Millennials have been dealt a rough hand. We face an unstable job security, a sluggish economy, crippling student debt, high housing prices, and record low bond yields. This all makes it tough to retire rich without taking on at least some form of risk. The good news is that we don’t need to make a ton of money to retire with a big nest egg. We just have to make saving money a priority. 🙂
American author Tony Robbins says you can either look at things negatively or positively. It’s up to you. He uses the example of a former UPS employee named Theodore Johnson who never made more than $14,000 a year. But a friend suggested early on that he should save and invest 20% of his income. At first Theodore complained that he couldn’t save that much. But he gave it a shot anyway and soon got used to a more frugal lifestyle. And after five decades, he finally retired and wound up with over $70 million in his investment account.
But Theodore was a bit of a special case. He made other smart investments besides the stock market. And although his final salary was $14,000 before he retired, that was in 1951. So it would have been worth about $130,000 in today’s dollars. But the point still stands. Consistently putting away money early on can pay huge dividends down the line.
The Components of Wealth
Creating wealth can be broken down into three components: Savings + Investment Returns + Time.
It’s difficult to predict investment returns. We obviously want the best performance. And there are things we can do to mitigate risk and improve the odds of achieving higher investment returns. But market performance is largely out of our control. Fortunately we still have efficacy over the other two variables – Savings, and Time.
Improving our savings rate is a matter of increasing the difference between what we make and what we spend. We can either act rich or become rich. But very few of us can do both in one lifetime. Understanding this idea can help motivate us to spend less on frivolous items, and value long term savings.
Lastly, time is probably the most important factor of all. It’s comparatively more powerful than investment returns when it comes to building wealth. For example, a 10% annual return over 20 years will generate more money than a 20% return over 10 years.
Over the next few months I will write detailed posts on how to save more money, earn higher investment returns, and maximize one’s investment time horizon. 🙂
Random Useless Fact:
In 2020 there are over 6 million articles written on the English Wikipedia site.