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The Under 40 Financial Planning Guide: The Under 40 Financial Planning Guide Introduction

A friend of mine claims that, when it comes to money, success is a matter of temperament -- there are savers and there are spenders. Period. It's tempting, especially when you're young, to buy into this kind of fatalistic mentality. But I think that's a mistake. The great secret of financial success is that it's not luck, magic or art.

What it is is detail work and attention to small points. It's being careful and critical -- and being able to separate your financial decisions from your ego.

The plan for this book started several years ago, when I wanted to figure out how to take advantage of what little money I made. The problem was that all of the self-help books for investing and managing money assumed that I had tens of thousands of dollars laying around the house. In the meantime, I always felt like I was about $80 short at the end of each month -- even after I got a raise or bonus.

I was living paycheck to paycheck, and most everybody I knew was in the same spot. So I started doing research, reading up on the conventional wisdom of how to save a little money...and how to spend the little I had more intelligently. I also talked to people -- sometimes interviewing them formally in an office setting, sometimes talking informally over beers.

This book tries to take things like saving money, making investments, buying a car, insurance and even a home, and make them simple enough for anyone to understand. Since I didn't know anything when I started this process, I think it makes sense to start with the basics and then add some of the more tricky stuff as we go along. There are sections throughout each chapter that explain terms that you may not recognize.

I can be of help because I'm pretty much like you -- or what you'll be like in a few years. I'm a reasonably intelligent person who's not yet 40 and has had to manage my own finances since I was 18. I've made a few mistakes along the way -- but I've come through the process pretty well. While I'm not making millions of dollars a year in real estate scams or selling junk through classified ads, I've got a job I like and live a pretty comfortable life.

What I saw several years ago is still true today. Many of the financial planning books you'll see are either ponderous textbooks or are written for older readers concerned with retirement and estate planning. Even the computer on-line forums that sell punk attitude about money skew toward people in their forties. That's a strange place to focus.

The twenties and thirties are the years when many important financial choices are made, such as buying a first home, selecting life insurance or taking advantage of a 401(k) plan. Yet most people have little understanding of the important issues involved in making these choices.

Most people have formed their savings and investment habits by the time they reach 40 -- their peak earning years. And the earnings in those years need to be peak: If you save $20 a week -- or about $1000 a year -- from the time you're 40 and invest it at a 10 percent rate of return, you'll have about $110,000 when you reach 65. If you start saving the same $20 per week at age 20, you would have about $820,000 at age 65. Starting early, even if you start small, is the best way to accumulate wealth.

And I'll say one important thing now, so I get it off of my chest and don't spend the whole book ranting about it: If you're in your twenties or thirties in the 1990s, you can't count on Social Security or any other government system to take care of you. There may be something left in these programs when you're 65...or 70...but it's not going to be enough to let you live any kind of life you'd want to live. The plain truth is you're going to have to plan for yourself. And -- given the way government benefits programs generally work -- that's probably for the best, anyway.

This book won't turn you into a financial wizard, but it should be enough to get you started. Think of it as a traveler's guide for getting through your reckless youth in decent financial shape. It's a reference book for people who want to start managing their money, even though they don't yet have any. It sets a framework. But don't stop here. There are numerous magazines and books that can provide you with more detailed information on all of the topics I cover.

My conclusions aren't earth-shattering, but they should give just about everyone a hopeful message and a place to start.

Most of all, I hope this book gives you enough information to make your own financial decisions with confidence. You don't need to have a lot of money to make good money decisions. In fact, it's better in some ways if you don't have a lot of money at first -- being broke makes your margin for error smaller. You have to make smarter decisions. And that's what this book is about.

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