Today I’d like you to start thinking differently about your purchases. In an attempt to accomplish this feat, I’ve decided to take one very simple scenario that typically occurs in most people’s lives and showcase how dramatically this can impact you in the future.
The scenario we’re going to explore today is the simple purchase of a vehicle. Bob and Jennifer are both 30 years of age and they’ve both decided to purchase a vehicle. Bob desires a slightly more luxurious vehicle and purchases a new one every four years, while Jennifer is happy with a more modest vehicle and holding it for a few years longer. If this trend continues until they are both 60 years old, what will the end result be if Jennifer simply puts her savings into a simple index fund investment and receives an average annual return of 7%?
Spent on Cars
Amount Saved with
* Calculation assumes that Bob is paying for a $30,000 vehicle over 4 years ($625 / month) and Jennifer is paying for a $20,000 vehicle over 4 years and then has no payments for the 2 remaining years ($416.67 / month for 48 months; $0.00 / month for 24 months). View full calculation sheet here: Bob vs Jennifer – Savings Comparison.
With no returns, Jennifer would have pocketed a whopping $120,000 alone, however since Jennifer invested her savings and received an average annual return of 7%, Jennifer is now sitting on a cool comfortable $397,561.10!
What??? Certainly you must be exaggerating Brent?! There’s no way that Bob’s desire to have a slightly newer, slightly more luxurious vehicle could have thrown away nearly $400,000.00 in potential returns… can it be?! Yes, that’s right. You could retire more than a decade earlier with just this one minor adjustment! Isn’t it reassuring to know that such a minor change with very little sacrifice can dramatically change your future?
The reality is that most people should be capable of retiring after a maximum of 15 years of work, but end up working much, much longer because they get infected with an extremely contagious illness, one that they battle with for years, only to one day wake up and realize it; but it’s often too late… the damage has already been done. What’s this illness called?
Now don’t get me wrong. I’m not telling anyone that they shouldn’t buy things, but rather, you shouldn’t preoccupy yourself with acquiring greater quantities and more luxurious goods than you need. Every purchase that you make is essentially an exchange of your time for consumer goods.
Did you know that every hour of salary that you spend now, will require you to work an entire additional day before retirement? What do I mean? If you took a single hour of salary and invested it the stock market and only received the average returns, in 30 years of time, it would pay for your expenses for an entire day, assuming your expenses neither increased nor decreased (adjusted for inflation). How’s that for a reality check?
It’s time to stop spending emotionally and start making informed purchase decisions based upon your long term goals. You don’t want to be one of the people in 20 years that walks around saying “If only I had…”. Or do you? The choice is yours.
Founding Partner, Amplified Investments