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Get Motivated: Why Money Matters

A Few Boring Truths

Ready or not, the future is upon you. Before you even know it, you’ll be thinking about things like the cost of college, mortgages, cars, kids, vacations, and — yup — retirement! It may sound boring, but it’s your responsibility to think about these things. You must take positive steps now so that you can create the future you want. You are the only one who can make your dreams — financial and otherwise — come true. If you don’t look out for your future, who will?

The Sort-of-Boring Truth about the Distant Future

Kevin is 23 years old and the youngest of three children in his family. His mom and dad are both in their mid-60s, but neither can afford to retire. The situation is starting to worry Kevin. His parents seem tired all the time, and he’s concerned about their health. He’s even started to take on extra shifts at work, in between classes at school, so he can help out with the bills and groceries. One thing Kevin knows for sure is that he doesn’t want to end up in the same position when he turns 60! He knows the only way to avoid this scenario is to work hard now and get smart with his money.

Money is the key to your long-term financial security. It’s scary to think about this, but by the time you’re ready to retire, you will need approximately four times the amount of money that you need now — just to live the way you’re living now (keep those “lifestyles of the rich and famous” fantasies in check!). This hard-to-swallow truth is due to a nasty little thing called inflation. Inflation makes the dollars in your bank account today less powerful as time goes by. For example, four dollars today might be worth only one dollar 40 years from now.

Think about it this way: A 65-year-old woman with $1 million in retirement savings could call it quits tomorrow and not have to live below the poverty line. However, 40 years from now, a 65-year-old woman wanting to call it quits would need to have socked away $4 million to maintain her lifestyle! Another way to look at it? One million dollars today will be worth only $250,000 in 40 years. This is what financial gurus refer to as the time value of money, which essentially means that money is worth more today than in the future.

If this isn’t scary or depressing enough, wait until you hear the next part! The next time you receive a paycheque, have a look at the section on the stub where the deductions are listed. There are deductions for income tax and government pension plans, like Canada’s Canada Pension Plan (CPP) or Social Security in the United States. There may even be deductions for things like medical and employment/unemployment insurance. On average, for every dollar you earn, you’re really taking home only 65 to 70 cents, and sometimes less. What it boils down to is that the taxman and government get paid before anyone else, including you — the one who earned the paycheque in the first place.

Think the government’s retirement savings plan will be enough for you? Think again. The government’s retirement savings program will help you to a small degree. But that money will not allow you to retire comfortably because it’s a small sum. We’ll more than likely have to count on ourselves to assure our financial security.

Boring, and a little bit depressing, but true.

So your money becomes less powerful and less valuable as time passes. And you’re not likely to get much help from the government, or anyone else, for that matter. Are you ever going to be able to retire? Or buy a house? Or go to college? Or have a wedding? Or go on vacation? Of course you will — if you learn to care about your money. Handled properly and managed wisely, your money can not only keep up with inflation, it can beat it!

The Not-So-Boring Truth about the Not-So-Distant Future

Maya is 16 years old and in her second-last year of high school. She has average grades and comes from a financially average household. She loves to hang out with her friends, dance, and, most importantly, shop. Recently Maya has started to think about what she might want to do with her life. She made an appointment with the guidance counsellor at school to discuss her dream of becoming a children’s doctor. When she sat down with the counsellor, however, she discovered two things: the cost of medical school was very high and her grades would also have to be very high for her to have any chance of getting a scholarship.

Now Maya’s reconsidering. Unless something changes — both with her commitment to school and her financial planning — her dream will never become a reality.

If you were drifting off during the last section — or at least wondering why you need to think about retirement when you’re still in your teens or twenties — maybe this section will hit home a little harder. You need to care about your money because, even though you’re young, money still affects you. In fact, money affects everyone.

What do you want to do with your life? Do you want to be a pilot? A nurse? A musician? You’ll need money to do it. Money is also necessary if you want to go snowboarding, buy a house, travel, or shop.

It comes down to this: money enables us to have choices. The more we understand about it — how to make it, how to save and invest it, how to spend it wisely — the more freedom we’ll have. Think about how dull your life would be if you didn’t have enough money to go to a movie with a friend. Think about how frustrated you would be if you really wanted to become a doctor, like Maya, but couldn’t afford the tuition fees. The more financial freedom you have, the more freedom you’ll have in all areas of your life, including in your career and personal life. You’ll be free to make the choices that best suit your needs and goals. And isn’t that what everyone wants?

