A Quiet Fortune: A tale of two savers — for the kids
“The best thing college students can do right now is to stop spending their money. Being a cheap bastard now means so much freedom and [more] choices later.”
This reality-check financial advice comes from Chris Sacca, a self-made billionaire, Silicon Valley investor and repeat guest shark on the TV show “Shark Tank.” The question asked of him by USA Today and passed on through CNBC was, “If you could give one tip for college students wanting to invest or build a portfolio, what would it be?”
It’s true, some young people like Chris Sacca will eventually become billionaires. Most college students won’t, and that’s perfectly fine. We don’t need a billion dollars or all kinds of suggestions from the “pros” to thrive. But Sacca’s advice to stop spending money (or at least to slow the spending down) is fundamental for young people.
Two weeks ago I wrote about Mark and Robbie, two lifelong friends. Mark had followed his relatives’ advice and invested $2,000 each year after high school graduation. His investments grew at 8 percent. By the time he wanted to quit working and explore all the other things he was interested in, his investments had increased almost nine fold. Robbie, on the other hand, realized too late that he should have started putting something aside many years before. He might never be financially secure.
Here’s a second story about why we should encourage our kids to save and invest early. It comes from the Federal Reserve Bank of Philadelphia and the Delaware Council on Economic Education.
‘A Tale of Two Savers’
Ana Guiterrez started saving when she was 22, right out of college. It wasn’t easy to save $2,000 a year then ($167 a month), considering her college loan, car and rent payments. But Ana was determined to save because her grandmother always said it wasn’t what you make but what you save that determines your wealth.
So, reluctantly, she saved $2,000 a year. After 12 years, she got tired of the sacrifice, yearning for a brand new car and a few other luxuries. She didn’t touch the money she had already saved because she wanted to be sure she would have money for retirement, although that was so far away it almost seemed ridiculous to think about. She quit saving and hit the stores.
Shawn Wright started saving when he was 34. He had also graduated from college at 22, but he had done without many things in college and, now that he had an income, he wanted some of those things. He bought a new car and a nice wardrobe and took some wonderful trips. By the time he was 34, Shawn was married, had many responsibilities, and decided he’d better start saving and planning for his financial future.
He had also heard that it isn’t what you have earned, but what you have saved, that determines your wealth. He figured he had 25 to 30 productive years left in his career. So, with new determination, Shawn saved $167 a month (again, that’s $2,000 a year) for the next 32 years until he retired at the end of his 65th year.
Which person do you believe had more savings at the end of their 65th year?
The totals: Shawn did well. He saved $64,000 during 32 years and had more than $442,500 at retirement. Ana, who had invested for 12 years (for a total of $24,000), had $993,300 … close to a million dollars and more than twice as much as Shawn. Why? She had started early and her money had more time to grow.
The moral? College kids, use Chris Sacca’s advice. Put that gift of time to work for you. It can make all the difference.
(Note: The Federal Reserve story contains a few scenarios that differ from the Mark and Robbie example. One important difference is that the investments in this story grow at 10 percent, a somewhat improbable percentage to expect these days. Seven or 8 percent is more likely, and may still be an outsized estimate. Growth percentages depend on the overall economy, how events unfold in the stock market, and how much risk an investor is willing to assume. The take-away lesson, however, is the same.)
Terrie Drake is the author of the book “A Quiet Fortune” and a retired teacher and librarian. She and her husband have lived in Glenwood Springs since 1974. She is not a financial adviser; consult a competent professional for your personal financial solutions. She can be reached at email@example.com.