Financially, We’re In The Best Time Of Our Lives
Many adolescents are frustrated because they feel that the money they make now won’t be beneficial in the future. They feel that ‘living in the moment’ and buying impulsively is better than investing for the future. I was definitely one of those people, spending as soon as I received and because of this was in the endless cycle of ‘wealth devourment’. However, I soon realized that I had a great advantage compared to others. Because I’m a teen, I was living at home and realized that I could have zero expenses if I so desired.
That simple fact puts you in the best financial position of your life. Say you worked for 24 hours a week (12 hour weekends) and received $15 per hour for your labor. Weekley, you would make $360, not a bad takeaway. Of those $360, you don’t have to spend a cent on bills, groceries, and balancing credit cards. All you have are taxes, because “in this world, nothing can be said to be certain, except death and taxes.” So let’s estimate that taxes take 30% of your income, or $78. If you worked every weekend, annually, you would walk away with a cool $15,725 in your pocket. Not bad for an adolescent.
That is where most of my working friends and fellow teens go wrong. They don’t think about the final figure, all they think about is their bank balance then. After each deposit, they go and purchase a new pair of headphones, a Gucci wallet and other things that they don’t need at all. They don’t think about how much money they could have been making if only they had invested it.
On the topic of investing their earnings, how much would your hypothetical earnings make per year, if you had saved and invested all of it? A great, low-risk investment are Vanguard mutual funds, specifically their target retirement funds. Let’s say our hypothetical earner bought the Vanguard Target Retirement 2060 Fund (VTTSX). We’ll assume that our earner is 17, and wants to cash out by age 25. From 17-20 years old, he deposits $15,725 each year (a total of $62,900).
VTTSX’s 5-year annual return is 11.50%. If this return remains stable, in 8 years you can cash out with almost double your original investment – $113,147.27.
That figure may seem incredible, but it is actually possible for a teen to achieve. Working only on the weekends, for four years, you can net a cool hundred thousand dollars to cash out in 8 years. Stay in for another 20 years, without additional contributions and assuming that the return remains about 11.5%, you’ll end up with $1,000,000. You can make a million dollars from just working weekends as a teenager.
Set a goal and go for it
In the beginning of this post, I wrote that we’re in the best financial position of our lives. Try to think to a future time when you have $0 in expenses. You can’t, because it will never happen again. Unconcesouly, you are taking advantage of this, purchasing things that you don’t really need without consequence – the cycle of ‘wealth devourment’. You need to escape this to start making real money, and to do so you need to break an old habit and form a new one.
Doing this is truly a force of will. You need to replace the ‘money spending habit’ with the ‘money saving habit’. A good way to do this is to follow the simple mindset – “Any money you don’t spend that you were going to is money made”. So if you are going to buy a coffee for $5, then choose not to, think of it like you just made $5. If you are going to buy a new phone, then realize that your old one is fine and don’t make the purchase, you just made $300. This is a simple, mental positive reinforcement that will build up your ‘money saving habit’, and destroy your ‘money spending habit’.
Another simple thing to do to ensure that you take full advantage of this financial opportunity is setting a goal. Say you make $100 a week doing odd jobs, and previously spent it all. Set a goal to save 75% and spend 25%. This makes it less difficult to put the money away. If you made $100 per week for 2 years and invested 75% of it you could have about $10,000 in two short years. My personal goal is to save every dollar I make, and while I slip up occasionally, it has worked wonders and allowed my capital to grow much faster than my peers.
After reading this post I challenge you to go and do the math yourself. Calculate how much you make a month, either from odd jobs or an hourly position. Then calculate how many months you have until you are 25 years old. Multiply the money made by the months, to find your income for that time period. Take off about 30% for taxes. Then calculate the profit that you could make with an 11.5% return (using this tool), and I guarantee that you will be surprised at how much you could have if you saved and invested rather then consumed and wasted.
Every time you try to buy anything, from a $5 coffee to a $5000 watch, think of that number and don’t make the purchase. Embrace this opportunity and make the most of your time.