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Wall Street, California | MONEY MAKE-OVER / Southern
California Learning How to Succeed in Personal Finances

Young Grocery Manager Should Take Stock of His Spending


Casey Lynch would love to get a handle on his financial future. But first the 22-year-old has to get a handle on where all his money is going in the present.

"That is the million-dollar question," he says.

At his age, that's no exaggeration. If Lynch could simply save $150 a month, he could virtually guarantee a million-dollar retirement nest egg. But, despite earning roughly $30,000 annually and having fairly modest fixed expenses, Lynch rarely finds himself with much left over for savings at the end of the month.

Nonetheless, he's committed to trying. He's anxious to begin building an investment portfolio and saving for retirement, as well as preparing for the day when he has to replace his primary means of transportation--a 1967 Volkswagen Beetle with a working radius of about 15 miles.

But when Lynch tried to jump-start his financial education by visiting the online site of the Charles Schwab brokerage firm, he found himself both over- and underwhelmed. He didn't find anything especially helpful in Schwab's basic investor advice, so he checked up on a few stocks that friends had told him about and read about different kinds of retirement accounts, he says.

Frustrated, Lynch temporarily turned his attention away from investing, and instead paid off an outstanding credit card bill of several thousand dollars.

"I'm interested in having a good time, but the future's coming up pretty fast," he said. "I'm getting tired of every week turning around and using all my money for bills."

When it comes to planning for the future, Lynch's instincts are right on the money, said Peg Downey, a fee-only certified financial planner with Money Plans Inc. in Silver Spring, Md. Yet before he embarks on an ambitious financial plan, he needs to step back and assess his assets and spending patterns, the planner said.

Financially, Lynch is somewhat ahead of most 22-year-olds. He may not have much saved other than a fluctuating $3,000 in his checking account and a collection of savings bonds given to him by his grandfather. But he grosses more than $30,000 annually, and he's been a member of the Southern California United Food and Commercial Workers Union since he got a job bagging groceries at a supermarket near his home at age 16.

Lynch plans to remain in the grocery business at least three more years, when he'll graduate from Cal State Los Angeles with a degree in computer information systems. Not only does his job as a supermarket manager allow him to take 12 credits a semester, if he holds on for those three years he can expect to collect a pension when he reaches retirement age--the reward for 10 years of service as a dues-paying union member. Certainly, it's not likely to be a lot. But, as a 25-year-old with a vested pension, he would certainly be off to a good start.

Despite this promising foundation, Lynch's finances could use a serious overhaul, Downey said. The planner's first bit of advice: Create a spending plan.

Lynch, she pointed out, has no real idea of how much money he goes through every month. Although he thinks he spends a little more than $1,000 monthly on expenses ranging from rent on his San Gabriel Valley home to tuition and car repair, he's not counting in such occasional expenses as travel and gifts. And for Lynch, these tallies are not inconsiderable.

Over the last several months, he's given a sister $900 to pay off her credit card bill, bought gifts for several relatives and friends, and still found cash to take vacations with his friends to Las Vegas and Lake Tahoe.

"I have a lot of friends who have a lot of money, so when we go out and have fun, it's usually pretty expensive,' Lynch observed ruefully.

Lynch's savings strategy also made the planner cringe. He holds off cashing his paychecks so that he'll have more money than he expects when he finally makes a bank deposit. But, Lynch isn't earning any interest on paychecks he has stashed in his sock drawer.

Instead, Downey suggested, Lynch should keep careful track of all his expenses over the next several months--down to the 25 cents he puts in a parking meter. Once he averages the number out, he will understand how much he is spending and how much he is saving. That should give him a foundation to make more reasonable decisions about how to save money.

Next, Lynch needs an emergency fund of several months' living expenses. His checking account, with its wildly fluctuating balances, simply isn't a reliable cushion against unanticipated expenses.

It may not have the cachet of saving for retirement, but it's equally if not more vital, the planner said. Without money set aside, anything from an unexpectedly expensive car repair to unemployment has the ability to devastate the most dedicated investor's strategy.

"You need at least three months' expenses set aside," Downey said. "It's not exciting, but it's there if you need it."

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