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Financial Literacy Lesson 3 – How much Do YOU ACTUALLY need

Stats Due to Lack of Financial Literacy

Let’s start off with some stats. Here’s the damage in America.

  1. 44% of Americans don’t have the cash to cover a $400 emergency.
  2. 43% of student loan borrowers are not making payments
  3. 38% of households in America have credit card debt
  4. 33% of American adults have ZERO RETIREMENT SAVINGS

I want you to think about if that’s going to be you.

Out of 17 out of 50 states require high schools to teach at least one class in personal finance – Council for Economic Education.

Personal finance wasn’t required in my high school. All we really got was accounting. How about you?

The Financial Literacy Cycle or The Financial Illiteracy Cycle

What do you do when you get your paycheck?

Financial Literacy No No #1: Do you get some food?

Let’s say my roommate buys a combo from McDonald’s. I’m going to put that at $10. I’m going to add $3 for UberEats delivery fee to make that $13 per day and per meal. They buy this everyday and this is an actual true story.

$13 x 7 = $91 and sometimes they order McDonald’s twice per day! So, let’s say the order 5 more meals on top of the 7. So, for five out of the seven days, they order from McDonald’s twice!

That makes it $13 x 13 meals = $169 PER WEEK. On McDonalds!

I should really start investing in McDonalds.

Now, I’m only using McDonalds and my roommate as an example (though, I’m horrible because I am using them as an example without permission, but this is my blog!). I’m trying to make a point and force you to ask yourself the question…

“How much do I eat out or buy delivery per week?”

Because those delivery and take out costs add up.

Financial Literacy No No #2: Netflix Subscription

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I don’t have Netflix, but I googled the cost of Netflix. $15.99 for the premium and $8.99 for the basic version per month. Let’s round that $8.99 to $10 (because taxes). So, if it’s for the year, it’s $10 x 12 = $120 for the basic and $18 x 12 = $216 for the premium (adjusted for taxes).

Honestly, if you really need it and the subscription adds value to your life. I think that Netflix is a big time suck that wastes time you could better spend investing in yourself though.

Financial Literacy No No #3: Party, Clubs, Drinks – 8 Nights

This has been the biggest waste of time in my life. I did this a lot when I was younger in my early 20s. If only I knew then what I know now. That’s what they all say right?

But it was a lot of money and time wasted on getting into a drunken stupor every weekend (Fridays and Saturdays). I received no long-term value because I was just buying beer and getting butt ugly drunk. It was fun, don’t get me wrong, but I think I’ll be much further ahead in my life if I invested in myself like I do now.

When I say investing in myself, I mean buying and reading books, going to seminars and conferences instead of music festivals, buying and taking courses to improve my skills. Don’t get me wrong, music festivals are still fun – every now and then, but honestly, I did those WAY too much.

Back to the example…

We’re using 8 nights because there’s 4 full weeks in a month (usually) and we are going out on Friday and Saturdays only. We don’t go Sunday because Monday is a workday. That means, we are still responsible lol.

Let’s do some really conservative calculations.

Cover is $20. Most places you’ll have to pay cover unless you live in some shithole town that does not require cover because there’s literally no one and nothing going on in that town.

Unfortunately, I started that journey in Vancouver, Canada. Big metropolitan city and that means when you’re 18, you start going out to clubs because that’s what the cool adults do and you wanted to be cool too! And no, I didn’t do any of the fake id stuff. Firstly, I only work with legitimacy. Secondly, I am a chicken.

Now that I know better, that is the BIGGEST LIE ever. Adults that club and go out consistently every weekend to blow cash on clubs and alcohol in order to get drunk are far from cool. Give anyone that life for ten years; at the end of ten years they’ll have accomplished nothing. You don’t want that.

The cool adults are at “Club Bed,” which means that they are already in bed by 9pm. Costs $0 and you wake up the next day refreshed and ready to OWN the day.

Back to the example,

Cover is $20 and you get no food and no drinks and right now, I’m thinking how insane I was to be willing to pay those prices. In addition, let’s add on $5 for coat check.

