A Twenty Something’s Guide: Spending (and Saving) Money

Jon Harrell |


This is an excerpt form the book "A Twenty-Something’s Guide to Financial Freedom" (2015) - by Dr Henry H. Parker, Brett Machtig, & Josh Gronholz


“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.” – Will Smith


The average American spends $1.25 for every dollar he/she makes.

Selena is a 21-year-old college junior in California. Her parents pay all of her college expenses, and the rent for her apartment, utilities, telephone, and cable bills.  They buy her clothes, and pay for the insurance and maintenance on the sports car they bought for her when she started college.  Although Selena has a part-time job to pay for incidentals, she’s always broke, and is overdrawn at her bank at least twice a month.

Her financial woes are like those of millions of middle-class Americans in late adolescence who have no concept of the value of money.  Their philosophy of spending is to spend all one makes. They also appear to think that a blank check in their checkbook is the same as money in the bank.  How could this have happened?


The Cycle of Spending

The reason that millions of young people don’t spend wisely is that they are unaware of what I call, the Cycle of Spending. The cycle began when Selena started her first part-time job.  Beginning with her first paycheck, she was free to do whatever she wanted with it, because she had no financial responsibilities; no bills, no babies, no mortgage, no insurance, and no need to contribute to her affluent family’s income. In short, she learned to spend without thinking—get and spend, get and spend, spend before you get the money. This habit continued through high school and into college, by which time, spending every penny she made or received had become a way of life.  This habit is the norm for most middle-class American teens and many parents don’t serve as good role models to prevent this.

So expert at spending are we Americans that it’s the chief force driving our economy; two thirds of our economy is driven by consumer spending.  We have learned how to spend what we make, and more than we make. We’re prompted to spend unwisely, both by ignorance of the Spending Cycle, and by the multi-million dollar advertising campaigns American business uses to separate us from our money.  In reality, we are engaged in a war for our money, a war waged with such subtle expertise we’re not even aware of it.

“Whoever discovered water was certainly not a fish,” Marshall McLuhan wrote, meaning that when a practice is widespread habit, people don’t stop to consider if it’s good or bad.  Habituated by our buy-now-pay-later atmosphere, we don’t see that it’s harmful.  Mesmerized by Madison Avenue’s seductive call, we buy things we don’t need, with money we don’t have, and pay interest on long term loans we shouldn’t have made in the first place.


A Philosophy of Spending

To avoid the spending trap, you must develop a philosophy of spending.  Ideally, parents should teach this philosophy before the child takes his or her first job, and the later it’s taught, the harder it is. Trying to teach it to adults who are enchanted by the magical spending is like breaking concrete.

The most important things we need to know are not taught in our homes, schools, or churches.

The most important points in a philosophy of spending are,

  1. Know that you’re in an economic war that most people are losing.
  2. Spend less than you make always. Begin by saving 15% of your income, and gradually increase it to 35%.  Make this automatic by having the 15% taken directly out of your check and deposited into your bank.
  3. As far as possible, buy what you need with cash, using loans only for a car or a home. You’ll save thousands in interest.
  4. Max out your 401K Program at work.
  5. Live frugally, i.e. like a cheapskate. Use coupons.
  6. Refuse to rescue or fall in love with alcoholics, drug addicts, and people who spurn regular jobs; they’ll drain you of every dollar.
  7. Become a Power Shopper.


Power Shoppers

Power shoppers spend every dollar wisely, recognizing the tug of war between buyers and sellers. They search for the best products and services at the lowest prices.  They realize the power of negotiating prices on almost anything.  The country’s most well known power-shopper is Stephanie Nelson, known as “The Coupon Mom.”  She appears regularly on ABC News.  Another one of the nation’s top power shoppers is Corey Sandler, author of, Secrets of the Savvy Consumer, who teaches shoppers when to buy, how to buy, and where to buy.  Mary Hunt, founder of the web-site, “Cheapskate Monthly,” is also a power-shopping guru.  Her web-site lists 25 ways to get the best prices on everything from airfares to mortgages. Below are a few basic rules power shoppers follow:

