From my experience, when it comes to young people (ages eighteen to thirty for this example), they typically struggle with viewing aging and money in a healthy manner. From one standpoint, I can kind of understand that. It is intimidating to think about getting older. It is intimidating to think that one day, you are not going to be working anymore, but you will still have bills to pay. For the average person, and I have gone over this previously, it is easy and more comfortable to think short term. We think about right now. I get it, I really do. We think that investing is for old rich people. Are you familiar with what a self-fulfilling prophecy is? Because that might be one of the best examples I have ever come across. Investing is for old rich people, right? Guess what? A huge number of them BECAME rich because they invested when they were YOUNG! Sure, they keep doing it because they understand that it is important to stabilize their financial security, but they (usually) did not just become rich randomly, and then decided to start investing. They became wealthy BECAUSE they invested young.
People are so quick to dismiss things and justify things by making ignorant assumptions like that certain things are just for certain “lucky” people. An example of this off the top of my head is that the other day, I saw a meme about Oprah Winfrey. It was about a headline that said something about How Oprah Stays Stress Free and the comment was “Step 1: Have a billion dollars”. Average people get trapped in this mindset of how lucky she and other successful people are. But this one pissed me off, because Oprah is a rag to riches story. She busted her ass when she was young, and overcame a pretty horrific childhood. She didn’t just freaking snap her fingers and have a billion dollars. That is not how it works, and is in my opinion a truly toxic way of looking at things. But we have this terrible habit of totally downplaying the blood, sweat, and tears that go in to most huge success stories. We jump right to the “must be nice” mindset. You are damn right it must be nice, and they fought, earned, and deserve it, because they did things and took risks that most people are not willing to take.
That got a little off topic, but I still think that needed to be said. Anyways, investing is not just for old rich people. People get rich because they invested. It would be like seeing someone who is in really good shape running down the road, and being like, “gee, must be nice to already be in that good of shape, running is for people in really good shape”. HOW DO YOU THINK THEY GOT IN THE SHAPE THEY ARE IN? Sure, they still run even though they are in shape, because they want to maintain it. It is the same with the idea of investing and rich people. If you work out your entire life, you WILL be in great physical shape. If you invest your whole life, you WILL be in great financial shape.
With all that being said, I’d like to address seven thoughts I have about young people viewing and planning for their future and retirement.
1. Taking Small Steps Forever
Any step you take towards saving money and investing for your future is a good step. But, I notice a lot of people my age, the ones that are doing anything at all, are usually taking small steps, without showing any signs of ever speeding up. While I applaud the fact that they are doing something, I fear a complacent mindset. When it comes to your ability to make ground through compound interest and mutual funds, a great approach is to get really intense while you are as young as possible. I will go into this in more detail in #6, but it is worth mentioning now. Time is of the essence, and you can have such larger results the earlier you get the ball rolling in this process. Get the small steps down, but continue educating yourself about ways to aim to hit maximum contribution limits in your investment accounts. The maximum amount allowed contributed to a Roth IRA right now is $5,500 a year ($6,500 if you are over 50 years old). This breaks down to $458 a month. The average monthly payment on a new vehicle according to Edmunds.com is $479. Choose your priorities. I would much rather retire a millionaire than drive a new vehicle that may or may not impress people at stop lights that I will never see again, in a vehicle that will lose its value rapidly. But that is just me. I just use that example to show that for a lot of people, they have the money available; they just have their priorities backwards.
2. Use Apps Like Acorns and Stash as Virtual Piggy Banks, Not Retirement Savings Mediums
I love Acorns and Stash. I use both of them. For those who are not aware of them, Acorns basically rounds up your credit and debit card purchases to the nearest dollar, and sends the change into a micro investment account. It is literally a virtual piggy bank. I love the concept. Stash allows you to make contributions to various investment portfolios that suit your interests with as little as $5. Both charge very small fees. These are becoming increasingly popular, and for good reason. They introduce people to saving and investing. They get people to think about money differently than they previously were. That is a huge step in the right direction. But you must identify these for what they are. In my opinion, these should be used as a piggy bank, with some return on investment. I see people using these and thinking they are set for a comfortable retirement because of it. This could be the case, but I encourage more traditional approaches to investment savings and preparation, and to use these for things like vacations, new tech gadgets, etc. Use these, but do not get comfortable with just them. Keep educating yourself about all of the other retirement accounts available, and use these apps to stay aware of investing and saving. They should be supplemental, not primary.
