Wealth for the Modern Kids Part I

It was 97 degrees – and I was sitting in the shade.  I’d just finished workday errands on my bicycle.   The hot dog stand on the corner of Water and Wisconsin was enticing.  Enticement won.  “I’ll have a dog, a bag of chips and a diet coke.”

I parked myself and my bike at an outdoor table and watched the “modern kids” (an Arcade Fire moniker) http://www.youtube.com/watch?v=l6m39FeFaRI exit tall buildings for their lunch hour.  And I thought about young people and wealth.

According to the National Center for Education Statistics, in 1995 the average young male (I had to pick one sample study for illustration) with a bachelor’s degree could earn $49,000.  The problem is $49,000 in 1995 had the buying power of $74,000 today.

I’ve been fortunate in life in that I’ve bumped into people who I’ve learned from and continue to learn from.  This requires that I acknowledge I don’t have all the answers.  I have a bunch of answers but not all of them.  Things have worked out ok.  I watched the modern kids move about the street and wondered “Will things work out ok for them?  How will they create their wealth in today’s environment?”

One component of wealth is happiness.  Too often we think of wealth as money.  Bob Dylan (I’m all over the generation map with my music references) says, “If you get up every day and do something you like then you are wealthy”.  I think that’s a good start.

I’d be naïve to not acknowledge that you need a certain level of wealth to be happy.  A figure that allows you to pay your bills, have a place to live and save for the future is probably a good starting point.  The authors of Happy Money:  The Science of Spending believe that number is $75,000.  So to my original question, How can young adults build wealth today?

First, it’s a good habit to look annually at where you spend your money.  Then review those areas and see if you can limit or eliminate some expenses. Housing is a large expense.

Rents are on the rise nationally, yet as I counsel on home buying, you should look at by-lines (local) not headlines (national) for your real estate information.   A review of 2-3 bedroom rentals on Craigslist show East side monthly rents in the range of $1,100 – $2,300; the North Shore $1,500 – $2,300:  the South side from $800 – $1,200 and West side in the $900 – $1,400.

One method to create wealth long-term is to buy real estate.  Not just any real estate but good real estate.  You need a place to live and your choice is to pay your landlord’s mortgage and create wealth for her or pay a mortgage and create equity for you.  Buying a homestead and then rental real estate in my late 20’s is one method that helped me begin to create wealth.

Wealth can happen but it takes a level of thoughtfulness, planning and discipline.  You should approach your home purchase the same way as part of your long-term plan to create wealth.

I see four factors inhibiting home ownership in many young buyers today.  They are:

1.         Confidence

2.         Down payment

3.         Mom/Dad Syndrome (MDS)

4.         Springsteen Syndrome

(We gotta’ get out while were young `cause tramps like us, baby we were born to run) http://www.youtube.com/watch?v=mfzov0Cq90o The Boss.  Born to Run.

Next time I’ll discuss the four factors.