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I’ve said it before on these pages, and I’ll say it again. Anyone can become a millionaire, and you don’t even have to work hard to do it. All it requires is a very minimal sacrifice and the magic of compounding interest over a long time period. The risk is virtually nil and the rewards are virtually limitless. There is no “secret” involved here; it is all very common knowledge. So why don’t more people save for retirement? Why do people sacrifice their long term security and happiness in order to live for the moment? Now that is the big secret! This well written article by Jeffery Hauser explains the magic of long term compounding interest and how very little investment is required to retire as a wealthy person. Please, please, read it and take action today!
Become a Millionaire Using 2 Cups of Coffee a Day
By Jeffrey Hauser
This article is addressed to what some call the “MTV” or “Boomerang” generation members born around 1981 or later. In other words, to those who are in their mid-twenties. With that out of the way, let me begin with two, easy-to-follow lessons that will eventually lead to the purpose of this article. The first is the history of the stock market.
According to the 2005 Yearbook published by Ibbotson Associates, the long-term average return from the stock market is 10.4% (pg. 29). Ibbotson starts their long-term series of financial data in 1926 (pgs. 27, 201). There are only three components to stock market returns: earnings growth, valuation-level changes (i.e. the change in the P/E ratio), and dividend yields. Assuming that this nearly eighty-year trend will continue, we can project that, even with wild fluctuations that are caused by global wars, weather, or economic disasters, the market always seems to find a balance and return to it’s norm. Now keep that 10.4% figure in mind.
Lesson two; compound interest. This simple calculation is based on investing a fixed amount and receiving a return on your investment based on a percentage. Take $100 and put it in the bank at 5% for a year and you’ll end up with $105 a year later. But compounding allows you to keep that $105 and receive $110.25 in the second year. Go foward another year and you’re at $115.76, although you added nothing more. From the original $100, you made a $15.76 profit. Neat, right? But not a lot of money. Okay, you still get the idea. Invest, leave it alone, and watch it grow. That’s the principle behind compound interest.
So, what’s the big deal? The big deal is what happens if you use the magic of compound interest and the stock market together. Sprinkle in a regular investment strategy and bam! But I’m getting a bit ahead of myself, so let’s start over.
Suppose you’re typical 24 year old. You begin each day with a cup of Starbucks coffee, the Vente Latte at $4.00, after tax. On the way home, you stop and get an Iced Cappuccino Grande for another $4.00. So each day you spend around eight bucks treating yourself. But on weekends, you buy a loaded pizza instead. Or you still get coffee, Either way, for this example, you spend around $58 a week on coffee, cigarettes, pizza, beer, or something fun like that.
I’m asking you to give it up. That’s right, dump the expense. Kick the caffeine habit. Or give up cigarettes that are bad for you anyway. Now here’s what you do with that money. Invest in the stock market, or more specifically, mutual funds. Try something safe and large that covers the whole Standard and Poors, S & P 500 or Wilshire 5000 indexes. Every week, toss in the $58 or every month, $232. Or, if you must, $3000 a year. Every year until you reach 60. You can easily open an online account with many internet stock brokers that charge practically nothing.
I know what you’re thinking, because (a) I’m somewhat psychic and (b) because I have a 22 year old daughter who’s saying, “You’re nuts!” She saying it because (a) she won’t give up the coffee, (b) she can’t imagine doing it for the next 36 years, or (c) she’s asking, what’s the point? Well, the point is that you will have invested $3000 for 36 years or $108,000. But here’s the really cool result. Because of what you learned in the first few paragraphs, investing in the stock market should get you at least a 10.4% return and, because you left it in and reinvested it, you have the miracle of compound interest working for you.
So, why is that really cool? Are you sitting down yet? Because you’ll have a cool ONE MILLION DOLLARS sitting in your account! And you only invested a little over $100,000.
Now think about it. You’re young, ambitious, and will you really miss that Starbucks jolt? You will? Fine, then go buy a pound of hazelnut-cream coffee beans for $8 from the grocery store. Amazingly that can make 64 cups of coffee, enough for a month of caffeinated pleasure. And you’ll be happy to do it while your money is churning away toward it’s million-dollar payout. It’s your decision to make right now and the easiest way to become a millionaire you’ll ever have. You can thank me later. Love, Dad.
Jeffrey Hauser was a sales consultant for the Bell System Yellow Pages for nearly 25 years. He graduated from Pratt Institute with a BFA in Advertising and has a Master’s Degree in teaching. He had his own advertising agency in Scottsdale, Arizona and ran a consulting and design firm, ABC Advertising. He has authored 6 books and a novel, “Pursuit of the Phoenix.” His latest book is, “Inside the Yellow Pages” which can be seen at his website, http://www.poweradbook.com. Currently, he is the Marketing Director for thenurseschoice.com, a Health Information and Doctor Referral site.
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financial planning investing retirement Retirement Planning wealth building