Here's what every dollar you spend is really costing you... (eye-opener)... and how to earn $200,000 per year by doing nothing
You step out of the time machine, 20 years in the past. You get to force your past self to make some decisions about their finances. And they have to listen to you. While you might be tempted to tell yourself to invest in Apple, or Google, or Amazon... or Bitcoin when it was $1, there's one difference: you can't be sure specific stocks are going to perform the same way. You don't know exactly what the future might hold, but you do have your wisdom from now. What do you force yourself to do?
For me, I'd want to have made some more solid investments that I didn't touch for 20 years. I should have planted money trees and not chopped them down before they could bear fruit. Sadly I chopped them all down to buy things I wanted then, and yet those things are long gone and I don't have them now.
The good news is this: you are the 20-year younger version of yourself 20 years from now. You can change your future.
In 20 years time I want to look back and be pleased with what I chose to do today. And I can use my wisdom to do now what I should have done 20 years ago.
There's a saying: the best time to plant an oak tree was 20 years ago, and the second best time is now.
And I can plant a great oak for my daughter now too. She's six.
So there are four things to do.
1. Find your 15% fund
2. Mind your $10 Mindset
3. Short-term Scroogify
4. Set your Do-Nothing Income Goal
Let's start with finding 15%. Here are some cool numbers to get you excited.
If you store your money in a bank you'll be lucky to get 0.3% interest every year. Okay that's not a cool number. That's a stupidly low number. A cool number is 15% annual returns or more.
"But where can you find 15% returns in this day and age?" I hear you ask. Easy. Seek and you shall find. You can find consistent annual performances of ETFs of 10% (AOA), 29% (IXN), even 40% (SOXX). And that's just with Blackrock. There are plenty of fund managers with funds generating great returns. Check out etf.com or marketwatch.com or randomly search on Google.
Select wisely. Invest. Then do nothing. That's the plan.
Look at the performance of a fund like this (IWY):
That one has been producing average annual returns of 20.11% every year for the last 10 years.
But let's assume we only get 15% returns. And let's assume fees and inflation take away 3% of that. So our annual returns are 12% at today's value of money.
So every single dollar invested today is worth $10.30 in 20 years time, and $33.08 in 30 years time, $106.17 in 40 years from now, and $1094 in 60 years time.
Now while I might not be alive in 60 years time, that's a lovely present to leave behind for someone.
Here's the Excel formula to calculate this so you can play with it for yourself:
=Amount*(1+Interest)^Years
Amount is your starting dollars, eg $10,000.
Interest is the return rate you're using, eg 12%.
Years is the number of years it will be working for you, eg 20 years.
So investing $1 now at net 12% returns will be worth $10.30 in 20 years time.
And $10,000 now will be worth $103,000 in 20 years time.
And $100,000 now will be worth $1.03million in 20 years time.
And $200,000 now will be worth $2.06 million in 20 years time. If you did that and then lived off 10% of that amount in 20 years from now, you'd have an income of $200k per year for doing nothing, and your principal amount would keep growing at 2% per year (since you were getting 12% and you withdrawing 10%, so it grows by 2%).
While there are tax considerations and your personal circumstances to take into account where speaking to a financial advisor might give you more specific numbers, what I'm hoping to get across is that you can change your future. Check it out yourself first. But don't be afraid and do nothing. Because that's expensive. Invest and then do nothing. That's better. Fear is simply from not knowing enough. Your advice to yourself of 20 years ago is because you know more 20 years later. Learn, know, and invest. Or learn faster by investing as you go. And then you need the discipline to not touch it. That's easier when you shift one perspective.
It really takes just one mindset shift: and it's in the true value of $1.
Because $1 is actually worth $10. It's what I call my $10 mindset. Because every dollar I spend actually costs me $10. Same for you. Here's how:
Let's look at a sale where an item you like was priced at $100 and is now only $40. Seems like a great deal, right? But as we looked at before, if you invest $1 at 12%, it is worth $10.30 in 20 years time. That means that the $40 spent on the sale item would be worth $412 to you in 20 years times. So the item is costing you $412! Not a great deal at all. So if you start reading the marketing as "Was $100, now $412" then you are likely to keep that $40. Then all you have to do is invest it instead.
Essentially, add a zero to the end of the price of everything non-essential and decide if it's really worth buying.
Buying something for $50 is really costing you $500; you're withdrawing $500 from your bank account in 20 years time to buy that $50 thing now. Seems like a really bad deal to me.
So does that mean you'll turn into Scrooge?
Yes and no. Yes you'll be Scrooge against those things that don't ultimately matter. And for those things you do choose to spend on, you'll realise how valuable they are to you. We're planning to fly to visit my parents for the first time since Covid. At ten times the price the flights are costing the future version of myself - Future Me - a whopping $22,500. That makes the trip very valuable. But my parents won't be alive in 20 years time. This is a good investment. Future Me would approve. Spending on memories and relationships are important. Spending on stuff and clutter that will be at the tip in a couple of years is not wise.
We need to Scroogify our buying decisions. Be Scrooge when thinking about buying that one-time, last-minute super-duper offer. And invest your Scroogified savings. You could even send the exact sum of the thing you were considering buying to your broking account. Cash in your broking account tends to get invested. And that's good.
Now that you're Scroogifying, you'll need to set yourself an income goal for doing nothing: your Do-Nothing Income Goal. This is how much you'd like to earn for doing absolutely nothing.
And since you're doing nothing, you're not working to earn any money. Unless you choose to. So how much would you like to be earning, as a household?
Let's say you chose $200,000. Okay. That's nice. Especially for doing nothing.
Well, just investing $200,000 now means in 20 years time you can start getting it back every year for the rest of your life and still have $2million invested.
Remember, $200k earning 12% net and compounded for 20 years means it's grown to over $2million dollars. And withdrawing 10% of that every year pays you $200k and the remainder keeps growing at 12% and keeps it over $2million for you. Use the formula I gave you, build a spreadsheet and see for yourself.
Don't have $200,000 yet? Then your primary financial job right now is to amass it. Get a promotion/payrise, invest a big chunk of the difference. Grow your business, invest a big chunk of the difference. Scroogify your expenses, invest the savings. Remember, $20,000 invested now is worth $200,000 in 20 years time. And if you keep adding to it along the way, you'll eventually get there much faster.
Whatever your Do-Nothing Income Goal is, do the numbers. And follow the Storks motto (from the movie Storks - I love that movie, hilarious, and I love that motto): "Make a plan. Stick to the plan. Always deliver." I love it.
I spontaneously feel like I need a disclaimer.
Disclaimer: I could be wrong so don't follow my advice.
There, that should cover me for everything.
I began the article with, "You step out of the time machine..." Well, the truth is you ARE the time machine. Your mind can travel forwards and backwards in time. So think. Decide. And Do. It's so important to invest now in your future.
So go do some sums, speak to some experts if you need to, and invest in your future. Just don't sit there and do nothing, unless you've already invested $200,000 at 12%pa net compounding returns. In which case: congratulations, and perhaps you could go and help some others do the same.
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