Young people, just starting out in life, need a plan. How to survive and eventually thrive requires some financial sense. In the first chapter of Walden: Economy, Thoreau describes the 4 necessaries of life: food, fuel, clothing, and shelter. How can you have more than that?

First, consider wages over time, ie. minimum wage (or more, say $20/hour) at 8 hours a day ($160), five days a week ($800), four weeks a monthish ($3200), and 12 months a year ($38,400), and that’s before taxes with no vacations! Of course, there are many other ways to make money, and that’s part of the discussion. In planning a budget, start with your income.

Then, what are one’s expenses? Returning to those priorities, I like to use a pie chart in quadrants. Necessaries (non-discretionary) on one side, divided into shelter (at 25%) and food, fuel, & clothing (25%); and non-essentials (discretionary) on the other, divided into savings (25%) and fun stuff (25%). It’s easier to follow and modify when drawn on a display…

The key to making a budget work is keeping your shelter or “rent” to no more than 25% of your income (certainly a challenge for young people given the cost of housing). Or, one should be able to pay for a month of rent with a week of work (or income). If it takes half your income to pay your rent, it ain’t gonna work! Either get a roommate or make more money.

One’s food, fuel, and clothing constitute essentials only. Food for survival (no condiments, snacks, booze, fancy restaurants, or desserts). Fuel for Thoreau was just heat, but for us it’s that and gas, electricity, and perhaps other utilities. Clothing is limited to what it takes to avoid being arrested for indecent exposure (no accessories, bling, fashion statements, or luxury items). Honor the basics, be discerning, buy quality, have humility, cherish simplicity.

The fun stuff is important. It can make life worth living, but it can also constitute modern essentials (ie. your smartphone, internet provider, important subscriptions, etc.). It includes the desserts and the accessories, but also all entertainments and any miscellaneous non-essentials. However, it also constitutes a slush fund. If your non-discretionary expenses exceed 50% of your income, use this quadrant to subsidize the others.

The last quadrant, savings, may be the most important, but it is also the most vulnerable, fragile, and susceptible to a lack of financial discipline. People will carve money out of their savings to pay rent or have fun, putting their future financial health – their wealth – at risk. Don’t do that! “Pay yourself first” and that means stashing your cash somewhere safe (so that it is not cash, it is an investment). 

In the same way you should set up an automatic deposit for your income, you should set up an automatic investment for your savings (deduct it from your income before paying your expenses). There are many good ways to do this, and while you may start small, with discipline and diligence your nest egg will grow. “A penny saved is a penny earned” = two cents (and eventually more, given the miracles of compound interest).

We’ve established a formula for survival, but there is much more to know! Curiosity is as important as frugality. For example, part of financial literacy is avoiding debt. Earn interest, don’t pay interest! Waste not, want not! Work smart hard! Think and grow rich!

In fact, considering quotations is a good way to inspire learning, and there are many on the subject of economics. Here’s one of my own, and I’ll leave the analysis up to you… “Ecology is the economics of nature. Economics is the ecology of society.” And a few more…

• Not everything that can be counted counts, and not everything that counts can be counted. ~Albert Einstein
• Live as if you were to die tomorrow. Learn as if you were to live forever. ~Mahatma Gandhi
• It takes as much energy to wish as it does to plan. ~Eleanor Roosevelt
• The best thing money can buy is financial freedom. ~Malcolm Forbes
• If you can’t buy it twice you can’t afford it ~Jay Z
• Frugality includes all the other virtues. ~Cicero
• When I was young I thought that money was the most important thing in life; now that I am old I know that it is. ~Oscar Wilde
• The only real security in this world is a reserve of knowledge, experience, and ability. ~Henry Ford
• Floss a little, invest up in a mutual fund. ~Busta Rhymes
• A nickel ain’t worth a dime anymore. ~Yogi Berra
• The real measure of your wealth is how much you’d be worth if you lost all your money. ~Anonymous
• Don’t tell me what you value, show me your budget, and I’ll tell you what you value.” ~Joe Biden
• I’d like to live as a poor man with lots of money. ~Pablo Picasso
• Fortune sides with those who dare. ~Virgil

Yes, this post may be updated…