Don’t Work For Money, Let Money Work For You
Posted on April 24, 2007
I was having lunch recently at a local restaurant when a young man approached and asked if he could talk a minute. I was eating with a group of businessmen, so I asked him if he could wait until I finished my lunch. We agreed that I would join him at his table as soon as I finished. The proprietor of the restaurant was at my table so I asked if he knew the boy. (At my age, any male under 30 is a boy.) As it turned out he was a regular customer. I learned his name was John and he was working on a nearby construction project.
When I finished eating, I joined him at his table and as I suspected, he wanted to discuss my newspaper column. He began by telling me that he had read all of my books and was a regular reader of my weekly newspaper column. He said he understood why I placed such importance on people saving and investing, but he wanted to know how they did it. He said it was something he just couldn’t seem to do; that there never seemed to be enough money to do what he wanted and still have any left over to save.
I stopped him right there. I could see his problem already. “You don’t save the money that’s left over after doing the things you want, you save first and then adjust your wants to ft what’s left over,” I told him. It’s called paying yourself first and its advice virtually any financial advisor would give. Unless you set aside the money you plan to save and adjust your standard of living to fit what’s left, you’ll never be able to develop the habit of saving.
John, like many young people, had wants that exceeded his income and no one had ever explained to him that unless he reduced his spending habits, he would find himself struggling financially his entire life. When I explained this to him, he became a bit defensive and started telling me how he worked hard and didn’t waste money. Of course that’s pretty much what I hear from all young people. He began to reel off all the things he “had” to pay for each month; rent, utilities, car payments, gas, insurance, etc.
Rather than argue with him or try to convince him he was overspending, I simply asked the question, “What kind of vehicle are you making payments on?” He stated very proudly that he had a Dodge Ram pickup with club seating and a hemi engine.
“Really,” I asked. “Do you need it for your work?”
“No, I’ve just always wanted one so I finally bit the bullet and got it,” he replied. I couldn’t help but ask how much his payments were.
“Only $961.00 per month,” he said.
Finally, I said to him, “John, what you’re doing is working for money to pay for that truck. Until you start saving and letting money work for you, you’re going to continue to struggle. Imagine what could happen if instead of buying that expensive truck, you’d have bought one you could have financed for $500 per month and put the difference into an investment account.
Here’s a tip! People, who struggle financially, usually do so because their wants exceed their earnings. If they would ever take the time to calculate what could happen if they saved first and adjusted their lifestyle to get by on what’s left they might look at life from a different perspective. A point I make in my live presentations is that most working people work 40 hours a week, 50 weeks a year for 40 years and end up with little more to show for it than a monthly Social Security check.
Let’s look at a few examples of what John is giving up by spending everything he makes on an expensive vehicle before he can afford to do so. Suppose he drove a vehicle with a payment of $561 instead of $961 per month and put the other $400 per month into an investment account. If he did this for 40 years and earned an average of 8% per year, he would have over $1,400,000, which could provide him with a monthly income of over $9,300 for the rest of his life without ever touching the principal. A lot more than he could ever expect from Social Security and even more importantly he would own it, not the government.
If he thought $400 per month in the beginning was a bit too much he could start with just $100 per month and save that amount for the first 10 years. Then he could up it to $200 per month for the next 10 years, followed by $300 per month for the third 10 years and wait until the final 10 years to put in $400 per month. At that slow rate, he would still have a nest egg large enough to provide a monthly income of over $3,800 for life. Even if he started with $100 per month and never upped the amount, John would still accumulate enough to give him a lifetime income of more than $2,300 per month.
The secret here is to start saving early and let the money begin working for you. Gradually, over time the money will earn more than you can. It’s a safe but sure way to build wealth and eventually let your money do all the work while you enjoy the benefits of early retirement and a stress free life. It won’t happen overnight, but if you have patience and are persistent it will happen for you.
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