The $5,000 Question

If you came home and found a cheque for $5,000 in your mailbox, what would you do with it? Would you save the money or buy a car, some clothes, or a hot new sound system? Would you give some to charity, pay off a loan, or take your friends out for a fabulous dinner? Would you start a business? It’s nice to have so many options, isn’t it?

Now consider the opposite situation. Your most recent shopping trip got a little out of hand and you’re looking at a $5,000 credit card bill! What are your options now? You either pay it back or the bank will repossess your car! Remember, money leads to choices, and choices lead to freedom.

Now Matters

Tony is 29 years old and was shifting nervously in a chair across from the loan officer at his local bank. He held his breath as the bank issued its verdict: yes. Based on the strength of his business plan and good credit history, they had agreed to give him a small loan to cover the costs for some electricians’ equipment. Now his plans to start his own residential electrician company would come true!

What you choose to do with your money today matters because it can impact your decisions in the future. In Tony’s case, if he hadn’t been responsible with his money in prior years, his credit score would have been weak and he wouldn’t have qualified for his small business loan.

The Not-So-Boring Truth about Time

I know, I know. All this stuff about retirement and choices and freedom makes perfect sense to you, but still.… You’re probably scratching your head right now, trying to figure out how you — an average person under 30 with hardly any disposable income (the income you have left over after your bills are paid) — are supposed to take control of your financial life when some 50- and 60-year-olds haven’t gotten the hang of it yet. They have good jobs, and houses, and lots of other stuff that you don’t, right? That’s true. But you’ve got one thing that they don’t have, and it may be the most important thing of all: time.

Time is a pretty handy thing to have on your side. With time, you can grow your money substantially without doing nearly as much work as you might expect. You can do this through the power of compounded interest and reinvested returns.

Imagine yourself at the top of a hill, making a snowball. It’s a nice, round snowball that takes you all of 30 seconds to make. When you aren’t looking, the wind blows the snowball down the hill. As it’s rolling, it picks up more and more snow until, a couple of minutes later and with no additional help from you, a giant snowball stops at the bottom of the hill. That’s how compounded interest and reinvested returns works. You earn interest on your initial investment, which is then reinvested, allowing you to earn interest on that as well. So now you’re earning interest on the interest on your original investment. As time passes, your money grows, like the rolling snowball, into something quite impressive.

The table below is an abbreviated version of one you’ll see later, in chapter 7. For now, all you need to know is that if you start early enough and contribute to an investment plan regularly, you can turn yourself into a self-made millionaire. In this example, a young person starts saving $100 per month until the age of 65 and retires a millionaire! (This example assumes a 9 percent annualized rate of return and rounds to the nearest $100.)

Compound Interest
Age	Saved per month ($)	Total saved ($)*
15	100	1,300
25	100	23,000
35	100	74,200
45	100	195,600
55	100	483,000
65	100	1,163,400
*With compounded interest and reinvested returns.

Impressive, isn’t it? With only $100 per month you can become a millionaire! Wondering where the heck you’ll find $100 per month to contribute to an investment account? Read on! Rich by Thirty will show you how to live frugally without foregoing fun, and how to make more dough so you can afford your savings contributions.

Now, think about how much more money you would have if you increased your monthly contributions as you advance in your life and career — you’d achieve millionaire status much faster!

If the table isn’t enough to inspire you, think about it this way: you can actually double, triple, and quadruple your money with the power of compounded interest and reinvested returns. I’d like to introduce you to what investment types call the Rule of 72. Basically, it helps you figure out how long, based on a fixed interest rate, it will take for your money to double.

This is how it the formula works:

Time it will take for your money to double = 72 / rate of return

So, if you keep your money in a growth-oriented portfolio (more on that in chapter 8) that is averaging a 12 percent rate of return, it will take six years for your money to double (72 / 12 = 6). On the other hand, if your ordinary savings account is earning 2 percent, you’re looking at 36 years to double your money! See what a difference your rate of return can make?

Making It Personal

I’m hoping that by now you’ve developed a greater appreciation of what money can do for you — how you can make it work to your advantage, how it can change your life for the better. I’m also hoping that you’re sufficiently motivated to dive in and get started. It’s never too early (or too late) to take control of your financial future.

Goals Lead and Dreams Follow

Do you have dreams and goals? Of course you do. Have you ever wanted something so badly that you simply had to find a way to get it? Throughout my university years, I dreamed about having my own place when I graduated. For four years I saved a little money each month so that I’d have enough for a small down payment on a townhome upon graduation. My goal of owning a place led me to take actions that would make it happen. Now my dream of owning a home has come true.

