Best of Dennis – Can Young People Actually Save Money?
Best of Dennis…
Dennis is taking some much-deserved vacation time, and will be back writing soon. This article was posted originally on August 10, 2023, it is still relevant today….
I recently wrote about spending time with my 13-year-old grandson Brock. Apple phones and other nice things are something he is aware of; along with understanding that adults have to EARN the money to pay for them. How do young people get started in accumulating wealth?
In 2017, I interviewed my nephew James, a late Gen Xer (1980), who was off to a good start. His lessons still ring true; I shared them with Brock.
I explained there is a difference between “saving up” for something you wanted to buy, versus saving to grow and accumulate wealth. Retirement is the point where your savings, combined with Social Security/pension, provide enough income to pay the bills without you having to work full time.
Compounding is magic!
The sooner you begin to save, the better. The longer you wait, the harder it gets.
I wish schools would require students to take a course called, “The Magic of Compounding”. Investor.gov provides a great tool to illustrate the magic.
I used this tool for all data calculations, assuming a 4% compounded rate of return.
The (fictitious) Smith family, both age 30, jointly earning $50,000/year. They commit to saving a modest $100/month.
The Smiths save for 20 years ($24,000 in total), and then stop saving at age 50, leaving the money invested, earning interest.
The Jones family, waited until they are 50 to begin saving. They save $200/month, also for 20 years ($48,000 in total), until they are age 70.
When both couples reach age 70, which family has the most money?
Believe it or not – the Smith Family has $78,385, while the Jones Family has $71,467. The Smith family not only kept up with the Jones’, they surpassed them by almost 10% while saving only half as much money.
What happens if the Smith family chooses to save $100/month for the entire 40 years? At age 70 they would have $114,031. By saving the same amount as the Jones family, but sacrificing and starting young, they would have almost 60% more. Who says compounding isn’t magic?
When I interviewed James, he was teaching school, in his late 30’s, and married with young children. He constantly asked good investment questions and managed to accumulate investment capital with a new home and a young family.
When I asked if he would do an interview, he was reluctant, saying that he and his wife are really just middle-class folks; certainly are not rich by any standards.
I explained that my goal is to help encourage his generation to look at the big picture rather than “put off saving until later.”
|
Special Offer ONLY for Miller On The Money Readers! As you know, I’ve mentioned Richard Maybury’s Early Warning Report often, and I’ve been a reader for many years. Richard’s world outlook is unique, and his letter provides great education you will not find elsewhere! For a limited time, he is offering Miller on The Money readers a phenomenal deal. Click here right now and you will get $201 off the regular subscription price! You’ll get the current issue and these 4 FREE Special Reports:
|
DENNIS: James, on behalf of our readers, I want to thank you for your time. I love to hear from someone who is “walking the walk.”
A school teacher in rural PA does not earn big bucks. How did you get started?
JAMES: Unc, thanks for inviting me. My background is really pretty simple.
I worked during college and lived frugally because I wanted to graduate debt free. I didn’t graduate with any confidence that I’d be able to save enough money to live comfortably. With a bachelor’s degree in secondary education and a starting salary of $32,500, I was aiming more towards good healthcare and a good pension, not just yearly earnings.
My fiancée was in her senior year. I dedicated that year to saving, accumulating over $15,000. I enjoyed the challenge of living on a self-induced, shoestring budget during the one year when I could fully get away with it. My biggest expense was the engagement ring.
Marrying and having children are ultimate blessings, but with them comes the compromise of inconveniencing your family in the short term for long-term security. Being single brought no such tradeoffs.
Many young people today plunge into immediate debt, buying everything a middle-aged, upper-class family wants as soon as they enter the real world. I was determined not to get married burdened with debts that would take years to pay off.
DENNIS: I’ve seen cases where newlyweds spend the money they saved up to that point; however, you and Stephanie seem to be continuing to minimize your debts and accumulate wealth. How have you done that?
JAMES: Excluding her from our financial history wouldn’t be telling the full story. We built a foundation prior to our engagement by ensuring we were of similar mindset, not only with children, our faith, and where we wanted to live, but also our financial outlook as well.
We’ve seen marriages ruined when one spouse values saving and the other is the spendthrift. That creates a never-ending treadmill when one half of a couple is spending as fast, or faster than their combined earnings.
If both spouses are not on the same page, I’d recommend some serious discussion because it will eventually boil into a big marital problem.
Stephanie maxed her 401k contributions immediately when she started working. I didn’t begin until ten years later. Like the example you used earlier, I doubt I will ever catch up to what she has saved. Compounding is magic!
DENNIS: Let’s talk about wealth accumulation. I know you have done some things above and beyond your jobs. What have you done?
JAMES: We developed some easy principles to follow. We discussed being dedicated savers; it is what you do from there that really matters.
