January is famous — or infamous — for being a month of implicit regret. We’re all coming back to campus after no schoolwork, no deadlines, no rules and weeks of eating good food, staying up all night and sleeping past noon. (Or whatever’s your idea of a good time.) Since a lot of us had all that time on our hands, we probably let a lot of money go with it.
The last month of the year is a nationwide spending spree, as we’ve known since we got our first pack of socks for Christmas. If buying things for the people you love brings you happiness, then it’s an expression of love. When I got home, I bought all kinds of things for my friends and family. My father ended up with six sweaters for Christmas.
Our shopping habits are supported by our jobs — or parents, or really good significant others. But if we earned the money ourselves, there’s something we’re responsible to do: invest.
Remember in Mary Poppins, when the workaholic father Mr. Banks takes his children to the bank? His colleague tries to convince — or coerce — Mr. Banks’s son Michael into investing his tuppence, rather than donating to the birds outside. Michael prefers the latter, a kind thing to do. But if Michael were closer to getting his bachelor’s degree, leaving home and starting a career, he would be far more interested in the bank’s return on his investment than the opinion of saints and apostles, who do not pay his rent.
All fiduciaries recommend to start saving early, Michael. The money we spent this break and that which we’re about to spend this semester and summer doesn’t all have to go — we can save some and let it work for us.
Here’s how it works. When we save money, we put a principal amount into a mutual fund or an ETF, for example. (Vanguard, T. Rowe Price and Fidelity are some examples of investment houses you can check out.) That fund will then buy stocks, bonds, etc. because diversified investments are safer; our principal appreciates because we leave it untouched in the market. And then we retire.
For example, say I’m 19, and I’ve saved $3,000 from odd jobs. Since I was born after 1960, at 67 I can retire with full federal benefits. We can assume that the annual return in the Standard & Poor’s 500 will be 11 percent. So, if I add just $100 per month, then hop out of the workforce on my 67th birthday, I will have $2,026,896 waiting for my retirement in the south of France.
Sound too good to be true? The Big Short is right — it’s not as complicated as Wall Street likes us to think. Plus, if we save 15 percent of our income toward retirement, it’s only $100 a month if we make $8,000 a year — meaning we can amp the savings way up when we work full-time.
With these significant figures, saving sounds fun to me.