Insights & News

September 2016
Next Generation

Cal Ripken on Financial Planning for Young Adults

My next stop was Miami and I was paid $500 per month - $406 after taxes… - Cal Ripken

Charm City (Baltimore) was the host of the Financial Planning Association (FPA) Annual Conference from September 14 through 16. Cal Ripken was the keynote speaker for opening day (who says financial planners do not have a sense of humor…).  

Cal shared a money lesson. If you have children or grandchildren starting out on their own, share this lesson. 
My first stop in the minor leagues was Bluefield, WV. I was paid $400 month and lived in a house with three teammates. We could not afford a TV so we played cards and drinking games.  The lady who owned the house prepared our meals and did our laundry, so I was actually able to save some money!
My next stop was Miami and I was paid $500 per month - $406 after taxes… Miami is a big town and it is tough to make it at that pay. I shared an apartment with roommates and the club kept releasing them.  I went to the club and told them they were releasing the players that were paying my rent! I asked the club to pay the difference and… they did.   
In 1982 I signed with the Orioles for $40,000 a year. My agent set my paycheck up so that my net pay consisted of “walking around money.”  
I had the same agent as Eddie Murray who was a big star by then and made a million dollars a year.  I was curious about Eddie’s pay and asked him to show me his paycheck.  Eddie’s walking around money was the same as mine! Of course, there were a lot more zeros in other places...  
Cal shares the value of this lesson - his agent made sure the ballplayers saved and invested their money. In financial planning, we call this “paying yourself first.” Money goes directly to savings and investing and not to your checking account.  
Checking accounts are the opposite of closets. Closets tend to fill and checking accounts tend to empty.  
When receiving a raise or promotion, save at least a portion. Ask Eddie and Cal, just because you make more money does not mean you have to spend more.  
Granted, how much walking around money do professional baseball players need? Their room (hotels), board (training table), clothing (uniforms), and transportation (commercial airlines and buses) are paid.  
But, ask your child and grandchild how much walking around money they need. Their answer will not match their reality – they likely do not know their reality.  
Ask them to make a list of major purchases they want to make in the next two years. Chances are it includes one the following:
Auto down payment
House down payment
Wedding (theirs or someone’s “destination wedding”)
Take the cost of those expenditures and divide by the number of months until the money is needed, and that is how much they should be saving per month. The rest is walking around money.  
Oh, and tell your children and grandchildren to save 10% of their gross pay for retirement too. When they balk (Yuk, Yuk), tell them Cal Ripken did not have a TV and played cards (don’t tell them about the drinking games).  

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