  1. Always buy clothes on sale. Buy when the dealer is most anxious to get rid of the product, that is, out of season, at the end of the month, the end of the year, or when the weather is so awful that few customers are out shopping.
  2. Comparison shop on the phone.
  3. Shop at discount malls.
  4. Search the Internet for bargains.
  5. Negotiate the price for services like home or auto repair.  As a bargaining tool, get estimates from several competitors.
  6. Ask about discounts: student discounts, special seasonal discounts, etc.
  7. Use discount coupons.
  8. Use a list when grocery shopping, and compare price-per-ounce to get the best bargain.
  9. Return merchandise if it goes on sale shortly after you purchase it. Many stores will honor the sale price up to 30 days after the sale.
  10. Use a service like Birch Box that gives samples each month so you always get to try new things.


Power Shopping In Action

Recently I saw a woman pushing a cart in a supermarket, carrying a pile of coupons with redemption value from 25¢ to a dollar, searching the shelves for the brands on her coupons.  When she came near, I realized that this frugal shopper was my physician. She lived in a mansion, owned an airplane, and had a family income of approximately $500,000.

John lives in an area bordering Tennessee, Kentucky, and Illinois.  When he shops for a car, he calls a dealership, and asks for the number one salesperson of the year, and says, “This is the deal I have with your competitor in the neighboring state, can you beat it?”  John plays the dealerships against one another, and gets the lowest price.

Power shoppers are aware that auto repair services gouges consumers the most.Caveatemptor, indeed. Use Angie’s list or Yelp to read reviews of these places before making a rash decision. For example, one of my students was part owner of a famous and well-respected auto repair franchise. Their name alone is a symbol of integrity.  Yet, my student’s dealership was dishonest. One of their regular business practices was to determine, no matter what the problem; they would find a way to get a minimum of $500 on every car that came in.  They became experts in mythical repairs.  A snow fall in Chicago was called gold, because so many more people would come in for repairs as a result of the cold weather.  Even though TV stations periodically expose such dishonest companies, the unscrupulous practice is still rampant.  To avoid cheats like these, many of whom earn about 20% of their profit from price gouging, get written estimates from at least three places.


Power Shoppers Don’t Change Their Lifestyle                            

Dempsey, a real estate tycoon, is the dean of black millionaires in a large mid-western city.  Each new millionaire who seeks his advice is told:

Don’t change your lifestyle.  Say no to that yacht.  Live in the same home, and do your own housecleaning; you don’t need to prove you’re rich by having a mansion, a maid, a butler, a gardener, and a cook.  Keep your old car, and drive it yourself.  Refuse to imitate the ostentatious Buppie (Black Urban Professional) who buys a limousine and hires a chauffeur to drive it.  I tell you this because I have seen too many like you who acquire riches fast, only to lose everything by overextending yourself.

Dempsey’s advice is like that given to lottery winners. Unfortunately most do not take this advice, and after winning millions by chance, are broke within three to five years.

Before you can master the art of spending, determine what your daily and monthly expenses are by keeping a record of all spending (Spending record forms are at the end of this chapter.) The results of such a record can be startling.

For example:

  • If you buy a cup of coffee at Starbucks each morning, that’s $4 a day, 5 days a week, for 50 weeks. $1000 on coffee.
  • If you have dinner at a place like the Outback Steakhouse chain once a week, at a cost of $50 for two, it adds up to $2,600 a year. Many people eat out more than once a week, and spend over $5,000 without realizing it.
  • When going out to dinner or looking for an activity to do, check Groupon or LivingSocial for deals so you can live a little fancier without paying the full price.
  • Going out is fun and is typically how a lot of 20-somethings spend their weekends. Be aware of how much you’re spending at the bar and limit the number of times you go out per week.
  • If you have a credit card (which isn’t a bad thing and can be useful to build up credit) make sure you pay it off each month, the average interest rate on a credit card is 15%!