Goals → Actions → Dreams

Goals don’t have to be huge to be real. Your goal could be to buy a bike next year. Or you may want to complete your full education with no student debt. Perhaps you want to save enough money to start up your own tech company. To set goals, you must look into your future and figure out where you want to go and what you want to do and have.

This goal business can be tricky. Some goals, like saving for a computer or a car, make perfect sense. Others, like winning the lottery and retiring to Hawaii, may not be so practical. When you set your goals, there are a few things you can do to make sure they have a real chance of happening.

 Think short and long term: Sometimes it can take years to have a clear idea of where you want to go, especially when it comes to your money. What do you see for yourself in the future? Does travel, a car, a wedding, a boat, a business, or a house fit into your plans? Do you have specific savings goals, like saving a million dollars by age 40? Jot down some of your high-level goals and dreams below.My Goals and Dreams•__________________________________________________________•__________________________________________________________•__________________________________________________________•__________________________________________________________Do you notice anything in common among your goals? That’s right — they all cost money! Head back up to your list and put a price tag beside each. No, you don’t need to be exact. Just be realistic. If you’re unsure what owning a Ferrari or having a child will cost, a quick Google search will reveal the answer. You need a plan in order to afford your goals. That’s where SMART goals can help.

 Create SMART goals: SMART goals are Specific, Measurable, Attainable, Realistic, and Timely. Rather than writing down a goal that states, “I want to be a millionaire,” you might try this: “I want to have $1 million by the time I’m 65, using the financial fundamentals and investing techniques I have learned in Rich by Thirty.” That goal is much clearer than the first and it has all the elements of a SMART goal.Specific: Provide specific details about your goal and why you’re working toward it.Measurable: How will you measure if you’re successful?Attainable: How do you plan to achieve your goal?Realistic: Does your goal and the plan you have to achieve it seem realistic?Timely: When will you achieve your goal?Take a moment to revisit and revise the goals and dreams you wrote down previously to make them SMART. My SMART GoalsHigh-level goalSpecificMeasurableAttainableRealisticTimely

 Write your SMART goals down: Committing your goals to paper is like developing a contract with yourself — one that only you can accomplish or break. People who write down their goals are more likely to achieve them than people who do not. You may want to keep your goals close to you, perhaps stuck to your refrigerator, so that you are constantly reminded of what you’re working toward.

 Create a personal vision statement: Writing a personal vision statement is a huge step toward financial, personal, and career success. A vision statement is somewhat aspirational in that it helps you set your sights on something huge that you want to work toward over a long period of time. It is a mental picture of what you want to achieve over a time period of five to ten years. A good vision statement will include the following:Who (you!)What (the goal)When (the time frame)How (the action plan)

Here is an example of a personal vision statement to support that goal:

I, Jane Smith, want to be free from financial and career worries so that I can be happy and can focus on my personal relationships. Thus, I will work toward achieving financial success by retirement by using tired-and-true financial fundamentals including spending wisely, making more money, saving and investing, and giving back to the community.

My personal vision statement is:

I, Lesley-Anne Scorgie, want to be happy and satisfied financially, personally, and professionally. I want to grow my relationships and my bank account while having a positive impact on people by inspiring them to reach their potential through my books, public speaking, and my business, MeVest.

Writing your personal vision statement can be a lot of fun. But, sometimes it’s difficult to know where we really want to go in the long term. Most of us, though, have at least some sort of idea. So give it a whirl below, and don’t worry if it takes a couple of tries to get it right.

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You may want to design your vision statement as a certificate, print it off, and frame it. Hang it on your wall so that whenever you see it, you are reminded of the positive direction in which you are headed.

I use my personal vision statement as a reminder of what I want to do with my life. But as time passes and I change, so do my goals and sometimes even my vision. Don’t feel too boxed in by one statement or one set of goals. Make changes to your vision as it becomes clearer over time.

Excuses, Excuses!

What’s holding you back? Make a list of all the reasons you don’t think you can get your finances in order. Then put it somewhere safe and prepare to tear it up in the not-too-distant future. Once you get through the next several chapters you won’t need it anymore because you’ll be on your way. Nothing will hold you back!

Hopefully, you’re feeling a little more inspired and motivated than you were when you started reading a few pages back. You know how important it is to start working on your financial future as early as possible, and you know how integral money can be to your future — both short and long term. Now you’re ready to put the wheels in motion. You’re ready to go out and make it happen!