Tuesday, May 02, 2006
Automatic Wealth for Grads
by Michael Masterson
...and anyone else just starting out
(provided by the Dollar Stretcher)
You've just graduated college and you'd like to be wealthy
someday. Of course, you would. Problem is, you have no clue
how to make it happen. First, you're broke and drowning in
student loans. Second, no matter what the "experts" might say,
it feels like there are tons of fellow grads fighting over a
handful of jobs. Third, though you don't mind hard work, you
don't want wealth to come at the expense of a social life, a
family, and the chance to do some good in the world. Should
you give up the dream and content yourself with an average
Not only is it completely possible to become a
multimillionaire before you retire, but also you will never
again have the advantage you have now: youth.
Most young people simply have no concept of how simple it is
to build wealth. I didn't say easy, because hard work and
self-discipline are required, but simple. Any reasonably
intelligent person with a fairly ordinary career trajectory
can do it. But now is the time to get started. With every year
that passes, your window of opportunity closes a little more.
Sounds good, right? Read on:
- Understand the astonishing power of compound interest. If
you take a penny and double it every day for a month, how much
would you end up with? A hundred dollars? A thousand dollars?
How about a million dollars? Not even close. Starting with a
single penny, if you double it every day for 31 days, you end
up with $21,474,836.48. That's compound interest. That's how
you get rich. And that's why, when it comes to wealth
building, your age gives you a major advantage.
- Starting with your first job out of college, invest 15
percent off the top. By the time you retire, you'll be a
multimillionaire. Yes, you've heard the "pay yourself first"
principle before. But you probably don't realize just how
wealthy it can make you. Let's say you start making an average
income (which according to the National Association of
Colleges and Employers is $30,337 a year). Assuming that you
are good at your job and get consistent annual raises of 4
percent, you'd be making $43,170 a year 10 years from now, and
$140,046 in 40 years. Not only will you be making more money,
but also you will be able to save more money. If you
consistently (and that means every year) deposit 15 percent of
your income into investments, compound interest will begin to
accumulate like you wouldn't believe. Assuming a return of 10
percent a year, you'd be worth about $5.5 million when you are
ready to retire.
Pay out your money in the following order:
1. First, pay the government because they can get very nasty
if you don't.
2. Second, pay yourself. Put the aforementioned 15 percent of
your income in some sort of investment.
3. Third, pay the interest on your debts, such as credit
cards, student loans, car, etc. Keeping that debt low is
4. Fourth, pay for non-critical parts of your life. Those
would include entertainment, travel, and toys.
Of course, all of this advice hinges on your finding a decent-
paying first job. Here are a few tips on landing one:
* Forget the standard resume-cover letter program. Instead,
write a direct marketing letter that lets your prospective
employer know you understand what his problems are and that
you have the solution to them.
* Call the office of your prospective future boss and ask for
a short, non-threatening informational interview. This is a
great way to get in that locked door and find out a lot of
personal and professional information about your target
prospect. You may even end up with the job before you leave
* Remember that the hiring interview is a sales call. Let the
customer talk as much as he wants. Listen. Nod your head.
Smile and agree. When he asks you a question, give him the
answer that he wants to hear. If you've been listening
closely, you will know what that is.
* If you feel you might not get the job you are seeking,
suggest that you can do a project for the company on a
freelance basis. Perhaps even for free. It works in selling
vacuum cleaners. It should work when you're selling yourself.
Don't succumb to the temptation to pay for prestige. A big
part of being able to save the requisite 15 percent involves
not blowing your paycheck on expensive cars, high-dollar
meals, and trendy couture. But that needn't mean depriving
Beautiful, comfortable clothes are not cheap, but they don't
have to cost a fortune. You can buy a great pair of slacks for
$150 or you can spend 10 times that amount. The difference
will be the label on the waistband. The point is this: The
best material things in life are affordable. They are not
cheap (quality never is), but if you buy them selectively and
use them with care, you can enjoy a life as materially rich as
Bill Gates on an income that wouldn't get him through lunch.
Right now, you may think becoming a millionaire is not a
laudable goal. You might say money doesn't matter. Well, it
may not matter now, but it certainly will when your kids are
applying to colleges or when you're approaching retirement.
Financial independence frees you to live a rich, fulfilling,
authentic life. And that's the true definition of wealth.
at 5:52 AM