The Financial Conflict of Youth & Ambition



Aug 8, 2020
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This isn't true in all cases, but it's true for a lot of them. And believe me, it's not limited to the youth because I've seen far too many older folks who should know better, mess up their finances. What I'm talking about here is the uncanny ability for those in their 20s to royally screw themselves when it comes to money. I've always wondered what in the world gives these people the confidence to handle large loans when they know absolutely nothing about them. It really is remarkable.

If I had to guess, I'd say the three biggest things that get people into trouble are home loans, car loans, and business loans. Home loans are a given. I can't count how many real estate shows I've watched where two twenty somethings were in search of their first house. Over 20 years ago, I was watching one of these shows and a very young couple that was right out of college told the host that their budget was $400,000. When I heard this, my jaw nearly hit the floor. There I was, trying to pay one month's worth of rent, which was $800, and there they were, trying to pay thousands of dollars in not only mortgage payments, but homeowner's insurance, property and school taxes, and most likely, PMI. The audacity of those two. I couldn't believe my eyes. If I had a crystal ball, I bet I'd see those two living in much more modest quarters today. Just a hunch.

When we're young, we're invincible. I sure know I was. I could do anything. I remember searching for my first home and when I found a piece of junk, I thought I could fix it up. When I found something that was too expensive, I thought I'd figure out a way to pay for it. "If I could just get someone to loan me the money, I know I'll somehow find a way to pay them back. I just know it!" I was foolish back then. I didn't have the wisdom to understand certain limitations. These days I'm a bit older and I recognize that there are only so many work hours in a week. There are only so many avenues to acquire the funds we all seek. These days, I understand reality a lot more than I used to. Back then, there was no stopping me. Shopping was far too fun. And when my partner was on board, that was all the better. Not only one, but two fools doing stupid things.

After many twenty somethings land their first, second, third stable jobs, they become confident in themselves and the economy at large. I believe they actually become somewhat bored with their finances and begin to become reckless. Buying a new car is reckless. If you aren't going to drive that car very much and if you plan on keeping it forever, then yes, it may be worth it. But for the rest of us, buying a used vehicle that's in good shape is a much better value. Everyone knows this. But for the young, they want new. The only problem is, they fail to do the math. The car payment, loan interest, higher insurance cost, and much higher yearly personal property taxes, combined with their fancy new mortgage, insurance, taxes, and PMI, young folks can easily become overwhelmed. Things are fine for a while, but when reality bites a little down the road, it bites hard. It's too easy to get in over your head these days. Especially when there's a sales guy on every corner trying to be your best friend. Terrible finances don't generally hit you over the head. They creep up on you and it's only when you slowly realize what you've done do you crave change. Hopefully.

Think about it. Think about how many couples today are living in houses that cost more than $400,000. And out of those couples, think about how many of them drive brand new cars, or, should I say, cars that were brand new when they were first purchased. Have you seen the prices of new cars recently? A decent Toyota Camry will cost you around $30,000. That's a lot. And really, it's not even the principle costs with the house and the car that will set you back. It's the add-ons that I already mentioned. The taxes and the interest. Those things are killers that hardly anyone takes into account.

Boy, there sure are a lot of small businesses out there these days. I know that small and medium sized businesses are the backbone of this country, but I didn't know that so many of them would ultimately take the form of coffee houses, breweries, and food trucks. What is it with young people and these types of businesses anyway? Don't they know how to do anything else? I used to know people who started businesses because they liked to patronize certain ones. They'd copy them. Disk Jockeys love to open up nightclubs. Foodies love to open up restaurants, and readers love to open up bookstores. That's just the way it is. I guess things are changing today because all I see out there and across the country are coffee, beer, and food. And included in the food category are wraps and smoothies. It's nauseating.

There's nothing wrong with opening a business. I actually love the idea. But opening one that's been opened dozens of times already in the same town is just silly. Whether it be the competition or the lack of general interest in another similar business, it's bound to fail. And what's worse, if a loan was taken out to beautify a store front or other type of space, buy equipment, or stock inventory, that loan doesn't just disappear if the business closes.

I just looked up the failure rate for restaurants. It's about 60% in the first year. Can you imagine how much it costs to make a space look restaurant worthy? And how much all the necessary kitchen equipment costs? I can't even begin to imagine how many people have spent their life savings on this type of thing, only to be selling everything they purchased just a year earlier at fire sale prices. It's crazy, yet restaurant owners are like moths to a flame. On top of the normal failure rate, global pandemics can make things even worse. I don't even want to think about it.

The point of this post is one of respect. I implore the youth of today to respect the experience and wisdom of those who have already screwed up. When an old man says, "Don't do it son. Don't even look at it," listen to him. When an old woman says, "He'll break your heart sweetheart. Stay away," listen to her. These people know. They know you shouldn't buy that huge five bedroom house. They know your choice in cars is poor. They know your business idea is stupid. They're merely trying to help you when they tell you these things. Listen to them and save yourself tons of misery and heartache. Borrowing money today is far too easy. Just because they'll loan it to you doesn't mean you should take it. Wisen up and get serious about your finances. Read books. Learn about money. Talk to people about their failures and their regrets. These things may help you tremendously in life.

This post is part of a series: The Total Money Makeover by Dave Ramsey
The Financial Conflict of Youth & Ambition was posted on 06-04-2021 by Phoenix1 in the Finance Forum forum.

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