Any young and poor fools out there?
October 14, 2009
– Comments (41)
I'd like to give you some advice that I wish I had received at your age.
I'm going to give you the best investment advice that I can give you. Investing in yourself.
I'm going to give a plan of action that will make you rich and successful and allow you to retire at the age of 38 at the latest (if you are 18), if you want to. You can start with absolutely no money and this plan will actually work better for you if you come from a background of being poor. With out further ado, lets get to the plan.
First lets talk about your age. If you are younger than 17, you have a chance to get a head start, but this plan will work for anyone between 18 and 25. It will actually work if you are older than 25, but by that time we usually lack the motivation to accomplish this plan.
If you are younger than 17, your headstart is to get good grades in school and save as much money as you can. If the market is bad, invest whatever you can in the S&P 500 and if the market is booming, invest what you can in precious metals.
Once you hit 17, assess your chances for a college scholarship. If you hit 17 and think those chances are zero, join the military in the split option program. Try to pick a job that is desired in the civilian market if you can, but really pick a job that interests you above all else. If you think your chances of a scholarship are good, I'd like you to look into a ROTC scholarship in the military. Talk to a military recruiter and find out your options. If you miss out on a military scholarship, but can get a scholarship from another route, that is fine as well. If you miss out out on all scholarship chances, join the military.
OK, whether or not you went to college, the plan here is to join the military. You are either joining as an officer or an enlisted man. If you are joining as an officer, you have an advantage. Why the military? Because it gives you the greatest chance of living below your means. You get 3 square meals a day, a place to sleep, free health care, free education, ect.. You want to maximize this as much as you can. Frugality is the key to making everything else work! If you are committed, you can easily save 90% of your annual income to invest. Obviously, 90% of your income can only be saved if you are still single and without a family, but you will still be able to invest a lot more than the average person with your income, if you have a family. If you are able to save 90% of your income and never gain above the rank of E1, you should still be able to save about $120,000 in the first eight years. That is without that 10% annual interest that you should make with decent investments. You should have at least $250,000 at this point if you include interest. You will gain rank though, if you are commited. To give you an example, I made the rank of E2 at the end of Basic Training when I was still 17. I was E5 within 4 years. It's harder to gain rank as an officer, but even if you stayed an O1 for 8 years (won't happen unless you screw up) you would have $250,000 before interest and about $500,000 after. This is counting the bonuses that you get for re-enlisting. Hopefully you have been using the last 8 years to maximize your education as well. Ok at this point, you could theoretically live of the interest you are making. Not comfortably for the E1, but he is realistically at least an E5 by now and even if he was still an E1, lots of people live off of less than $25,000 a year.
Now is the time for a big decision. You have to decide whether or not you are better off in the civilian market at around year 8. Unless what you would make in income is double of that in the military, I would stay in the military, but this is an individual choice. You are now about 26 years old and if you've spent the last 8 years well, you are in great health and have a good education. If you've spent them really well, as an enlisted man, you may have just finished officer candidate school. If you choose the civilian route, you should try to live off of 50% of your income. If you choose the military route, try to stick to the 90% plan, but after 8 years, I wouldn't fault you for switching to a 75% plan. In either choice if, you continue in frugality and investment, you will succeed.
For those of you that continue the military plan, you can retire at the age of 38 with a miltary pension and have enough time to retire in a second career after that. If you stick to the plan until retirement though, you won't need the second career. If choose the civilian route, you could put 30 years in after the miltary and retire at the age 56 and live quite comfortably from your civilian job.
The whole trick is pretty simple. You are just taking advantage of the compounding of interest. Did I follow this plan? No. I was young and stupid and although I did join and succeed in the military, I was a bit too wild to take advantage of the opportunities that it offered. It didn't take me long after leaving the military to straighten out and realize the opportunities that I missed. I'd like to think that I have succeeded in life, and I could retire today at the age of 40 if I wanted to. I'm pretty sure that if I followed this plan, I would have retired at least a decade ago, with at least twice the amount of money that I have now.
The last thing I want to post about tonight is the reason that I posted this thread to begin with. I've seen a lot posted by younger fools that use the arguement "You don't understand what it's like being poor!" Actually I do. My entire childhood was the 70's and early 80's. Inflation was rampant and my dad had a 10th grade education and a family of 5. I will never be able to compete with that man's work ethic, but as you can imagine, he struggled to put food on the table. He worked multiple jobs and sometimes 2 or 3 jobs at the same time. Jobs were short lived at that time, but if dad lost a job 1 day, he was out applying for another one the next. I had very little as a kid, but I was overall pretty happy. It's funny, but I think that when you have less, you appreciate what you have more. I had parents that might not have been successful, but were better parents than most kids had.
So, if you are a young fool, tired of being poor, here's your chance. This will work if you commit to it. You can fault me for not practicing what I preach if you want to, but I'm looking at it as giving you a chance to learn from my mistakes. It will be whatever you put into it. The most important truth in life to learn is that people that say they are victims are never in control of their own destiny.
As always, I hope that this helps,
Chris
RSS Headlines
Fool UK