Q: I have a friend who graduated a few years ago, and I’m very worried about her finances. She doesn’t come from a family that knows much about money, but she’s been very successful herself. Now that she’s making good money, she doesn’t seem to know how to handle it. She’s confided in me that her credit is shot. Her retirement savings are nearly nonexistent, and she has invested them in some weird things: she owns a stake in some company her cousin runs, for instance, and she owns some weird collectible coin things (has she never heard of stocks and bonds?).
I want to sit her down and try to help her, but I’m not sure what to suggest or how to suggest it. Any tips?
A: Your friend is facing what is, unfortunately, a very common problem. Many Americans have saved too little for retirement: the average couple has saved only $5,000 combined. Many of us don’t own stocks, despite the fact that investments are the best way to build future wealth: 57% of Americans aren’t in the market. And many of us are in the kind of debt that can cause bad credit ratings, as evidenced by the incredible $1 trillion in credit card debt we hold as a nation.
But it’s not too late for your friend to get on the right track. She’s still young, makes good money, and has a friend in you who can gently guide her to the help she needs. Here’s what she should do.
First and foremost, your friend needs to get a handle on her debt and her credit situation. Credit experts say that good credit is built over time, while bad credit is easy to create quickly. High-interest short-term debt like credit card debt is bad news, so paying that off needs to be a priority. She should pay off her credit card entirely, and if that means cutting up the card and avoiding spending as she works to pay off past bad decisions, then so be it. There’s no good shortcut here, and she needs to free herself of debt, but debt experts may be able to help her negotiate or move the debt to a card with a lower interest rate while she does the hard work it takes to solve the core issue.
Once she’s solvent again, she should of course try to save more for retirement. Having unusual investments isn’t a big deal, but she does need some safer ones, too. Stocks in large companies (so-called “blue chip” stocks), mutual funds and exchange-traded funds that track large groups of stocks at once, bonds, and even gold bullion (which some economists consider more recession-proof than other securities) are all good places to start. A financial adviser can help her with this.
As for how to deliver this advice, you’ll want to be careful! Nobody likes to be told embarrassing truths. Make sure that it’s clear that you’re worrying about her and are not eager to lecture her. Suggest that she speak to experts (and don’t act like you think that you’re one yourself). Sympathize with her if she offers excuses, but don’t back down from urging her to seek help and rectify her financial situation: it could really help her out in the long run.
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” — Warren Buffett
The opinions expressed in this column do not necessarily represent the opinions of King’s College or WRKC.