Over the last 112 years, the stock market has averaged an annualized return of 8.5%*. If you were to invest a single dollar into the market and receive the average returns, in 30 years it will be worth $11.56 (see “The Power of Compounding”)!
Let’s translate this into a figure that will scorch an image into your mind that will hopefully transform your perception of the importance of saving and power investing. Let’s talk in terms of something that keeps us away from doing what we want, when we want to. Yes, that’s right… work!
For every hour of salary that you save and invest into the stock market, you will cover the future costs of taking 11.56 hours off with pay! If you save 10% of your salary (only 4 hours each week) for only a year you will have saved 208 hours of salary. Those 208 hours of salary invested will extend to you the luxury of 2,404 hours (64 weeks!) that you won’t need to work in the future while still receiving a full salary! Continue this exercise for 10 years and you’ve shaved off more than a decade of your requirement to work before retirement. Yup, it’s that simple. Save a higher percentage and the results are even more impressive!
– Surely it can’t be that easy
– Surely Brent’s math has to be wrong
– Surely the stock market averages won’t repeat themselves
– Surely Brent’s made some assumptions or taken some liberties when calculating all of this
If you caught yourself saying any of these statements, you’re making excuses. Too many people look for reasons why things won’t work for them. It’s easier to convince oneself that an article is inaccurate rather than to make a change in one’s habits. Right now you now have a choice. You can make an excuse or you can make a change, what will it be? Your decision right now will determine if you end up retired more than a decade earlier or if you’ll be one of the individuals who is left saying “If only I would have”. What will you do?
* Click here to find out how to receive average returns with little/no stock market knowledge.
Founding Partner, Amplified Investments
You didn’t mention that in 30 years you could be dead from a tumor or a heart attack, so all that fantastic money you’ve been saving is useless to you. Great, if you have any surviving family, they can enjoy it. But that equates to a life spent working and not enjoying any of the benefits. As well, in 30 years you’re going to be an old person with little energy to do anything, so huzzaaah, you’ll have all that money but none of the youth to be able to use it.
And I’m sorry, but I’m not sure if you’ve seen the markets right now, but after paying bills and debs most workers don’t have any money left over to invest. And you know why people have debts? Most is not from frivolous spending on designer fashions and expensive vehicles. For most people, it’s the line of credit loan they took to pay rent, or the credit card bill the accumulated from buying food because they didn’t have any other way to afford to survive that month.
This article doesn’t discuss saving monies for the next 30 years, it talks about saving a little bit of money for 10 years to reduce the amount of time to retirement by 10 years; there’s a big difference.
This article also doesn’t discuss refraining from enjoying any of the benefits of life. In fact it only talks about saving a few hours of salary and the remainder could be spent in whatever way desired (honestly, saving $4,000 on a $40,000 salary is not that difficult unless someone purchases too large of a house, too luxurious of a vehicle, too many cottages/vacations/electronics/etc.).
If you’re going to comment, at least extend the respect of summarizing your revenues and expenses so that I have the ability to assess your personal situation. Chances are if you are unwilling to do so, you are one of the individuals I describe in this article, an individual who makes excuses and says whatever they need to in order to not face the truth, unfortunately they believe their own excuses to be fact. If that’s not the case I urge you to post your situation and I’ll take time out of my working schedule to help you get it right.
It’s a reality that most consumer purchases bring short-term unsustainable happiness and then within a few months turns into buyer’s remorse and entrapment from early retirement. Everyone has a choice and ultimately the choice is yours – chances are if you’re reading this blog, you know what you want to do.
You don’t know me, but you have no idea how much you’ve changed my life. It happened just by chance when a colleague of mine at an OREIO event was talking about your blog.
It was more than a year ago that I sat down and read one of your blogs. It was the blog that explains that a house is not an asset but it’s actually a liability. While I read that blog article I felt my blood pressure starting to rise. I distinctly remember being angry… very angry! I talked to my husband, my friends and anyone else who would listen about your blog. How dare you tell me that my house was not an asset? You see… I’ve always been a spender but I justified it by leaning on the belief that my house was an asset and building up equity for me so I had the right to spend the remainder of my monies and there was nothing you could say that would change my thoughts.
I don’t know if you remember, but, I emailed you last year in the summer time and I asked you if my house was really a liability then what about all of my equity in it? I distinctly recall being surprised that your response was so well thought out and professional despite the rude tone of my email (sorry about that). You took the time to address every one of my questions. You explained to me that I would always need a place to live (I agreed) and that I could downgrade and gain access to that equity (that made sense also) but that most people don’t ever do this until they retire (duh… obviously… tell me something I don’t know?). Finally you explained to me that the equity sits there and builds as my house increases in value (thank you… you proved my point). But… and this is where you made something click in my head… I was not earning this equity, I was paying for it each and every month. My mortgage payment was $1,300 and only earning $300 in equity – a massively negative return on investment (or divestment using your words). You then said to me that the equity already sitting in my house gets a 0 to 3% return each year as a result of appreciation which barely matches the cost of inflation. I recall your conclusion the most “Remember. An asset makes you money. A liability costs you money. Even if paid off your house still costs you money. The house you live in will not help you retire earlier. This doesn’t mean don’t buy a home. It means don’t treat it like an asset because it is not one.”
Little did I know at the time that this anger would keep me coming back for more. I continued to read your articles, agreed with some and vehemently disagreed with others. Then I read the one that talks about how much impact saving a single hour of salary can have on someone’s finances. I remember reading it and saying to myself was “this is obvious, thank goodness I know this already, wow… he thinks people are really this dumb?”. Your tone was snarky and sarcastic but I remember not letting it get to me. But as much as I agreed with it, I wasn’t saving anything. I was considering my home equity all this time to be my “nest egg” and part of my retirement plan. I shared that email with my husband and we had a long discussion about it. We talked, we argued, we contemplated an even snarkier response to you but after a few days our points of view started to change.
You made something click. Guess what? At the time we were considering upgrading to a larger home. We were also considering dipping into our equity to buy an upgraded car. We didn’t make any of those mistakes. Instead we started saving and investing. Today only a year later we’ve saved a little more than $20,000 and avoided many unnecessary upgrades. This year my husband got a raise and we’re on track to save $24,000. At this pace even if we get only 5% returns since we’re conservative low risk investors, we’ll have saved more than $300,000 in the next 10 years. In 20 years we’ll have saved more than $800,000 and have our house paid off.
Honestly if it weren’t for your blog I don’t think we would have ever reached retirement. You changed our points of view and touched our lives in a way that I never knew a stranger could. Thank you from the bottom of our hearts for taking the time to write your blog. We are loyal advocates for life.
Jenny and Frank