Since I’m from Canada and from Vancouver no doubt, it’s either raining or it’s cold or it’s raining and it’s cold! So, on top of the $5 for your coat, we can add another $5 for your umbrella!

Oh, the joys of highway robbery! And you are more than willing to pay that…

Let’s check what really happened, what happened is that you paid $30 to enter a building. That’s what happened.

Really, you could have gotten two exquisite meals at “the Keg,” which is a Canadian steakhouse (I would know, I’m Canadian). Who’d have thought you’d be getting restaurant recommendations from learning personal finance with me?

Also, I’m kidding. The Keg’s meals aren’t that exquisite. We have Red Robin’s in Canada too. Their food is better. Unlimited refills on French fries and the milkshakes are top of the world, for me anyways.

We’ve digressed too far, but being raised from a Chinese family, every dollar counts and I want you to get the best bang for your buck and there is no better bang then a nice, cold, chocolate milkshake. How did we even get onto this topic? Now, I’m craving chocolate milkshakes…

We are $30 down. If we are buying a drink in the club, it is $10 per shot. So, if you didn’t pre-drink, which was me the first couple times I started clubbing, then you’ll be rolling in like a millionaire and rolling out like a beggar.

Let’s say you had three shots at the club, that’s another $30. You are down a total of $60 that one night already. If you are a guy and you want to impress a girl and buy her a drink (WHICH YOU SHOULD NEVER DO), then add $40. For her and her three friends, NOT INCLUDING YOU because you DON’T GET A DRINK due to you being broke by now.

You’re already out $100 and the night just started…

Side note to all the guys out there: From one man to another, never buy a girl a drink (unless she’s your girl). Never buy her friends drinks. It’s the 21st century and women are independent, they don’t need you to buy their drinks. Save your cash. Also, if you’re any sort of respectable guy, you don’t need to buy anyone drinks to show value. You DO need to learn to dance though.

Let’s make it easy and say that the next night, you go out by yourself, solo.

If you’ve never gone out solo before, I highly recommend it. It’s fun. You get to people watch and don’t have to keep up with the jones.

The solo night will cost $30 that night. You only pay for the cover, the coat check, and the umbrella fee because you live in a place that’s always cold and rainy and some idiot still decides to go out.

Side note: When it’s cold and rainy, please do this: Go to a Walmart and buy a take and bake pizza and a bottle of wine. It’ll set you back like $15-20 and your night is amazing!

Altogether, your weekend’s total cost is $100 (Friday) + $30 (Saturday), which is $130.

We take that and do $130 x 4 (4 weeks of the month) = $520 per month.

If you do this for a year, it is $520 x 12 = $6,240 if you party every single week on Friday and Saturday.

Some people even do Sundays! Now that I’m thinking about this, maybe I should invest in a club in my hometown…

I don’t even know how people can afford that, they are probably selling cocaine.

Personally, I did party and enjoy myself a lot, but over a couple years and not every single week. I would not last.

So, if you are going to clubs or you’re out drinking a lot, maybe it’s time to reconsider?

Bank’s Savings Account

How much interest rate do you get at a bank’s savings account?

It’s different in Canada, my last discussion with my Canadian financial advisor tipped me that it’s around 2.25%.

What do you think the interest rate is?

It’s 0.09% in the USA.

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You aren’t making any money via interest with the bank.

Financial Literacy Generational Pain

Are you a Gen-Xer?

How much do you think the average Gen-Xer has saved for retirement?

It’s $66,000.

Are you a Baby Boomer?

How much do you think the average Baby Boomer has saved for retirement?

It’s $152,000.

Our Financial Education Example

We’re going to make some very CONSERVATIVE calculations, to see how much those savings will last current lifestyle trends.

Let’s say that 1 year of rent, mortgage, or property fees cost $12,000 (that is, it’s $1,000 per month). We are living in the boonies, in the butt middle of nowhere if the fees here are that cheap. I’ll just be blunt about that.

