Quote:
Originally Posted by mitown
Hello, I am 15 years old, and I would like some advice. I am about to go out and get my first job and pretty soon a car and I would really like some advice on managing money. I don't wont to be living from pay check to paycheck when I am in my 40's. Also can you guys tell me some good career paths. Any other advice you would like to send my way is also welcome.
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1) Pay yourself first
2) spend less than you earn every week, month, year,decade etc...
3) try to earn a high return when you pay yourself first
1) Set aside a given percentage of your income each paycheck. No exceptions. If you earn $141.25 in one week, put $14.12 into a savings account. I would avoid having atm withdraw access from this account while you are learning.
2) If you earn $141.25 each week, and set aside 14.12, you have $127.13 left to spend. Spend this amount or less that week.
3) Bank accounts pay 2-3% interest (savings). CDs might return around 3.5%. A High Yield savings account earns around 4.5-5% interest. S&P 500 index has historically returned 10%.
This means if you invest $14.12, it will take 24 years do double at 3%, or 7.2 years to double at 10%. The better the return, the more compounding grows your money for you.
I used 141.25 as an example wage for a part time job each week, and to show how percentages work. I pulled this number out of thin air...
Learn about investing, ask questions and know that time is the single biggest factor in compounding.
My favorate investing example is:
You could invest $1000 per year, earning 10%, from age 15 to 24 (10 years, $10,000 total). At age 55 you would have $336,000. That's right, 33X your initial investment.
A person same age which waits until age 25 to start investing, and invests the same $1000 per year, and invests $1000 per year for next 20 years ($20,000 total) has $179,000. 9X initial investment.
In this example, consider you invested half as much and had nearly double in the account at age 55. For the other person to have the same amount as you they would
a) need to invest $1875 per year for 20 years ($37,500, almost 4X what you invested)
b) improve invesment returns (get higher than 10%)
c) start saving earlier
time is the single biggest factor in these equations. You cannot create more time, it is tough to change timeframes in some cases (asking someone who is 55 to work until they are 75 might not be feasible to buy 20 more years). Higher investment returns require more risk (might lose that $10,000 you started with).
So my advice is to save early. Does not have to be much. $1000/year is $84/month or $19 per week.
10% returns could be achieved by investing in stocks of blue chip companies.
Once you see your money grow, you might decide to save more (20% of each check?) and set aside more money now.