3. You’ll Need More Than Social Security If You Want To Live Well
I am not going to get into the nitty gritty of the numbers on this one, because I want to try to keep my readers from falling asleep (if you haven’t already). But, what I will say here is that according to my research on the topic of social security benefits in retirement, basically everyone says that no, it will not be enough by itself. There are a few things to think about here. First, you have inflation. Things will cost a little more next year, and a lot more in 10 years. Much more in 40 years, assuming you are 25 and retire at 65 for sake of round numbers. Please realize that social security was a wonderful concept, but is flawed in a lot of ways. It needs to be treated as a supplemental income in retirement, not as your one and only source.
4. If You’re Reading My Blog, You WANT More Than The Average Person
Here is where we go back to our mindsets. In my previous blog post, I spent a lot of time on this topic. In my opinion, success in this world boils down to our mindset. Sure, there are other factors. A quality upbringing helps. Opportunity helps. I will never deny that. However, if your mindset is that since you do not or did not have those things, you are doomed and not one of the lucky ones, congratulations, you just guaranteed yourself that you will never make it out of your rut. If you seriously think every successful person lucked out, struck gold so to speak, and was given their good fortune, then you are deceiving yourself. Yes, these things do happen. People do inherit fortunes. Some people are privileged in different ways. You cannot change that, I cannot change that, and they cannot change that. So shut up about it! This is all about YOU. Not about everyone that has made it. The difference is that they had a different attitude. Don’t believe me? Here are some examples:
• John Paul Dejoira, multibillionaire, founder of Patron Tequila, lived in his car at one point and was a gang member.
• Francois Pinault, worth $15 billion, dropped out of high school in 1974 after being bullied for being poor.
• Oprah Winfrey, multibillionaire, was born into poverty, studied hard, got a scholarship to Tennessee State University, and became the first black TV anchor in Tennessee history at age 19.
• Howard Schultz, multibillionaire, former Starbucks CEO and current Starbucks executive, was brought up in low income housing.
• Jan Koum, multibillionaire, CEO and co-founder of WhatsApp, lived on food stamps as a teenager.
(Source sited businessinsider.com 02/20/2014)
The list is MUCH longer than this. I just wanted to give a few small examples. If you seriously shame the successful, and think that the only reason you struggle or have not found success is because you are not one of the chosen lucky ones, you are not only ignorant and taking the easy way out by thinking that way, you are also doing your own potential a massive disservice. Success in this life comes down to pretty basic concepts. Attitude, work ethic, and perseverance are three essentials, and without them, you do not stand a chance.
5. Time Goes Buy Fast, and your 60’s May Catch You Buy Surprise
Do you ever randomly think about how crazy it is that it is 2018 already? I know my parents and grandparents have always warned me about how time flies, and I am starting to believe it. I think that time goes slow when you look at it from a day by day standpoint (and even that is starting to fly), but I think that when we look back over periods of time that we have already lived, in that moment, it seemed like it went by really fast. I keep thinking to myself “2008 seems like just yesterday, and that was 10 years ago”. That really has not been that long of a span of time. If your brain works anything like mine, you sit and think about these types of things, and then think “well, here I am at 24, that is almost half way to 50, and this has gone by pretty fast looking back…wow, life really is pretty short!”. The moral of this point is that just because you are young now, doesn’t mean that you have all the time in the world to prepare yourself financially, and you are literally living in the exact best time to get started. Live every day to the fullest, be thankful for all that you have, but please, do not put off planning for your future, because it could be too late to reap the rewards that are available to you now if you wait much longer.
6. SAVE ABUNDANTLY WHILE YOU ARE YOUNG
I am going to explain in detail why this is such a big deal, so brace yourselves. I have touched on compound interest before, but you are about to get the full dose. Compound interest, in the simplest light, is the interest that you make off of your interest. The more years there are for it to happen, the larger your returns are going to be. Remember how I talked earlier about the whole Roth IRA thing? $5,500 per year ($458 a month)? You can do less than that, but that is the maximum allowed, and I like the “go big or go home” attitude, so we are playing with the maximum for this example. For the example below, I am going to give you the age that a person opens an account. We are going to assume for this example, that the average return rate is 7%, because that is the historical stock market average rate of return (some funds average much higher). You open an account with $1,000, and you contribute $458 a month until age 65. Here is how that looks.
Starting at age 35 years old. Your final balance is $546,250. You only put in $165,000, meaning you earned $381,250 in interest.
Starting at age 30 years old. Your final balance is $798,936. You only put in $192,500, meaning you earned $606,436 in interest.