The Cycle Of Gift Spending

Robert is a 55-year-old auto salesman.  By the end of each year for over 10 years, he discovered his credit card debt amounted to $15,000.  He was baffled because he thought he was frugal. So he tracked his expenses and discovered that he was a victim of the Cycle Of Gift Spending.  The cycle began at Christmas ($5,000), then Valentine’s Day ($1,000), his Anniversary ($2,000), Mother’s Day ($1,000), Easter ($500), and five birthdays—wife, two daughters, mother, father, ($5,500).  Robert was dumbfounded. He was trying to show love with gifts. He changed his spending habits and began to show his love with acts of kindness, rather than by spending and that year he ended up with money in the bank in January.


Buying a Car

You need also to learn how to shop wisely for the three biggest purchases in your lifetime: car, college education, and home.  Owning a car is as much a part of American culture as the Star Spangled Banner.  Cars are more than transportation; they’re also symbols of success that satisfy deep ego needs.  To those ends, some college students purchase a new car, work long hours to pay the loan, and wreck their GPA in the process.  Between the monthly payment, gasoline, maintenance, and insurance, the expense for even a new, compact car could easily amount to $600 or $700 a month.

To keep your expenses manageable, it is best to refuse to buy a new car.

If you can stand it, I recommend buying a certified used car, and adding an extended warranty.  For example, we bought a 5 year old Camaro for our daughter, and purchased a 100,000 mile bumper to bumper warranty.  The cost of the car and the warranty was $7,000, as compared to a new car with that would cost much more.

Before buying a used car, we recommend that you check with Kelly Blue Book or Carsoup to find out suggested prices, and to get evaluations of the various brands and models.  For $15 you can get histories of individual used cars through the website, www.carfax.com.  By giving them the VIN (Vehicle Identification Number), you can learn if the car has been in a wreck, what major repairs it’s had, and how many owners.  Another company that provides the same service at the same price is Experian Automotive: www.e-autohistory.com/1-autohistory/index.html).

Once you determine the make, model, and equipment you want, the next step is to call your bank and ask for a printout showing the actual price of the vehicle, and of the accessories.  Use this as a tool when bargaining with a car dealer, because you will know exactly what the dealership paid, and what profit they stand to make.  If it is not handy to get a printout from your bank, there are internet sites that give the same information.

If you like to bargain for a car, companies like Wal-Mart, Costco, and Sam’s Club have programs that eliminate a lot of red tape, and allow you to get a good price on the vehicle of your choice.  See www.costco.com  and www.samsclub.com.

If you must have a new car, look for one that has a 10 year or 100,000 mile warranty as opposed to the 36,000 mile standard.  It would be wise to consider buying a car with such a long warranty, and keeping it for seven or 10 years.  It is not necessary to get a new car every two or three years, especially if you are buying new.   



Paying For College

Even now, in 2015, only about 40% of Americans have a four-year college degree.  One of the reasons is the expense of a college education.  Tuition, and room and board at the top schools is just under $60,000 a year, or $240,000 to complete the degree. According to the College Board, the average cost of tuition and fees for the 2014–2015 school year was $31,231 at private colleges, $9,139 for state residents at public colleges, and $22,958 for out-of-state residents attending public universities.

Ideally, grandparents or parents will start a college fund for a child at birth, but few do and most can’t.  Ideally, parents who were not able to set aside a college fund early, should take out loans so that their child can go to college, and graduate debt free. Again, many can’t.

If help from parents is not an option, there are other ways to finance your college education. The most common is to take out student loans.  75% of graduates from private nonprofit colleges had student loans. 88% of graduates from for-profit colleges had student loans. Average debt levels for all graduating seniors with student loans rose to $29,400 in 2012 — a 25% increase from $23,450 in 2008. Recent studies would push these numbers even higher.

Student loans can be a sensible way to finance one’s education, if they are used wisely.  The best use of student loans is to use the money only for education. Some students squander their loan money on beer and pizza; married students often use the loan money left over after fees are paid, to buy cars, clothes, take vacations, etc.

Pay off your student loan debt as soon as possible. You will be put on a 10-year plan for paying them off but almost all graduates can accomplish zero debt much sooner and you will save yourself countless hundreds upon thousands of dollars in interest payments.

