Make Your Money Work for You so You Won’t Always Have To
This article was originally written in June 2005.
Years ago at an investor’s conference, I heard a successful investor start his speech by raising a $1 bill and ask what it was worth. After a few responses from the audience, he explained that the proper reply would be to ask “When?” A dollar bill today is worth a dollar. That same dollar, fifty years from now, would be worth $289, if it earned an average 12% annual compounded rate of return. So when you spend that dollar on something frivolous, you could be giving up $289 later.
The speaker at the conference also visited schools, teaching 4th graders these basic principles. Here is one of the illustrations he used as best I remember it.
You start a lawn service, cutting grass. Starting with a pair of scissors, it takes you 20 hours to cut your first yard for $40. But you don’t spend all the $40. After 20 jobs, you have saved enough to buy a basic push mower. Now you can complete more jobs because you can do them much faster. Not spending all the revenue, you eventually invest in a small fleet of top-of-the-line mowers and hire workers to do the mowing. For each job at $40, you receive $10 per job, which produces a substantial passive income.
All this was possible because all along the way, you saved a portion of the income and invested it.
In this great capitalistic country of ours, too many Americans are letting the power of capitalism pass them by. Save and invest! Make your money work for you, so you won’t always have to work for it.