Valuable knowledge to pass to the younger generation

The advice I plan to pass on to my two boys, Austyn and Cooper

1. Don’t set out to be rich – set out to NOT be poor.

The richest people I know today set out with the goal of not being poor. People tend to be more successful when they are avoiding something. Which of these two statements are more motivating “I want to live a healthy lifestyle” or “I don’t want to be overweight, unhealthy and die young from some horrible disease.”

You’ve probably experienced a need for something, and you didn’t have the money for it. I bet the feeling you experience at that time sucked, but I can guarantee you that feeling will only get worse as you get older. From my experience working to avoid that feeling will increase your chances for more success.

2. Never spend more than you make.

This seems simple enough but is hard to do. It does not matter what your annual income is, if you continually spend more than you make, you are destined to always be poor. Unfortunately, there are some unhappy people out there, that have yet to figure this out. Do not let it be you.

3. Making money is simple.

Congrats on passing Grade 12, but to make money you do not need calculus. It’s based on simple compounding math and can be life changing. Let’s assume there were two boys Austyn and Cooper, they are twins born on the same day, and are about to turn 18. Austyn saves $2,000 a year for eight years and then never saves again after that. Cooper does not save anything for the first 8 years but then saves $2,000 a year until he turns 65 years only (essentially Cooper saved for 40 years while Austyn started earlier but only saves for 8 years).

Just saving money is not enough as stuff tends to get more expensive every year due to something called inflation. Did you know that a McDonald’s Big Mac cost $0.45 in 1967, today that same Big Mac costs over $5.00. This is a great example of inflation and yearly rising costs.

For this example, we are going to assume the boys invest their money in the stock market and both buy a good collection of businesses that increase in value by 9% every year. I chose 9% as it is the long-term return on the markets going back to 1802. Markets fluctuate year to year and there are never guarantees. I am using this for illustrative purposes only.

I do not want to ruin the surprise ending but you would expect for Cooper to have more money at age 65, wouldn’t you? I mean he did contribute once he started $2,000 per year from age 26-65 for a total contribution of his own money of $80,000.

His brother Austyn on the other hand started early at 18, but only contributed $2,000 for the first 8 years from age 18-25 for a total contribution of his own money of $16,000.

So, who wins the race?

Austyn – starting early pays off HUGE.  Great so I want to save $2,000 a year but I also want a new pair of jeans, a weekend away with friends, and have a car payment. Everyone your age is almost in the same bout and will accept that it is too tough and will not save the money. By saving the $2,000 a year, or $5.50 per day for 8 years, can help you not be poor.

4. Whatever you do DON’T lose money.

Thanks “Tips” for pointing out the obvious. Unfortunately, are brains are wired to work against us and usually want us to invest money in the wrong things at the wrong times. What I tend to see time and time again is after companies have gone up in value, it gives others confidence to invest in those companies. At this point usually the money has already been made and now you have bought something that is really expensive. On the flip side 2020 and COVID 19 created a lot of fearfulness in the world around investing, which in turn made people nervous and wanting to sell in some cases their good quality companies at low prices.

One of the best know investors of our time Warren Buffett has the best quote for this he says “I will tell you a little secret to getting rich on Wall Street. You try to be greedy when others are fearful. And you try to be fearful when others are greedy.”

 5. Get a good Investment Advisor.

You are probably asking what is an investment advisor and how can they help me? A good advisor is one part money manager and one part psychologist. The best advisors will help you get clear on your goals and provide a sense of accountability, which means they will give you the kick in the pants you need when you veer off track. A good advisor will layout a long-term financial plan for you and help you stick to it. This way you achieve something like what the previous table shows.