Never pay someone to consolidate your loans, it can be done for free. Reference:https://studentloans.gov/ for more information about this. Also, it is almost always more beneficial to consolidate Federal and private loans separately. Get an evaluation done, review your options, submit an application. They also offer debt counseling services for those that need it. For the past few years we’ve been in a pretty weird interest rate environment, in which private loans (for well-qualified borrowers) can be lower than federal. Historically they haven’t been. However, the downside of private loans is that many are variable rates, meaning that they won’t be this low forever. Federal loans are usually a fixed rate and are set slightly higher to account for increases in rates.

It’s a good idea to work part time, but no more than 20 hours a week so you can keep up your GPA. Over a four-year period, one’s part-time wages can add up to a considerable sum that helps cut down the amount needed to borrow.  Work also gives a student a world in which to practice what is learned.  The part-time work you do in college could also be the place where you land your first job after graduation.

I encourage students to finance their education by becoming entrepreneurs, if they have a skill that can convert to a business.  After hearing me talk on this subject, April, a junior, started a house-cleaning business.  Over the next two years, she built up her business to the point where she has four employees.  As a 21-year-old, she supported herself through college with an enviable part-time income. Another student was talented in computer repair.  He advertised that he would repair computers for $25 an hour, compared to $75 charged by professional companies.


Visit College Campuses

In your high school junior year, at the latest, visit colleges before you enroll, and review its website before you visit the college.  When you arrive on campus, the admissions office may have a tour planned, including a stop at the Financial Aid Office.  There, you will be shown how to finance your education through a plan involving grants, loans, and scholarships. Gather data about housing, transportation, and tuition costs, so you can compare costs before you make your final decision.

When you return home, research scholarship opportunities beyond those mentioned at the school.  Each year, millions in scholarship funds go unused.  There are scholarships for the general population, and special ones for women, for African Americans, Native Americans, and other specialized groups. If you have the desire and ability to go to college, do whatever it takes to get your college education. While a college education is a plus on many levels, financially, a college educated person will make $1,000,000 more in his/her lifetime.  This figure is higher depending on the quality of the school one attends.  For example, an alumni newsletter from my alma mater, The University of Illinois, Champaign-Urbana, said that lifetime income is more than a million dollars for its graduates.


Making the Final Selection

After you have visited campuses, and compared the yearly cost of each one, you will need to consider your family’s financial means as well as your own particular preference.  Let me give you an example.  For the last 12 summers Dr. Parker has taught in The Tennessee Governor’s School for the Humanities.  This program brings 150 of our state’s brightest high school students for one month of intensive college-level courses.  During this month, Dr. Parker advises them to go to the top 10 schools in the country, if their parents can afford $50,000 a year.  Because of their exceptional talent, it will be well worth the money for them to have the finest education possible, one that will give them a certain distinction, advantage, and greater opportunities.  Harvard and Stanford are the two schools selected by the few students who could afford it.  Unfortunately only a few of these bright students can afford to attend the elite schools, and most go to outstanding public universities.


Buying a Home

Home ownership is one of the most important facets of sharing in the American dream, and about 68% of Americans own homes. The best way to make sure that happens is to set it as a goal as early in life as possible.

As the first step in teaching this goal to freshmen, I require them to “buy” and furnish a starter home ($40,000 to $90,000), and a dream home ($ 200,000 and up).  The first step in this assignment is to drive around town, and look at existing homes, from the trailer courts, to the projects, to modest homes of 1200 sq. feet, to the most expensive homes in our little town. The square footage of the expensive homes ranges from 5,000 to 17,000 sq. ft., at a cost of  $300,000 to $1.2 million.

The second step is to invite a realtor to speak to my class.  The realtor describes the housing market, tells them the price per square foot for housing in each neighborhood they visited, and shows them how to calculate the down payment, and the monthly payment for their starter home and dream homes.   The realtor always emphasizes that it’s imperative to have good credit, or qualifying for a home loan is out of the question.

