The world of investing and personal finance can be a very intimidating place. It has a daunting number of components and can seem excessively complex. Because of this, in today's difficult and unpredictable economy Americans of all ages are struggling. But perhaps no demographic currently struggles more with their money than do young adults, many of whom are enormously unprepared to manage their personal finances when they join the workforce. A Pathway to Financial Independence for Young Adults is a great resource designed to help you make sense of your finances. Each chapter is filled with useful advice, clever graphics, and easy-to-understand examples. Unlike traditional financial guides, which can be extremely complicated and tedious to read, this book explains personal finance using clear, practical language with an emphasis on truly understanding how to manage your money. So if you are a young adult and beginning to really think about your finances, this book can help you. If you have credit card debt and want to know how to get out of it, this book can help you. If you do not have much experience with investment or retirement accounts, this book can help you. And most importantly, if you want a logical yet effective text to assist you in planning your financial future in a step-by-step progression, this book can help you. A Pathway to Financial Independence for Young Adults is a must-read for anyone interested in understanding how to climb the pathway toward money mastery.

A Pathway to Financial Independence for Young Adults

Understanding How to Manage Your MoneyBy Drew F. Catanese

AuthorHouse

Copyright © 2010 Drew F. Catanese
All right reserved.
ISBN: 978-1-4520-0854-7

Contents

Introduction...................................................ixChapter 1: What Is Financial Independence?.....................1Chapter 2: Debt................................................5 Credit Card Debt..............................................8 Debt and How to Pay It........................................9 Action Plan...................................................12Chapter 3: Savings.............................................15 Why Save for Emergencies?.....................................18 Pay Yourself First............................................21 The "Christmas Bonus" Factor..................................22 The "No Raise" Lifestyle......................................23 Pay All Bills Every Month.....................................24 How to Save...................................................25 The "Cinderella" Cram.........................................27 Blame Thy Neighbors...........................................28 Action Plan...................................................29Chapter 4: Investing...........................................33 Why We Invest.................................................37 What is "Investing"?..........................................38 Compound Interest.............................................39 Stocks........................................................54 Bonds.........................................................55 Stocks vs. Bonds..............................................57 Stocks for the Long Run.......................................60 The S&P 500...................................................60 Dow Jones Industrial Average..................................62 Money Managers and Stock Brokers..............................63 Mutual Funds..................................................65 ETFs vs. Mutual Funds.........................................67 Real Estate (and REITs).......................................68 Gold and Silver...............................................71 Non-Financial Investment Vehicles.............................73 Annuities.....................................................74 Certificates of Deposit.......................................77 Dollar Cost Averaging.........................................78 Asset Allocation..............................................79 Portfolio Management..........................................82 Action Plan...................................................83Chapter 5: To Buy Or To Rent?..................................89 Buy a Home to Stay Put........................................92 Paying for a Home.............................................93 Emergency Savings and Down Payments...........................96 Aim For a Home You Can Actually Afford........................97 FICO scores...................................................98 Schools, Crime, and Sidewalks.................................100 Action Plan...................................................101Chapter 6: Retirement..........................................103 Understanding "Traditional" Retirement........................106 Retirement Basics Today.......................................108 Annual Income Requirement.....................................109 Individual Retirement Accounts (IRAs).........................111 Traditional IRA...............................................112 Roth IRA......................................................113 401(k) and 403(b).............................................115 What does "Being Vested" mean?................................117 Target-Date Retirement Funds..................................119 Action Plan...................................................121Chapter 7: Final Action Plan...................................123Acknowledgements...............................................129About the Author...............................................131Endnotes.......................................................133

Chapter One

What Is Financial Independence?

What is financial independence?

Financial Independence is a function of two factors:

1) The amount of money you need in income each year to maintain your chosen lifestyle

2) How much money you have saved and invested to generate that income indefinitely

Essentially, this means that:

To be financially independent you no longer live paycheck to paycheck.

To be financially independent you must be smart about your current investments.

To be financially independent you must be smart about your future investments.

To be financially independent you must do what you enjoy in life.

To be financially independent you must understand how to be financially independent!

How can you become financially independent? It is something that every person can achieve if they understand how and follow some basic yet powerful steps. As you progress through this guide, always keep in mind that your ultimate goal is to be financially independent.

Remember, too, that ignorance is not bliss when it comes to your finances. Financial independence is about taking control of your own finances and not letting others-like credit card companies and banks and lenders-control it for you.

To be truly financial independent, you need to understand and implement the strategies put forth in this book. While each of the following ideas is discussed in depth during the course of this guidebook, the basic ideas remain startlingly simple:

1) Get rid of debt.

2) Live within your means.

3) Save diligently.

4) Invest smartly.

5) Retire grandly.

This is financial independence. So do not waste another minute. Time is money! Begin reading now in order to know how to put your money to work for you. You, too, can gain true financial independence.

Chapter Two

Debt

Debt is one of the worst evils in existence. Today, millions of people in the United States have some form of debt. There is credit card debt. There is mortgage debt. There are student loans. There are personal loans. There are "pay-day" loans. And there are many, many other forms of debt. Financially speaking, all of these are terrible for you in terms of your overall monetary health.

In today's world, we have the ability to swipe things on a credit card; this essentially distills down to an "I'll pay it later" mentality and leads many citizens to much financial distress. The main culprit for this is the unfortunate fact that if people do not have the money accessible today to pay for something, they likely will not have the money to pay for that thing in a few weeks either when their credit card bill is due. The symbiotic correlation of rising debt and diminishing savings continues for so many people in our country.

This chapter will discuss a few ways to help you free yourself from debt and its many damaging faces. Simply put, if you owe others money (which is the definition of debt) you can never be truly financially independent. This is one of the basic hindrances of financial security and independence. Thus, not owing anybody anything is one of the basic building blocks of...