A gallon of gas: $3.56. A pair of TOMs: $54. A movie ticket: $8.50. That new CD you want: $14.99.
Financial security: Priceless.
There's this book kicking around my house that has become almost as honored and revered as the Bible. The title? "The Total Money Makeover" by Dave Ramsey. My parents are ALWAYS quoting good old Dave. As a joke, my brothers and sisters and I have started to use the catchphrase, "What would Dave do?"
Dave Ramsey is a financial adviser who is very money savvy. As much as we laugh about our good friend Dave, we all know that he has some good advice when it comes to finances. One of Dave's themes in his book is that, "If you will live like no one else, later you can live like no one else." It means that in order to one day "live like no one else" (i.e. have financial security, no debts, etc.) one may have to "live like no one else" today (i.e. saving money in ways that other people don't)
As Americans, we tend to get the idea that we need to "keep up with the Joneses." However, if we look closely, we may find that the Joneses have credit card debt, big mortgage payments due every month, student loans, car payments and lots of financial stress. They may even be having marital issues as a result of the financial strain.
Maybe we don't want to be like the Joneses. Maybe instead we want to "live like no one else" so that one day we can have all the nice things the Joneses have except for the stress, strain and debt. In the long run, giving up a few things now will set you up for financial greatness in the future.
I know that the "s" word -- "save" -- normally cues teenagers to roll their eyes. I've been there! But we teenagers are the exact people who should save the most. Because we are young "whippersnappers," as those from the older generation refer to us, time is on our side and so is the power of compound interest. If you're tired of words, read the numbers.
Here's a scenario: Let's say that as an 18-year-old, you put $2,000 into a Roth IRA mutual fund. Translation: You put $2,000 into an account that you've designated to be your Roth IRA account (a retirement account in which you do not have to pay taxes on the interest your money earns). Then you live your life and forget about that $2,000.
Of course you'll want to add to your account as often as you can so that you'll be able to have a nice retirement one day, but let's just say that you let only that $2,000 sit for 47 years until you turn 65. Taking into consideration that a mutual fund over an average of 20 years earns about 7 to 8 percent interest -- we'll say 7.5 percent in the calculation -- POOF! In 47 years your $2,000 has transformed -- not into a handsome prince -- but into $67,882.96.
Wow! And imagine what it could be if you'd been adding to that account a little bit every month since you were 18! This initial investment is called your "nest egg." This nest egg will sit and collect interest, growing over time, and will get bigger and bigger the longer you leave it in the account. Then when you're ready, you crack it open, invite the Joneses over for a nice dinner of steak and shrimp, and party on!
The principal of compounding interest is a simple one, but it's also very powerful. So even though you had to wait 47 years, would you say that your investment was worth it? I would! Your money just earned $65,882.96 for you. Putting money into your nest egg will, in the end, give you financial peace -- and that is priceless.
And as a P.S., if my future husband is reading this ... please double your initial nest egg amount. Thanks honey!
Allison Foster is a senior at Fremont High School. In her free time she enjoys ... wait, what's free time? Email her at email@example.com.
HOW TO PUT MONEY AWAY IN YOUR NEST EGG
* Make it automatic: Have a certain percentage of your paycheck put into your savings account. If your money is taken out before you ever see it, you won't miss it.
* Try trade-offs: If you like to buy treats from vending machines, instead of eating your money every day, save it. This doesn't mean you can NEVER eat another thing from a vending machine again, just do it once in awhile instead of every day.
* Budget : Assign your money into categories and stick to your budget. If you don't use all the money in one category, save it.
* Cut drive time: Set aside money for gas, then carpool as much as you can with your friends. Save the leftover gas money you didn't use.
* Put away extras: If you have an extra little side job, maybe babysitting or mowing lawns, save that money.
* Bank bonus bucks: Put any unexpected chunks of money into savings. If Grandma gives you a big check for your birthday, for instance, put all or most if it into savings.
(Beware, if Grandma finds out that you saved your birthday check, be prepared for some I'm-so-proud-of-you's and a few cheek pinches at the next family gathering. Grandmas love to hear about their grandkids saving for the future.)
* Adjust screen time: Wait until a movie goes to the dollar theater or see it during a matinee so it's cheaper.
* Change traditions: Borrow a dress for school dances. It's pretty flattering to a girl if someone asks to borrow her dress because that means it was beautiful.
* Just do it: The key to all these tips is to PUT THE MONEY THAT YOU SAVE INTO YOUR SAVINGS ACCOUNT. If you don't actually take the money you've saved out of your wallet, you'll probably end up spending it.