I’m going to tell you that a cup of coffee at Starbucks costs $36. And when you understand that, you can get a million dollars, no matter how much or how little you are making right now. Everyone can become a millionaire. As long as you are patient…
So what’s the secret? The missing ingredient? Time. Those who understand have found that it is easy. School teachers have done it. Janitors have done it. Fast-food workers have done it. No matter how little you’re currently making, you can probably save a bit of your pay. Twenty-five percent is the amount people generally suggest. It’s called “paying yourself first.”
Of course, for most, it won’t be easy. Somehow, we seem to adjust to our spending to just about what we make – in fact, we often spend just a bit more, driving up an ever-growing credit card debt. And if you already have debt, you can’t start saving until you eliminate the debt. Now, if you are in debt, I suggest you can start with an understanding that it doesn’t have to be a permanent situation. In fact, I believe you can find some information on this very website with which you can eventually pay off that debt. I have been in fairly major debt twice in my life. Once, I owed $76,000 to the credit card companies. Both times, it felt never-ending while it was happening, but both times are history now. So, once you have no debt, and can save 25% of your income, you can be a millionaire. It takes 20 years, but works every time. Why not start today?
I met one of the many people who actually did it. He worked for Sears from the age of 23 until 46 – twenty-three years. He drove a van doing appliance repair. That job doesn’t pay very well. Less than a teacher gets, I think. Probably about as much as a grocery manager gets. He lived in a small apartment. Early on, he had enough cash to buy a 32-inch TV. But he kept his 21-inch tabletop model. It worked just fine. He never bought a car on credit. Instead, he paid cash for the best car he could get every ten years. At first, it wasn’t much of a car. Now, every ten years, he treats himself to a brand-new $78,000 Jaguar. About two years into his experiment, he had $20,000 in a savings account. He realized he had to take the time, make the effort to learn about investing. At first, he didn’t like the idea, but he knew he had to overcome the resistance. He decided to avoid the stock market and real estate. (As a coastal California resident, he probably could have done spectacularly with real estate.) Instead, he focused on municipal bonds because they have traditionally been very safe. It worked for him, although I might recommend a more mixed portfolio with at least some more aggressive investments.
What about the current economy? At the time I write this, we’ve been a few years into challenging times. But if you look throughout history since money has been handled in an organized fashion, on average, everyone who has stuck it out for 11 years or more, has done well.
So anyway, my friend retired from Sears at age 46. He has well over a million dollars, and the knowledge and experience to continue developing his investment.
So how do you save 25% up front? There are two areas in which you can make all the difference.
The first area is small expenses. If you buy cigarettes, candy, coffee, books, or anything other habit-like product every day, look what might happen if you give it up: Let’s say that instead of stopping into Starbucks and spending $5 for a cup of coffee and a pastery, you invest it over 20 years. Right. That cup of coffee actually costs $36. Would you spend $36 for a cup of coffee?
The other place to watch is overheads. When you sign a one-year lease on a $1,500/month apartment instead of a $1,200/month apartment, you are losing $3,600 per year. That’s a lot of groceries or clothes. But it’s a huge amount of money with compound interest over 20 years. Yet, $1,500/month doesn’t seem that much different than $1,200 when you’re apartment shopping, does it? This is even more-so with mortgages. The people who tell you that your mortgage should not be more that 1/4 of your income really know what they’re talking about. Same with car payments. Same with club memberships, subscriptions, and so on.
Let’s talk for a moment about pride. That’s what has prevented me from doing this myself. For much of my life, I have been too proud to drive a 20-year-old car. It had to be a shiny new car. I had to have the fancy phone, bicycle, TV set, and latest computer, to show my friends. I had to live in the bigger house. So, I have delayed my millionaire potential. But if pride is so important to me, wouldn’t it have been better to have done this plan with the old car and the little TV, and really, really impress my friends 20 years later? Oh, if I only knew that 20 years ago:)
Have fun & prosper! – Jeff