My Teenage Years: Awkward, But Productive
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Let’s flash back about 10 years, back when I was 16.
Like every 16 year old guy, I wanted to get a car. I imagined just how free I’d be. I could go out to the golf course whenever I wanted. I could drive to my buddy’s house across town, instead of having to depend on him to make the trip over to my house. I could even take girls out for dates, conveniently forgetting that talking to girls scared the crap out of me. Yes, I was going to be the man.
I sat down one day and started to crunch the numbers. There were so many expenses, but undaunted, I crunched on. There was the cost of the car, a number I conservatively set at $3000. Insurance was a minimum of $250 per month since I was a rookie driver living in a province where there were no government controls on auto insurance. On top of that, there was gas and repairs. To summarize:
Car: $3000
Insurance: $3000
Repairs: $500
Gas: $500
Registration: $100
Depreciation: $300
Total cost year 1: $7400
Total cost per year after: $4400
I was just starting to get into investing at this point, so I was familiar with compound interest. I started to crunch the numbers. What if I took that $7400 and invested it, earning an 8% return and kept compounding it until I retired at age 65?
I’d have $321,362! As a 16 year old kid working at the local Dairy Queen for $5 an hour, this seemed like all the money in the world.
I continued the thought process. What if I delayed getting a car for 5 years? How much would I end up with?
Year 2: $176,926
Year 3: $163,820
Year 4: $151,685
Year 5: $140,449
The numbers astounded me. If I didn’t get a car, I’d end up with a nest egg of $954,000. If I added just $1000 to the total each year or assumed a 9% return I’d end up a millionaire.
Never Underestimate Compound Interest
A common refrain in the PF community is the lackluster job our schools do teaching kids about finance. While I agree my financial education was lacking, I did learn about compound interest, as well as other basic topics. Because I learned interest compounds exponentially, I knew starting earlier was better than starting late. I was finally figuring out why my Dad was pushing me so hard to save my money.
Most teenagers would choose to get the car anyway. A car today would trump a million dollars down the road for most teens; after all, they’ll have plenty of time to make money as adults. If parents took the time to crunch the numbers with every teen that wanted a car, maybe we’d have more teens who choose to walk and invest for long term growth.
Small Sacrifices Can Make You Rich
If you start young, small sacrifices can have a huge impact on your finances. I managed to do without a car until I was 24, I like to explain to people I was funding my retirement by doing so. I lived in my parents’ basement until just after I turned 25. I saved tens of thousands of dollars by not getting my own apartment.
What excess can you cut from your life? Just about every single person can save money, it’s just a matter of sacrifices. I didn’t take a day off work for a holiday for 7 years. I wore underwear with holes in them until they could be replaced as a birthday gift. I worked nights, because it paid more and because if I slept during the day I’d spend less money. I could list a hundred more examples of things I did to maximize my savings because I was serious about becoming rich.
Are You Actually Serious About Wealth?
Perhaps my example is a bit extreme. I didn’t go to college, I worked directly out of high school. A student who lives far away from University can’t really live in their parents’ basement. I get all that. The point is, I was serious about growing wealth, so I made sacrifices in my life. If you’re serious about it too, you’ll find excess fat to cut from your budget.
And if someone isn’t serious about it, that’s okay too. They can muddle along, paying interest on credit cards, financing vehicles and the like. If that’s the path they choose, then they can’t complain about having a lack of money. You can’t have it both ways.
There is a very simple way to get wealthy. All you have to do is spend less than what you make, for a long period of time. For various reasons, people just aren’t patient enough to do it.
Echo:
January 24th, 2011 at 7:23 am
Living in your parents basement until you're 25 is a great way to save money but I'd hardly call it a sacrifice. My brother in-law is on that path, living in the basement and walking to work at the local factory down the street, playing Warcraft on Saturday night. Yes he's saving money like mad, but hopefully he develops some sort of plan for the future.
I'm not saying he should move out and go to school to become an engineer or anything, but at some point you've got to venture out on your own without the safety net of mommy & daddy.
FabulouslyBroke.com:
January 24th, 2011 at 10:48 am
1. I wish I had known about compounding interest while flipping burgers at 16. I had no idea. No one talked to me about savings, retirement.. nada. Learned it all on my own once I left college.
2. I stayed with my parents, but after the age of 18 I moved out on my own. I moved back in briefly while I was on a project in the city and didn't want to rent a place or live in a hotel, and they charged me rent at $600/month + I paid for my own food and I helped out a lot.
Nothing is free.
3. Kids really need to learn about basic money principles from a younger age. I was definitely clueless, but I wasn't irresponsible with debt either. I was told to clear my card every month, so I did.
4. I didn't drive a car or get my license until I turned 25. I didn't have a plan like you did. I just didn't need a license, because I was in quite an urban city for college.
5. You can always cut from your budget. Even now, I can cut if I wanted, but I choose not to
Have to enjoy it too.
financialuproar:
January 25th, 2011 at 12:27 am
For the record, I did pay rent while living at home. It wasn't a huge amount, but I did pay. I also would usually only eat breakfast there, since I'd eat my other 2 meals at work.
I like your last point. There's gotta be a line drawn at some point. Spend money on stuff that's important and save money on stuff that isn't.
High school doesn't do a good job of educating kids about money. I did learn about compound interest in hs, but it stuck with me far more than with others because I was already interested in it. I took the meager education we got on the subject and ran with it. I was watching the business channel at 16 years old. No wonder I had no girlfriends in hs.
financialuproar:
January 25th, 2011 at 12:37 am
Imagine this:
You're 23. You finally have a girlfriend. You're watching a movie in the basement together when things start to get a little hot and heavy. Her top is just begging to come off. You start to pull it up… And then your Mom walks down the stairs. Now tell me living at home isn't a sacrifice!
There are all sorts of people who don't know what they want to do with their lives in their early 20s. I was among them. So why not use your parents' generosity? There are all sorts of parents that help their kids financially. Living at home saving money is a great thing to do while you decide what the next step it.
Of course, you gotta draw the line somewhere. At what point should someone move out? From a freedom perspective, I wanted out at about 20. Fortunately for my wallet, the financial perspective won out.
FabulouslyBroke.com:
January 25th, 2011 at 5:46 am
Well I had no BFs in HS either, but we never once talked about compounding interest when I was in school. I wish we had been told about the basics of saving and spending and how to build a budget, and why it's important.Maybe bring in a senior who's eating cat food or something, to scare us.
What’s New Around The Blogosphere: January 28th, 2011 |:
March 21st, 2011 at 12:50 pm
[...] Financial Uproar talks about his Awkward but Productive Teenage Years [...]
Youngandthrifty:
April 28th, 2011 at 6:32 am
My colleagues probably think I’m a “David” too. I never go out for coffee with them and I always bring my lunch. I don’t care though
I would rather use that money for traveling than have it wasted on my taste buds.
Then again life is all about a fine balance of having fun and thinking about the future. I know of someone who passed away recently of liver failure (suddenly) when she was planning to retire this same year…
I think as long as one lives their lives without regret in a reasonable manner (e.g. not spending all your money all at once and not thinking about the future at all) then we have lived a full life…. life isn’t all about money though we spend all our time worrying about it
Life is about those moments when you’re about to get hot and heavy with your significant other, yet argue over something silly the next day or when you share fond experiences and memories with your loved ones.. whatever they may be.
Anonymous:
May 1st, 2011 at 9:29 pm
As they say, the best moments in life are free.
When I was heavier, I was the exact opposite as you. I had no problem spending money on food. I enjoyed the taste of fast food and what not. I eat way less of it now because I know it’s not good for me, not because I don’t enjoy it.
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