Starting at age 25 years old. Your final balance is $1,153,341. You only put in $220,000, meaning that you earned $933,341 in interest.
Starting at age 18 years old. Your final balance is $1,901,361. You only put in $258,500, meaning that you earned $1,642,861 in interest.
ARE YOU SEEING THIS? If you are 25 right now, and have a car payment of around $450 dollars, that car payment is literally costing you over a million dollars in the long run. A MILLION DOLLARS. This also applies if you have a $150 car payment, and blow $300 a month on things you do not really need that do not provide your life with any real value, etc. Or, no car payment, but you spend $450 a month on hangovers and regretful decisions (going out, getting drunk, and then going to waffle house or taco bell once a week). I am preaching to myself there, because that is exactly what I used to do.
Keep in mind also that a Roth IRA’s funds grow tax free, since the money going in has already been taxed (it is coming from your take home pay). Your final balance, whatever age bracket you are in, would be TAX FREE. You would not pay a SINGLE DIME on your balance or your distributions. If you were taxed on that much money if it were normal income, you would be kissing 37% away instantly. But you do not have to here. PLEASE, open a Roth IRA NOW. YESTERDAY. ASAP. Every day that goes by is wasted time and money. If you are worried about it being complicated or confusing, I can assure you that if you can navigate a website, pay bills online, or otherwise use the internet and read, you can do it. There are a number of avenues you can go through. Just google “open Roth IRA” and freaking open one. Right now. Or as soon as you possibly can. Vanguard, Fidelity, American Funds, and E-TRADE come to mind right away, but there are a ton of options. Adjust your budget, do without something, and put in as much as you possibly can every month. You will be a millionaire. No joke, no scams, no nonsense. You just have to do it.
PS. Some mutual funds (mutual funds are what are in the Roth IRA account) have averaged as high as 14% over the course of their lifetime. It is risky to assume that they would be able to maintain that, which is why I use the 7% return as the baseline. But, just a fun fact, if you are 25 and contribute to a plan like in the bullet points above, with a 14% average rate of return, you would be sitting on a little over $8,100,000, and you still only put in $258,500 of your own cash. Thought you might find that interesting.
7. You Have a Mind Set That You Can’t/Won’t Succeed, So It Does Not Matter Anymore
Here we are, last but not least. I seriously think that this is the base problem with most of the fear from young people today. We really are dead set in a thought process of us never being able to succeed, because of blah blah blah. “The baby boomers ruined the economy” “Student loans are out of control” “Things cost more today than they used to” There most likely is some truth and some fallacy with any of these and the many more things that people say to justify their mediocre life. I would like to point out a few things here, though. First of all, you live in the most advanced time that humanity has ever seen, and it is only going to get better. You have an unlimited and infinite medium for creating any level of success that you want to with the internet. Second of all, if it is so hard to make anything out of yourself, why are thousands of other people doing it every day? Are they just ignoring the excuses that you give? Yep, that is exactly what they are doing. While your excuses may be true to a degree, the people making it and getting stuff done and changing the world are ignoring the excuses, and focusing on just flat out getting it done. It all comes down to time allocation.
For every second that average person complains and moans, the hustler puts one second into providing a value that people will pay for. So after average Joe and his friend have spent an hour sitting around complaining how they have a raw deal, the dude that is going to succeed just spent an hour working on learning a new skill, plotting how to change the world, reading or gaining knowledge about something they are passionate, and working on a project that motivates them to get out of bed in the morning. Guess who has a better chance of capturing success? The hustler/not complainer. A thousand times over. I see so many people that have accepted mediocrity for their entire life, and it makes me sad. If someone truly wants that, more power to them. Knock yourself out. But, I fear that there is so much wasted potential out there, because people legitimately do not know that there are other options. They think that living a mundane life with decent pay is the good life, because they think it is the closest they will ever get to the good life. People will say “excuse me, but I am happy right where I am right now”. That really is a great attitude to have, and they are a step ahead of the pessimistic complainer crowd that suck the life out of those they are around.
My entire goal with this article is the following two things. I want to inform you of things you may not already be aware of, and I want to challenge you. I want you to step outside of your comfort zone and look at life from a different perspective than you are used to. We have such an easy time getting into habits and routines. I want to rattle you just enough to at least have you evaluate where you are at. If you love what I have to say, that is awesome. If I piss you off, at least I got you thinking. Either way, I accomplished my goal. If one person got some benefit out of reading what I have to say, I would be a happy man. As always, thank you so much for reading. Please share with your friends if you think they might get something productive out of this.