Excellent post, ER. Just wanted to X2 the points above, and especially the part about young people thinking that their income will always go up.
What too many people in their 20s and 30s don’t realize is that they’ve probably already seen the greatest increase in the trajectory of their income-earning capacity for their lifetime by the time they hit 40 (sometimes, earlier than that). It’s just too easy for everything to go wrong at the very moment when you can’t afford to take any losses, like when you’re ~50 and lose your job.[/quote]
Thanks CAR. As usual, I totally agree with you. The biggest mistake I’ve seen is that people in their late 20’s or even late 30’s go around and think they are “super YOUNG”. I always laugh a bit at that as I don’t think late 30’s is any spring chicken but many people I’ve met act like they are SO young and will be making this money forever.
Many of them don’t even bank up any significant savings as they think they will keep accumulating their salaries forever and it will always be this easy. Now granted, many of them have super great jobs and relatively high salaries but they just don’t understand the power of compound interest.
And during the financial collapse at the depths of the lows, I saw some older clients and friends REALLY panicked. By not saving up enough when they were younger, they were even more panicked because they couldn’t afford to lose the meager amounts that they saved up to begin with. (Many got a very late start in savings).
What I noticed was those people panicked much more. I saw this type jump out of the stock market precisely at the time when they should have just stayed the course and kept investing steadily. Then they miss the big run up and then all of a sudden now they feel like they have to jump back in the stock market watching all their friends do well in the stock market and real estate market. (Also part of the reason we see the stock market and real estate markets elevated as everyone is chasing yield).
I know some of our friends think we are stupid for having our house paid off. My wife gets comments sometimes when her friends hear we don’t have a mortgage and our house is paid off.
It is COMICAL because some of her friends spend everything they have and leveraged to the hilt yet they try to give her advice how we can be doing better things with the money and making a higher ROI!! LOL.
Sometimes we get a good laugh when we hear stuff like that. LOL. Granted these people don’t know our financial situation nor know what other assets we have. Yet, these people that just have to have the latest luxury cars every few years (leased), take equity out of their homes, or have a ton of debt trying to lecture her on how it makes more sense for us to be in debt.
