There's an old story about a guy taking a smoke break
with his non-smoking colleague.
"How long have you been smoking for?" the
"Thirty years," says the smoker.
marvels the co-worker. "That costs so much money. At a pack a day, you're
spending $1,900 a year. Had you instead invested that money at an 8% return for
the last 30 years, you'd have $250,000 in the bank today. That's enough to buy a
The smoker looked puzzled. "Do you smoke?" he asked his co-worker.
"So where is your Ferrari?"
When you think
about money and saving, stop, look around, and ask yourself: Where are all the
Sure, not everyone with $250,000 should buy a Ferrari, or even
wants one. But we know the rough financial position of average Americans, and it
isn't within hailing distance of Ferraris. Less than 60% of Americans are saving
anything, and two-thirds of those who are have less than $25,000 salted away,
according to ConvergEx. Almost half of Americans couldn't come up with $2,000 in
the next month if they had to, accord to the National Bureau of Economic
Research. According to Nielsen Claritas, Americans age 55 to 64 have a median
net worth of $180,000 -- less than they'll likely need for health care spending
alone during retirement.
How can so many Americans be so poor if
accumulating a lot of money over time is as simple as saving a few dollars a
Because most people don't take advantage of what you Millennials
have in spades: TIME.
You have time on your side. Decades in front of
you to save and invest. It's the biggest financial asset you own today, and
you're probably not even aware of it. The single best thing you can do for your
finances is to realize how valuable it is.
I know you, Millennials. When
you think about building money for retirement, you focus on earning more money
later in your career. And why not? You'll likely earn far more in your 40s and
50s than in your 20s and 30s. Waiting until you have a nice fat paycheck before
you save money makes sense, right?
The average American
age 16 to 24 earns $444 a week, according to the Bureau of Labor Statistics.
Those age 25 to 34 earn $707 a week. Workers age 45 to 54 earn $878 a week. And
those age 55 to 64 earn about $900 a week.
So, by the time you're in your
50s you can expect to earn about double what you earned in your 20s and 30s.
Compare that to the value of money saved and invested in
your 20s and 30s, and we're not in the same ballpark.
For the last 150
years, the S&P 500 has delivered an average annual return of 6.6%, after
inflation. During that period, we had nine major wars, 33 recessions, a half
dozen financial crises, and an uncountable number of really awful things happen
to the economy. Through it all, 6.6% a year is what you averaged. It's the best
estimate we have of what stocks will return over the next many
And lucky you, earning a 6.6% return on your savings does
nothing short of miracles over time. If you are 20 years old, every dollar you
save today will be worth $18.50 by the time you are 65 (and that's adjusted for
historical inflation). If you're 30, each dollar saved today will be worth $9.6
by age 65.
Think about that. From the time you are in your 20s and 30s
until your 60s, your weekly wages might double. But money saved in your 20s and
30s could very realistically grow tenfold by the time you reach your 60s.
Saving a little bit of money when you are young can be a more efficient
way to build wealth than saving a lot when you're older.
I know how
ghastly the jobs market is right now, Millennials. And most of you lucky enough
to have a job feel as if your paychecks round to zero.
I get it.
But don't overlook the incredible asset you have in time.
Time allows the market to do the heavy-lifting wealth-building for you.
Take advantage of that any way you can. $20 a month. $100 a month.
Whatever. Any small amount you save now will likely be more important to your
long-term wealth than much larger amounts saved when you're older and earning
This might sound basic and boring, but in 40 years, you will
not care what the 200-day moving average is, or how many basis points Treasury
yields rose this month, or the short-term forecast of another well-dressed
analyst with a charming British accent. I promise. What will matter is whether
or not you saved money and invested it for the long haul.
I know you,
Millennials. You're spending $5, $10 a day on stupid stuff you probably don't
even like while working tirelessly in college and work to boost your future
earnings. Once you realize cutting out the former can be as important to your
finances as trying to boost the latter, you might find yourself closer to your
goals. That's how you leverage your assets. That's how you turn cigarettes into
Written by Brandon Bailey
Linked In: http://www.linkedin.com/profile/view?id=101576891&trk=nav_responsive_tab_profile