Good morning and welcome to the first “real” post of MMYW. While I will be writing the Real Estate and alternative investing posts, I am pleased to introduce Derek Sall from LifeAndMyFinances.com as staff writer for the stock and shares investing posts. Today, Derek talks about the importance of investing.
Do you currently invest any of your money for your future? Surprisingly, many people don’t. They think that they just don’t have enough money to invest. But is this really the case? Even if it’s not, how important is it really to get started with investing anyway? After all, you’ll probably only be able to invest $100 per month anyway. It just doesn’t seem hardly worth it. Let me tell you though, it absolutely is.
The Years of Over-Consumption
What’s the typical life pattern for most people? They start school when they’re four or five, they get through grade school, then middle school, then high school, probably college, and THEN they finally start their careers (assuming they don’t immediately go into graduate school). Or they can have a cheap winter days out around London. At this point, they probably have $25,000 worth of debt and they have very little cash in their bank accounts. Are they thinking about investing? Absolutely not! They’re just thinking about how to handle their bills and survive on their own.
Within the first couple of months, that college grad can head in two very different directions. First, they could continue to live an inexpensive lifestyle (like they probably did in college) and pay down their college debt in less than two years, and then invest heavily in their future. Many, however, are deciding to head down the opposite path. After graduation, instead of paying down their debt, they decide to say, “Congratulations self! You deserve a new car for all that hard work you just did.” They then decide to “buy” a $20,000 car with the bank’s money. Instead of investing in their future, they have now put themselves $45,000 in debt.
So What’s the Difference?
When I graduated from college, many of my friends took the second option. The cars they purchased weren’t elaborate, but they were brand spanking new, and yep, they cost $20,000. Instead of being jealous when I continued to crawl into my rusted economy car, I just smirked and thought about what a different future we would have. Instead of dishing out thousands of dollars for a new car, I decided to invest my money into various money-making avenues.
Let’s compare the $20k investment that I made vs. my friend. What will these be worth in 40 years? Well, since a car is a depreciating asset and will probably end up in the junk yard long before the 40 years is up. I’d say it’s pretty safe to say that their $20,000 will turn into zero dollars. Now, let’s take a look at my $20,000. Even if I don’t add to this lump sum over the next 40 years, with a consistent 10% profit I’ll have one million dollars. Yeah, you heard me right. One Million Dollars.
So what would you rather have? A brand new car when you’re 22 years old or $1,000,000 when you’re 62? For me, I would much rather delay my gratification and have the million bucks later in life. If you agree, then I would strong advise you to start investing today. Whether you’re 22 or 52, the best day to start investing is today.
On a related topic, check out the importance of an early start on Reach Financial Independence.
Are you preparing your future? Do you regularly invest a percentage of your income?