Tuesday, May 22, 2007
Something Young People Need to Know!
Kids right out of college will be making a HUGE mistake if they waste those first 5 to 8 years buying stuff instead of saving. As I prepared my little talk for our graduates this past Sunday, I was doing some investment research and came up with this little scenario to encourage young people to save. WARNING: this may depress anyone over 40 with insufficient savings...
Take two brothers working for the same employer right out of high school. One is wise, one is not so wise, yet typical of most people with regards to saving.
The wise brother invests $2,000 a year (that's about $5.48 day; the cost of pretty much any meal deal at McDonald's!) beginning at age 19 in a 401K plan with his employer which nets a 10% return annually (the average yearly gain of the stock market). He does this for eight years and stops at 26 and leaves the money there till retirement.
His brother, instead of investing with his employer, gets in debt for a car, boat, etc. He wakes up at 26 and starts investing the same $2,000 a year with the same 401K plan with the same 10% return. He does this for the next 39 years!
The late bloomer, not-so-wise brother has: 1,016,830
The wise brother has 1,271,671
But the late investing brother put in $78,000 for his lesser amount.
The wise brother put in $16,000 for his greater amount...
See what a difference EIGHT YEARS makes. Albert Einstein said, "Compounded interest is the most powerful force in the universe."
Few people believe Social Security will survive for many more decades, and with medical advancements, young people will be living longer than ever after retirement, and if they don't start early, they could be facing decades of poverty. I was amazed at what a difference eight years can make. Ignoring those years of financial potential could be the most costly mistake they can make, so spread the word!!!
Oh, though they might be impressed with a McDonald's meal a day become a million dollars, just a 3% inflation rate will erode a million to less than 300,000 in 40 years...even more reason they need to start saving as soon as possible!
For more help goto:http://money.cnn.com/magazines/moneymag/money101/index.html