Good morning Hank; it's Monday, July 4, 2011.
It's Independence Day here in the United States,
and today I'm going to talk about financial
independence, specifically how young people
can turn their crappy summer jobs into hundreds
of thousands of dollars... or the equivalent
in euro, pounds, rial, yen, whatever.
By the way, Hank, I'm dressed up and giving
financial advice because I was in The Wall
Street Journal last week, which means that
I am now technically an expert in money.
Okay, Hank, so when I was in high school,
I worked at a warehouse stacking stereo equipment
of various shapes and sizes into semi trucks.
And the game was that you had to fill the
semi trucks as much as possible in order to
minimize the number of semi trucks that it
took to move the stereo equipment around.
It was basically like manual labor Tetris.
Really, it was more like manual labor Tetris
in an un-air-conditioned, 110 degree warehouse
with a lot of people yelling at you about
how much you suck at Tetris. Also, I made
$7.50 an hour, which is by no stretch of the
imagination a living wage, unless you have
someone paying for your food, clothing, and
housing.
Okay, so let's say you make $7.50 an hour
at your crappy summer job. That's $247 dollars
a week in take-home pay. You probably work
about 10 weeks over the summer; you would
work 12, but your parents are making you go
on a crappy summer vacation to like, Mount
Rushmore or something, and they're gonna fight
the entire time about your dad's driving,
and there won't be 3G internet half the time,
and you won't be able to talk to your friends,
and it's gonna suuuuck!
On the other hand, they did pay for your diapers
all those years ago.
So, $247 a week over 10 weeks. I'm not a mathematician,
Hank, but I think that's $2,470 over the course
of the summer. 'Course, you're going to have
to spend some of that money - you gotta put
aside some money for Hank's new album, Ellen
Hardcastle, you're gonna have to see Deathly
Hallows, you're probably gonna go out to dinner
with your friends a few times... Let's say,
you know, 500 bucks.
Okay, so that leaves you with $1,970. This
is the part where I want you to go to the
bank and set up an IRA, which is not an Irish
Republican Army, but an Individual Retirement
Account. If you don't live in the US, they
call it something different, but there are
equivalents from Brazil to Europe, pretty
much everywhere.
Hank, I'm a very fancy and highly-trained
economist, so I'm not sure this explanation
is going to make sense to you, but an IRA
is essentially a machine that produces money
using nothing but time. How does it do it?
Through the magic of compound interest. So
let's say you have a $10 investment that you're
somehow making 10% on. At the end of the year,
you've made a dollar in interest, and you
have $11. At the end of the next year, you
get 10% of that $11, which is $1.10, and your
interest just goes up and up and up and up.
So let's say between the ages of 16 and 19
you're able to put away $1,970 a year into
an IRA account, and then you do nothing for
50 years. We know that the world economy grows,
when adjusted for inflation, about 6.5% a
year over the last 100 years. That means that
at the end of 50 years, when you retire at
the age of 69, your $5,910 will have turned
into more than $162,000, and yes I am adjusting
for inflation.
$162,000 from stupid, getting yelled at, manual
labor Tetris!
But realistically, you probably can't put
away $2,000 a summer. I mean, you may have
to save for college or you may have to help
out your family. You may have to pre-order
26 copies of The Fault in Our Stars. So let's
say between the ages of 16 and 21 you put
away $400 a summer, for a total of $2,000.
You still have more than $50,000 when you
retire. That means when it's all said and
done you didn't make $7.50 an hour flipping
burgers, you made $125 an hour.
But now let's say I, toddering old man that
I am at 33 years old, put away $2,000 today.
I'm still 37 years away from retirement, but
what happens if I put away $2,000? It's only
worth $20,000. That's compound interest at
work. That's why it's more important to save
early, to maximize the number of years that
the interest can compound, than it is to save
lots.
At a lot of banks, you can open up these accounts
for, like, $100. And the bankers are always
happy to help you because they get paid for
each account they open. So there really is
a way to turn a crappy summer job into a lot
of money, although it's going to take a while.
In short, Hank: you don't have to be a rich
person to do the things that rich people do
to maximize their income and avoid taxes.
Alright Hank, before I answer the pressing
question of whether my suit is all business,
there is one outstanding issue: YouTube NextUp
Europe.
There are a lot of nerdfighters who made it
to the voting round of YouTube NextUp Europe,
including Rosianna, who is responsible for
the title of The Fault in Our Stars. I've
put links to entries from known nerdfighters
in the doobly-doo. It's really easy - you
just click thumbs-up. But the most important
thing is that you watch all the videos and
vote for your favorites because you have a
chance to shape the future of YouTube, and
that's something you should take seriously.
I hope that you do. I watched every single
video and I hope you will, too.
I made a poem.
It's not. I'll see you on Wednesday.