It looks almost impossible to accumulate wealth working 40 hours a week; you have to do more. Also, there is a HUGE difference between appreciating and depreciating assets.
Cars are a KILLER; great examples of depreciating assets as soon as you drive them off the lot. We decided that reasonably priced, good used cars would cost far less; particularly when driven for several years.
We have some money in the market, and have done OK; however, the time commitment to stay on top of things is burdensome.
Rental property is not as easy as it looks; tenants have no problem trashing YOUR property and living 90 days rent-free before we can evict them.
After renovating a tenant-trashed property, we realized we could sell it and make more profit than renting. Finding the right property, fixing it up and reselling it at a profit is nice appreciation and something our schedule allows us to do.
Finances, (both debt and wealth), are like a snowball rolling downhill, and the larger your snowball, the faster it is going to roll. We have friends who accumulated HUGE debt that will take years to pay off. We decided to live below our means and start our wealth snowball. We are delaying gratification, looking forward to a brighter future.
DENNIS: How tough is it to see your friends living in fancy houses and driving new cars?
JAMES: We have a nice home, one that we are proud of. We have done a lot to fix it up and add value. Sure, we have friends who appear to have much more, but in some cases, it is the illusion of wealth.
We have friends who are the model of hard work, sometimes 2-3 jobs; but their extravagant lifestyle has them mired in debt.
A good friend, 10 years my senior, just built his dream home for his family. They have a swimming pool, huge patio, and a pool house to boot! They have less equity than my wife and I had 9 years ago when we bought our home. They are only now starting a mortgage in their mid-40s, while my wife and I are finishing ours in our 30s. They will both have to work well into their early 70s, if not longer.
I find people chain themselves into these situations because they focus only on monthly expenses, rather than the overall picture. As long as they can make the monthly payments, they think they are fine. They have a lot of “stuff” but are on a financial treadmill making no progress.
DENNIS: One final question. What advice would you give our readers who may be in the situation you outlined?
JAMES: I feel that many people approaching 40 stop to come up for air and assess things. If you are digging yourself in a hole, stop digging and build a plan to get out of the hole.
We will soon have our home paid off. We sleep better at night knowing, if we just keep doing what we are doing, Stephanie and I can educate our children and retire with a comfortable lifestyle.
Unc, there is a good chance that a lot of my generation will be forced to work into their late-70’s or more, largely because they failed to save early, and tried to live beyond their means right out of the gate.
What we have done isn’t spectacular, but it floors me how it can take people years to catch on to the simple truth. Pay your debts first each month, save some money, and then learn to live on the rest. It’s not hopeless if you’ve gotten a late start, but you have to start saving now!
Dennis here…
I told grandson Brock; I couldn’t have said it better myself. It can be done; it’s a matter of choices. A quick summary:
- Focus on living below your means
- Buy appreciating assets and minimize depreciating assets
- Compounding is magic, start saving as early as you can
- You will never get rich working 40 hours a week
- Both spouses must work together toward their common goal
It’s NEVER too late to start!
|
Help keep us online! I love it when readers thank me for “telling it like it is” for providing content they won’t find in the mainstream media. I’ve been sent to Facebook purgatory a few times – they didn’t approve. Free speech isn’t appreciated in all circles. When I started Miller On The Money, I vowed to keep our newsletter FREE! I’ve kept my promise – our weekly letter is an expensive hobby. Donations are our primary source of financial support, and what keeps us going. We don’t peddle your name to anyone. I’ve turned down proposals from advertisers, feeling their offerings were inappropriate for our readers. Readers pitching in to help offset our cost are much appreciated. It’s strictly voluntary – no pressure – no hassle! If you want to help, click the DONATE button below. You do not have to sign up for PayPal to use your credit card. And thank you all! |
Quote of the Week….
“Seasoned professional investors tend to agree that avoiding doing stupid things is more important than doing something smart.”
— Dan Ferris
And Finally….
Friend Snow C. shares some cute thoughts for our enjoyment:
- I’m at that age where my mind still thinks I’m 29, my humor suggests I’m 12, while my body mostly keeps asking if I’m sure I’m not dead yet.
- Don’t be worried about your smartphone or TV spying on you. Your vacuum cleaner has been collecting dirt on you for years.
- I’m getting tired of being part of a major historical event.
- I don’t always go the extra mile, but when I do it’s because I missed my exit.
- How many of us have looked around our family reunion and thought “Well aren’t we just two clowns short of a circus?”
- I don’t think the therapist is supposed to say “wow,” that many times in your first session but here we are…
And my favorite:
- We all get heavier as we get older, because there’s a lot more information in our heads. That’s my story and I’m sticking to it.
Until next time…
Dennis Miller
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
Affiliate Link Disclosure – This post contains affiliate links. If you make a purchase after clicking these links, we will earn a commission that goes to help keep Miller on the Money running. Thank you for your support!