I read this when I first started banking 23 years ago...It made a HUGE impression on me and it still applies today!
UPON YOUR FIRST DAY OF WORK – START SAVING!
Jim and Jerry! They’ve been life-long friends, both having gone to University together, graduated from the same engineering course, found virtually identical and well paying jobs, married, bought homes, raised families, etc.
But...this year, both have reached age 65, and their respective firms have a policy of retiring employees at that age. Jim is looking forward to that retirement, Jerry is dreading it.
Both had the same comparative lifestyles, both had saved the same amount of their income (although in different methods), but one was wealthy (Jim) and the other had just enough in retirement to keep the wolf from the door (Jerry).
What made the difference?
Jim started saving from the first day he started working. Jerry starred saving (heavily) later in life, after the house was paid for, and his children had been put through University. Jim decided to start saving 10% of what he earned, from day one. Admittedly, he was only earning $2,000 a year (so was Jerry) 40 years ago, but that was a good income back then. So he saved $200 that first year, and continued to save 10% of what he earned, all through those 40 years, even when he was paying the mortgage, and putting his children through college.
In order to do some mathematics for our fictional friends, let’s assume their AVERAGE wage was $20,000 per year, all through those years. Let’s look at what the results would be…
Jim would have saved 10% of that $20,000 per, namely $2,000 per year. Sure, it was hard, especially when he was paying for the house, but he took a 25 year amortization period on his mortgage, to keep his mortgage payments lower, and thus be able to save. Jerry, on the other hand, took a 15 year mortgage, with higher monthly payments, because he wanted to pay off his mortgage in a hurry, and then start saving.
Jim, by saving $2,000 per year, putting it in mutual funds each year (which had proven over the past, in good funds to average Over 10% per year) would have invested a total of $80,000 in the 40 years, and, at 10% rate of return, would now have $1,064,222.
Yes, that’s over $1 Million Dollars! (No wonder he’s looking forward to retirement!)
Jetty, on the other hand, was busy making heavier payments on his house, to clear off that mortgage, and paying for his children’s education (Jim paid for his kids’ education, too) He was 50 years old when everything was paid off, and then he really concentrated on building his future retirement funds.
Jerry started saving $5,333.33 a year for the next 15 years, and he too invested it in mutual funds where he averaged 10% per year. His total invested came to $80,000 (same as Jim’s total investment), but his value today is only $208,664 (whereas Jim has over $1 million). What a difference!
Both had invested the same amount, at the same rate of return, but one had $855,558.00 more than the other. Why the HUGE difference?
Jerry had fallen prey to the “I’ll start saving when everything is paid off" syndrome, and had thereby lost the most valuable asset of all in building wealth, namely TIME. Jim had started saving when he started working at age 25.
Each day that you and I do not save that $1 or $2 it is lost, and even if we save double the amount the next day (or later as Jerry did), there is no way we can buy yesterday back.
That’s why we say, start saving the day you start working, or the day you read this article, No Matter what your age. Put TIME plus savings to work for you!
With 27 years of direct mortgage lending experience, first with a major bank, then a local credit union and now as a Mortgage Broker, I have arranged mortgages on almost every type of property imaginable....even a 50+ ft fishing trawler!!