The third step, is to invite a banker to talk about financing a home.  The banker explains the income they will need to purchase the house, the credit rating they will need to qualify for the loan, the cost of the home, the down payment, interest, and closing costs.  The banker also explains how the three major credit bureaus determine one’s credit rating.  He closes by sharing horror stories about clients who have abused credit cards and then stresses the importance of having good credit while in college, and after graduation.

In the final step of our home buying project, students are required to visit a furniture store to learn how much it costs to furnish each room of the their starter and dream homes. Ten years later, when my students are ready to purchase a real home, this assignment will be among the most important ones they did in college, for they will have learned:

  • How to establish good credit.
  • How to plan home-buying years ahead of the event.
  • How to get the best deal for their money.
  • How to pay off the mortgage faster, once they have purchased the home, by making one full extra payment at the beginning of each year, and by refinancing if the market mortgage interest rate has dropped more than 1% of the present mortgage rate.
  • The importance of finding a mate with good credit, who is as serious about money as they are.
  • How to buy a house within their income range.




The best way to answer the question is to break it down into these points:

  1. Develop a philosophy of spending. Remember you’re in an economic war that began the day you were born, when it cost several thousand dollars to bring you into this world. For the rest of your life, you will spend money every minute.  If you spend wisely, you’ll make money from the interest on your investments.  If you spend foolishly, you’ll pay interest on your debts.
  2. It’s not how much you make, but how much you spend, that will determine how wealthy you’ll be.
  3. Track your spending for three months.
  4. Become a power shopper.
  5. Start planning now for the biggest expenses of your life: car, college education, home.
  6. Marry a person with good credit, and who has definite financial goals.


Information without action is just a waste. We have exercises available to go along with this article that can help kick off the planning process.


by: Dr Henry H. Parker, Brett Machtig, & Josh Gronholz


     # # #


We Can Help.

If you want a review of your situation, we will do it for free. The Capital Advisory Group Advisory Services is an asset manager that helps guide wealth accumulation and management. Our team helps executives, retirees, and business owners with financial planning, asset management, tax guidance, risk mitigation, and estate planning. We help clients create wealth by analyzing income, cash flow and taxes with the goal of each becoming great savers. We scrutinize what can derail the plan. Finally, we help clients grow into investors with realistic expectations, giving them strategies to reduce the impact of market downturns and helping them create plans to meet their future income and asset objectives.

As a Registered Investment Advisory (RIA) firm, we are held to the highest standard of financial service firms.  We are held to the “fiduciary” standard of care. The Center for Fiduciary Studies states that: “Advisors held to the fiduciary standard must employ reasonable care to avoid misleading clients and must provide full and fair disclosure of all material facts to your clients and prospective clients.”(1)

According to the SEC, “advisors held to the fiduciary standard have a fundamental obligation to act in the best interests of the clients and to provide investment advice in the clients’ best interests. Under the fiduciary standard, advisors owe clients undivided loyalty and utmost good faith.”(2)

We take our fiduciary standard very seriously at The Capital Advisory Group Advisory Services.  We search for ways to better our clients’ current and future financial situation.  We want the best for you and your family.

The Capital Advisory Group Advisory Services uses independent research to identify low-cost investment options, as high fees have an adverse impact on returns. We analyze fees and fund performance using programs like Fi360 to select better investment options and doing side-by-side peer comparisons improve results.(3) 


Our Approach

Our goal is to help avoid you expensive financial lessons and become your “Personalized Chief Financial Officer.” The philosophy we have is to take our three decades of client and personal financial experiences and apply workable solutions to help you better manage your financial needs. We are an independent group with no proprietary investment products or sales quotas.

We are a fee-for-service advisor.  We have found that just commission-based asset management can be an obstacle that may not always work in your best interests.

Our approach rewards us over time, where we have to earn our relationships every day. Our fees vary depending on portfolio size, type of assets, and asset management style. Because our fee-based compensation increases only if portfolios grow, our interests are aligned with yours. We focus on financial objectives and your future growth.


