Double Journey

A quick financial lesson. While this post may not seem relevant to me telling my back story, almost everything I talk about will be based on this concept, so pay attention. If you want to be rich, one of the most important things you will ever learn is the power of compound interest. This concept is best learned through example.

Let’s say you decide to invest in a Roth IRA, my favorite investment vehicle. You decide to start one today and invest the maximum $4,000 every year. You invest it wisely in an index fund that follows the total stock market which has historically returned 10% a year. In 40 years, your $4,000 a year, ($160,000 in principal payments) turns into $1,947,407.24, All of it tax free.

Now imagine if you were a good little saver and have saved the last 4 years. With a modest gain over the last few years you have $17,000 in your account. With the same investment strategy above you now have at the end of 40 years 2,716,814.59, All of it tax free. That is almost $800,000 difference for saving a little bit earlier. That $17,000 turned into $800,000!

Still not convinced? How about this? You do the above strategy from the ages of 25-35 and then stop. So for 10 years you invest $4,000 and then nothing after that. By the age of 65 you will have an account worth $1,223,633,58. Your $40K turned into $1.2 Million.

Or instead, you do nothing from the age of 25-35 and instead save from the age of 35-65 with the same strategy. Your final balance will be $723,773,70. Your $120K turned into $720K. Not bad until you consider that that’s a half-million dollar difference from the previous example of $1.2 Million! And you put in 1/3 the amount in principal and saved 3x as long!

The lesson? Save early, save often. I can’t stress this enough to my young friends. I know it is hard to save money now, but in the long run, it makes a BIG difference. This concept applies outside of finance as well. Doing the right things today, can pay big rewards tomorrow. You should always have an eye on the future and understand that small differences today, can have big repercussions in the future. This applies to you choosing what school to go to, what job to take, whether or not you should buy that new TV, pretty much everything you can think of. The younger you are, the more important this concept is. Understanding this at a very young age, helped me to get where I am today as I will explain shortly.

One of the things I thought I would touch on before I actually start my mad dash for the double would be to continue on the topic of how I was able to get into the position I am in now. I started this conversation in an earlier post, but when I thought about it, realized there was much more to it than just save, save, save. Over the next several days, I will dive a little bit into my personal life and let you all in on how I’ve been able to get where I am today, creating a site where I just might blow $20,000.

I didn’t do all of this by accident. If there is one thing my life has been, it’s been deliberate. I’ve been relatively successful in my life, and I think it’s very important that you understand just who you are getting in the car with before we all take this journey. More importantly, I think I can share some advice and insight on the one thing I have been really good at doing thus far, managing my career and saving for retirement.

My ability to start this little project of mine is a direct result of my ability to manage my career and finances. These are two things I think are vitally important to people of all ages but especially so to people like me who are in the earlier parts of their career. I might go off in some strange directions that don’t make sense at first, but believe me, it will all come together in the end.

Admittedly, I have a distinct advantage over most people when it comes to this particular challenge. Most people, probably don’t have $20,000 just sitting around waiting to be doubled. So how did I come up with this money?

I did it the old-fashion way. Actually, inheriting the money is the old-fashion way. I did it the second-to-oldest-fashion way. I saved. I saved every cent I could and didn’t buy things that I didn’t need. My obsession with saving almost borders on the ridiculous. There were times I literally had to develop a SPENDING PLAN, so that I would loosen up the purse strings and actually spend some of my money. I earn a very good living, and I live very modestly. This has allowed me to save a tremendous amount of money over the past few years. Enough so that I could probably take five years off of work, and still be in OK shape. I wouldn’t do that, because I actually like working, but it is feasible.

As Rick points out in his post about this site, I love to talk about money. I especially like to help my friends realize how important it is to save money, and not get into a cycle of constantly buying what you want whenever you want it. Through hard work and discipline you can get to a point where you can either quit your job or start a crazy idea like trying to double your money. If you are lucky, you can do both I have gotten to the point where I have zero debt of any sort. I don’t have any credit card debt, student loans, or car payments. Since I don’t own a home, I don’t have a mortgage. It is times like this, when I don’t have any income, that it really pays off.

I can’t talk about saving money without posting my all-time favorite SNL skit on the subject, Don’t Buy Stuff You Can Not Afford. I laugh every time I see it. The sad thing is, there are lots of people just like this couple.

Steve Martin says it best when he ask, “I think I got it. I buy something I want, and then hope I can pay for it, right?” You would be surprised how many times I have had a conversation with someone just like this.