Not About Making Friends, It's About Spending Money
Cliff Mason
06/14/07 - 07:04 AM EDT
To every college student and recent graduate who's worried about money: Stop it. Not a day goes by without some uptight personal finance hack penning yet another column warning you to stop carrying a credit card balance, start saving money and start living on a lean budget.
There's a cottage industry that pumps out the same handful of pieces. It feels like every week someone writes a story bemoaning that Americans aren't saving nearly enough money, with special emphasis on the tragic circumstances of our hopelessly indebted youth.
But this is not one of those articles. You're not interested in reading another sermon about the virtues of saving that's billed as advice about your money, and I'm not interested in writing one.
This is a column for financial heresy, for practical, real-world advice coming from someone your own age, who's been dealing with your problems and who shares your priorities.
I want to be your vaccination against the misleading BS written by condescending professionals who haven't been in dire economic straits for decades, and probably weren't even when they were young. I'm offering an occasionally unserious, perpetually cynical take on personal finance, one of the few places where somber Puritanism is still in style.
To watch Jim Cramer and Cliff Mason sit down to discuss this column, click here.
I don't have much in common with the people who traditionally tell you what to do with your money. I'm 22. I only graduated from college last Thursday, skipping most of the ceremony because I couldn't get out of Boston and into New York fast enough.
I don't know anyone who is less responsible with money than I am. It's astonishing how fast you can run through the stuff without even trying. I've spent the last two years writing for "Mad Money," Jim Cramer's hit show on
CNBC, and have less in the bank today than I had on the day they started paying me. How'd I get that kind of job in college?
Pure merit, I'm sure, but being Cramer's nephew didn't make it any harder to get my foot in the door. (If you're expecting me to apologize for that, get serious, and get a life. How does anyone get a break these days? From their friends and relatives, and that's another topic I will be touching on in the column.)
Because I had a quasi-real job writing for "Mad Money" for the last two years of school, I got to play loan shark to my shiftless, broke-ass friends (federal government, if you're reading this, I'm not charging anybody interest).
This column is for them and everyone like them: young people, in college or recently out of it, without a clue about taking care of themselves financially (or psychologically, professionally and romantically-- yeah, Dan, I mean you. [Dan is a young straight fellow who is afraid of the ladies.]) And the standard advice penned with alarming frequency by the strait-laced establishment types -- save money, cut up the credit cards and live on a careful budget -- isn't doing any of you much good.
If you're young enough to be giving me a fair hearing, then you shouldn't save money, you don't need much of a budget and you won't go to hell because you didn't pay off your credit card balance in full last month.
Saving money when you're young is about as smart as huffing lead-based paint, but a lot less fun. This is my first piece of advice to you: A penny saved is a penny wasted. Stop diverting part of your paycheck into a savings account and start spending.
Put it in the first national bank of Carlo Rossi, my jug wine of choice until someone can beat them on price -- four liters for $10 -- before you leave a dime in your money market account. It's the responsible thing to do. But why listen to me over the professionals?
I doubt I'll ever be anything but completely irresponsible with my own dough, to the point that my dad lent me money to buy an apartment in order to stop "you from pissing away all your money." He might have added, "Again."
But when you have lent serious money to more than a dozen twentysomethings on the strength of friendship and not creditworthiness, you start to take a proprietary interest in how they spend it.
The fact that I lent some of these people money is either a testament to my generosity of spirit or further proof that I'm a dope when it comes to my own finances.
Even though I can't stop blowing my own cash on extravagant purchases -- in hindsight, maybe I really did need a $2,000 stereo system in the 150-square-foot trash can I called home junior year -- it turns out that I'm great at telling other people what to do.
I have it on good authority from everyone who's ever borrowed more than a couple hundred bucks from me that I know what I'm doing, and that actually includes a couple of people who still aren't knee-deep in debt to me.
The only time one of my friends/debtors missed a payment was also the only time I'd ever lent someone money without whipping out my legal pad and trying to take over every single aspect of, in this case, her life.
She's going to remain nameless because she still owes me over two grand, but she's the exception that proves the rule. She's also the reason I had to cut back on my loans to women; I assure you, my reasoning was chivalrous, not sexist.
When my old roommate Dan tried to weasel out of paying me back on time, there was nothing to stop me from throttling him -- he's a little guy -- until he changed his mind.
That's where I'm coming from when I tell you to forget about trying to save money. If you're in college and don't have any income, this is a nonissue. But if you've been fending for yourself for a few years or you're about to start your first legitimate job, then you probably feel compelled to save.
I can't begin to count the number of times I've read that "it's never too early to start saving for 'fill in the blank.' " That's not true. If you're in your early 20s and working at an entry-level job, it's too early to start saving for anything.
There are plenty of good, straightforward reasons to avoid saving money that I'm not going to focus on here. For example, if you have student loans or any kind of debt, it's just plain mathematically unsound to save money and earn less interest than what you owe on the money you've borrowed, but that's self-explanatory.
You shouldn't save now because the rationale for saving at this point in your life is preposterous. Five years from now you'll likely be making more money than you make from your entry-level job today.
Let's say you have $5,000 now, never mind how you got that money, and you can either save it or spend it. With a 5% yield compounded annually, you'll make $1,381.41 over the next five years if you save the money. If you spend it, you get to buy whatever you want, improve your standard of living and have a thousand dollars' more fun a year.
But if you're confident that you'll be making more money in the future, that extra $1,400 five years from now shouldn't look all that attractive. At the same time, given the expectation of more money in the future, why should you save the cash you have and live like a pauper today? The money is more valuable to you now than it will be in the future, so use it.
I see my friends struggling with this all the time, and from up close the decision to save or not to save really doesn't seem like a matter of economics. People approach it as a moral issue. My best friend Luke has been out of school and working for a year and he's always trying to save money even though he can't really afford to.
When I prod him about his attempts to save, he says he does it mostly because he'd feel guilty if he didn't. When he gets through the month and he's managed to save money, or when he becomes more resolute and insists he will save $500 this month no matter what, it makes him feel like he's responsible and a good person.
That's why I believe that saving money is a luxury. You give up whatever you would've spent it on in the near term, and in return you get a sense of self-satisfaction, along with the interest. We're still taught that it's virtuous to save money and sinful to borrow.
All the personal finance columns that encourage you to save in almost every circumstance go over so well because they confirm and support these widespread, deeply ingrained values.
When we're older and earning more money, saving it might make sense. But while we're young and closer to the poverty line, it's better to spend. Anyone who says you should sacrifice a good standard of living today for a great one tomorrow is being a financial idiot. Spend your money when you're young if you want to feel better; save it if you want to feel better about yourself.