Our Investment Process

Before we develop a personal investment strategy, we take a hard look at where you are currently. We assess investment goals, available resources, desired rate of return, and risk tolerance. Our research allows us to customize a plan to help fit your individual needs and develop your unique “Investment Policy.”  Once the blueprint is in place, advisors provide personalized investment advice. We allocate assets in a way that is intended to enable you to obtain an expected return for a specific level of risk. We believe that asset allocation is responsible for more than 90 percent of the variations in investment portfolio performance – so choosing the right asset allocation for you is our top priority. Each of our models is actively managed and back-tested to help manage risk.

Along the way, we monitor your progress including client statements and reports that summarize investment activity and compare your current portfolio results to your goals. We make periodic adjustments to re-balance your portfolio, adjusting our strategies to fit your individual needs. Through-out, we maintain constant vigilance over market awareness with our investment committee. Thank you, and please give us your feedback. We can be reached at 952-831-8243.


About the Authors:

Brett Machtig has authored several books and is the founding partner of The Capital Advisory Group, a private asset management and retirement planning services firm located in Bloomington, MN. Their firm manages more than $400 million in assets for 83 institutions and about 850 families as of December 31, 2014. He has been helping affluent investors execute financial strategies, meet income objectives and realize life visions for more than 30 years. Approachable, genuine and down-to-earth, Brett holds himself to a high standard of accountability and seeks to achieve positive financial results on behalf of each client. In this article, Brett shares the effectiveness of each strategy and how to improve it. 

 Josh Gronholz graduated Summa Cum Laude from the University of Minnesota’s Carlson School of Management and is a Registered Asssitant. He has worked in asset modeling with The Capital Advisory Group Advisory Services and has spent the bulk of his career modeling various investment scenarios and assisting individuals along their way to financial success and personal wealth.

Henry H. Parker Dr. Parker, a Ford Foundation Fellow, is presently a Cunningham Distinguished Professor at the University of Tennessee, Martin, where he taught and field-tested A Twenty-Something’s Guide to Financial Freedom for 10 years prior to its publication. He graduated magna cum laude from the University of St. Thomas. He received the M.A. from the U. of Minnesota, Minneapolis, and the Ph.D. from the U. of Illinois, Champaign-Urbana. HIs most recent publication is, Apollo vs. Dionysus, 2014. Dr. Parker has been featured on, “The Oprah Winfrey Show,” and his work has been included in The New York Times, USA Today, and People Magazine. He has been a speaker on the national lecture circuit for the New York-based agency, Program Corporation of America.  Henry H. Parer is not affiliated with The Capital Advisory Group Advisory Services or United Planners Financial Services.

We can be reached at brettmachtig.com or cagcos.com; 952-831-8243 or bmachtig@machtig.net or jgronholz@machtig.net.


(1) finra.org/web/groups/industry/@ip/@reg/@notice/documents/noticecomments/p118980.pdf as of 8/2014

(2) www.sec.gov/divisions/investment/advoverview.htm as of 8/2014

(3) www.fi360.com/products-services/tools-overview, as of 8/2014, Results not guaranteed.


The information contained does not constitute an offer to buy or sell securities and is provided for illustrative purposes only. The information comes from reliable sources, but no guarantees or warranties are given or implied to its accuracy or validity. The strategies listed do not necessarily reflect those of its publisher, MGI Publications or its authors. Information obtained from publicly available sources listed herein and footnoted where applicable. Securities offered through United Planners Financial Services of America, a Limited Partnership, 480-991-0225 member FINRA/SIPC, 7333 E Doubletree Ranch Rd, Scottsdale, AZ 85258. Advisory Services offered through The Capital Advisory Group, LLC 5270 W. 84th Street, Suite 310, Bloomington, MN 55437, 952-831-8243, an independent registered investment advisor, not affiliated with United Planners Financial Services of America. ADV, Part 2A as of 3/26/2015, available upon request. Many investments are offered by prospectus. You should consider the investment objective, risks, and charges and expenses carefully before investing. Your financial advisor can provide a prospectus, which you should read carefully before investing. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund. Diversification does not guarantee a profit or protect against loss. Please consult your attorney or qualified tax advisor regarding your situation. Asset allocation and rebalancing do not guarantee investment returns and do not eliminate the risk of loss.