Our car maintenance is SO AFFORDABLE. IT’S $100 PER MONTH. So, the total is $1,200.

Groceries and dining out (because we have to have some fun) is $12,000. I’m being very generous with $1,000 a month. Personally, I live a pretty active and diverse life and I struggle to meet $1,000 on groceries, dining out, and activities. If I did that, then that means that I have no time for myself! This is upper end, you are only buying organic stuff and treating your wife to the best that money can afford here.

The total is $12,000 + $1,200 + $12,000, or $25,200 per year for living expenses, which I don’t think is a very exciting life you’d want to live in retirement.

Don’t you want to travel the world? And support your children when they need the assistance? Yeah, those numbers won’t let you do that.

How Long is our retirement based on our Financial Education Predictions?

$152,000 / $25,200 = 6 years.

Baby Boomers are between 55-75 years old right now in year 2020. They are expected to live longer with current technological and health advancements. That means, if they run out of money at 75, they have to go back to work.

Do you want to go back to work at 75? Do you want your mom and dad to go back to work at 75?

Exactly.

But this is the reality and this is the case for so many folks in not just North America, but the world.

We just saw that with our very, VERY CONSERVATIVE CALCULATIONS, they won’t last. If they were out in San Francisco, with that amount, they are DEAD. For sure.

I’m not trying to be pessimistic here; I am trying to state reality. I also think that with health and technological advancements, it will be very common to see people living past 80s, 90s, 100s, 110s, and maybe even 120. You do not want to outlive your money.

That’s why I’m doing this, to get you prepared, to get you scared, because you’ll either take action or you won’t. But, I’ve done my part. What will you do now?

How Much…?

Here are some thought-provoking questions you’d want to ask yourself:

  • How much will you pay over the life of your car loan or home mortgage?
  • How much life insurance do you need to protect your family financially?
    • This is especially important! Based on your bedroom activity and how well you protect yourself, you’ll have a lot of potential responsibility! Set your family for success!
  • How much do you have saved for the future, are you on track?
  • How much monthly income will your 401(k) provide? And at what age will it run out?
    • I’m not a fan of 401(k) if you’re talking about IRAs, go with Roth 401(k). Always. Just move the money over from 401(k) to Roth 401(k).
    • There are also investment vehicles that are available that are better than the Roth 401(k), but you’ll have to keep subscribed in order to find out!

Financial Education – A Nice Story.

America’s first self-made billionaire, today, is still wealthier than Warren Buffet, Bill Gates, and Jeff Bezos combined. His net worth in today’s money is $340B.

To give you a hint he is related to oil.

When he was a child, he saved up $50 ($1,500 in today’s money). He had a great mom that encouraged him to lend the money to a farmer who promised to pay it back with 7% interest in 12 months. He made $3.50 in interest 12 months later.

This man was John D. Rockefeller. At the same time, he dug potatoes for 3 days and earned $1.12.

I know what you’re thinking; he had to wait twelve months to earn that $3.50. He worked for 3 days and he earned more $1.12. If he worked for nine days, he would have made $3.36 (i.e. $1.12 x 3), which is close to $3.50. But the idea we want to get across here is that he didn’t have to do anything to make that $3.50. His money earned that for him.

That’s the game plan. Don’t work hard for your money; make your money work for you.

If you had the choice, would you dig potatoes to get paid OR would you rather sit around and wait for your money to bring you back more money?

I’d pick the second option.

It’s called passive income, which is why we are learning about this, right?

Alright, that’s enough Financial Education for today, it’s been a long post, but I hope you got something out of it!

Let me know in the comments what you think or what you’d like to learn more of!

Keep sharing your way to success,

Donald

P.S. If Rockefeller had loaned out $5,000 at 7% interest. He would have made $350 in 12 months, which is $10,500 in today’s (year 2020) money. Not bad.

Financial Literacy Lesson 3 – How much Do YOU ACTUALLY need VIDEO

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