo! Finance User - Friday, June 27, 2008, 1:20PM ET  Report Abuse

    • Overall: 5/5

    Live within your means. It is the real way to live. It doesn't matter how much or how little you have. Always go by your net worth. If your house and investments are worth $1,000,000 and your debt is $999,999, your net worth is $1. Painful but true...

  • jeremy - Friday, June 27, 2008, 12:31PM ET  Report Abuse

    • Overall: 4/5

    It's amazing. I learn more from the comments than from the article. Ha ha. Way to go Laura, you know how to spur some intellectual debate. Your advice will go unheeded, however, while we continue to view ourselves as victims of others' greed instead of victims of our own resolutions. Perhaps that's where the real "change" needs to occur.

  • familyman05 - Friday, June 27, 2008, 11:59AM ET  Report Abuse

    • Overall: 5/5

    Exactly ... in spite of the 'gurus' that say otherwise, there are no shortcuts ... planning and discipline are absolutely required for financial security. ...just look at the superstars (or lottery winners) that make a ton of money, spend it quickly and end up broke (Michael Jackson, Ed McMahon, Mike Tyson etc.). Not even a ton of money is a good substitute for planning and discipline.

  • Yahoo! Finance User - Friday, June 27, 2008, 11:37AM ET  Report Abuse

    • Overall: 5/5

    Excellent common sense advice on what we in the US should be following all the time - instead of the advice of the so-called pundits of Wall Street who are usless in terms of dispensing common sense........the country wouldn't be in the financial mess we are in right now if we ignored all of these so-called pundits, analysts, and fund managers !

  • Yahoo! Finance User - Friday, June 27, 2008, 11:26AM ET  Report Abuse

    • Overall: 3/5

    geomann1, two things... (1) Adam Smith and what others say is not the sole factor for me in determining what to think. If you read contemporary tax scholarship, you will find that the ability to pay argument is only one of many used in tax policy. They thought a lot of things 200 years ago that we no longer agree with, so can our understanding of taxation evolve too? I'd encourage you to think critically on your own instead of merely citing what a dead guy said centuries ago. (2) More importantly, you have completely missed the debate. Almost no one thinks we should have a regressive system (and even now, as pointed out below), we have a highly progressive system. Rich people not only pay more, they pay a much higher percentage. Adam Smith's thoughts don't answer the question of how progressive the system should be, though. Is 20 times more enough? Should it be 10 times more or 100 times more? A tax cut or increase to the wealthy is merely a debate about what LEVEL of progressivity we should have, not whether we should have progressivity at all. There are numerous factors to consider. Higher taxes stunt economic growth, especially when imposed on those who bring jobs and investment dollars to our country. Also, how much should the government should spend? If you don't think the federal government should be leaking like a sieve, then there's no need to soak the rich. You might also want to create lower tax rates for people who invest money because it encourages inbound investment. These are just a few of the non-ability-to-pay factors people use in determining the appropriate level of taxes on the rich.

  • Yahoo! Finance User - Friday, June 27, 2008, 11:11AM ET  Report Abuse

    • Overall: 5/5

    This is a good column, but it kind of contradicts the previous one about the fairy tale-- where the person who lived frugally and responsibly got screwed by being forced bail out the irresponsible idiots who took out the risky mortgages and made the risky bets on the stock market.

  • Kevin - Friday, June 27, 2008, 10:48AM ET  Report Abuse

    • Overall: 5/5

    My, my, the Marxists sure are angry today. I am 23 years old, just graduated with a BA last year, and make $32,000 per year. I stopped driving my car to save money, and use only public transportation. I am able to put away 15% of my income into my 403 (b). It really is not that difficult to live within my means. My landlord/roommate makes over $100,000 per year yet he is financially illiterate and is in debt. So sad. Good thing he doesn't blame it on the oil companies or the credit card companies or the banks. That would just be dumb.

  • RobertM - Friday, June 27, 2008, 10:39AM ET  Report Abuse

    • Overall: 5/5

    Not new but true. Biggest mistake people make in life is getting into the conspicuos consumption trap. Concerning taxes, Adam Smith, the founder of conservative free market economics recognized 200 years ago that taxation should be based upon people's ability to pay them (read Wealth of Nations). Republicans have adopted the Leona Helmsley philosphy, only the little people pay taxes. It is simply bad economics to have foreign borrowing financed tax cuts that benefited mostly the wealthy, and I speak as someone who HAD voted Republican his whole life and will vote for Obama this time. What ever happen to the Republican party that advocated balanced budgets????

  • Scott S - Friday, June 27, 2008, 10:29AM ET  Report Abuse

    • Overall: 5/5

    These are the basic financial rules I am trying to teach my children. I would only add "Find work that you love."

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