Opinion piece by Sandro Joseph Azzam, Staff Writer

April 6th, 2021

Disclaimer: this article is for informational purposes only and should not be considered to be financial advice. 

Do you want to be a millionaire? I really hope you said yes because if you didn’t then you either already are one and have nothing to learn from the likes of me, or you’re not interested in becoming one in - which case it’s a lost cause persuading you that you could make a fortune for less than a couple cups of coffee every day.

When we think of getting rich, we often think about Di Caprio playing Jordan Belfort on the Wolf of Wall Street throwing cash right and left while casually sinking a superyacht into the bottom of the ocean. I hate to break it to you, odds are you won’t marry Margot Robbie and I’ll spare you the narcotics addiction. Needless to say, young professionals and the youth at large can make obscene amounts of money by being financially responsible early on in their careers. 

I know, I know, your early career is probably the first time where you had access to “adult funds” and you want to blow it all on gaudy watches or a single-seater submarine and dare I say Starbucks coffee. It’s really not the time where most of us think about our lives 40 years down the road and it most certainly isn’t the time when we think about building up a family dynasty of wealth and fortune. That’s what separates people who think like me, from the rest of the pack. Let’s rethink personal finance. 

What if I told you that for only $8 a day, you could be a millionaire by the time you retire? Hard to believe right? You’re probably thinking I left a zero off my calculations or something because, well, $8 a day for 365 days over 40 years is only $116.800. If you thought of money that way, then boy, are you in for a mighty surprise. 

How often do you go to Starbucks or any other coffee shop? Daily? A few times a week? A few times a month? More than once a day? If you said you go to Starbucks daily, then you need to stop. NOW. Let’s say you’re part of the vast majority of people who get take away coffee every day on their way to work or university. You walk into the shop and see your friend the barista, Karen. You ask for your usual: a Double Ristretto Venti Half-Soy Nonfat Decaf Organic Chocolate Brownie Iced Vanilla Double-Shot Gingerbread Frappuccino Extra Hot With Foam Whipped Cream Upside Down Double Blended, One Sweet'N Low and One Nutrasweet, and Ice because what’s the point in even going to work if you’re not going to drink one of these on the way. When you place your order for what we will now refer to as the “Frappuccino Abomination”, Karen smiles and says “$8 please”. You gladly fork over the money and can’t wait for your coffee to start out your day.

Now imagine repeating this routine again, and again, and again. Besides the certain diabetes and a few extra pounds, you’ll have gained absolutely nothing from this daily coffee fix. At the end of a day, the “Frappuccino Abomination” is a consumable: once you drink it, it’s gone. There’s nothing left to show for your $8. What if you moved that $8 a day from a consumable into an asset?

Enter: the S&P500. The S&P500 is a stock market index that regroups 500 firms in the United States. These firms are anything from Apple and Tesla to Alaska Air and Clorox. The S&P500 has returned, historically over the last 70-odd years, 8% year-on-year, net of inflation. If you don’t understand what compounding interest is, please read my previous article, How to Make 400M Dollars in the Public Sector. Now, instead of throwing 8$ a day into the “Frappuccino Abomination”, how about you try and buy 8$ worth of the S&P500? To do so, all you’ll need is a trading account on Robinhood (yes, the one that made headlines a couple months ago), TD Ameritrade or Vanguard. Once you have this account open, all you need to do is log on, every day, and buy 8$ worth of what is called a S&P500 ETF, an exchange traded fund, such as $VOO, $SPY or $SPLG. This is essentially the S&P500’s baby brother and follows its movements up and down. Now, as we said earlier, the index gains about 8% per year adjusted for inflation which means that if you invest 100$ today, next year you’ll have 108$. By simply investing 8$ per day, every working day, for your 45-odd year long career, you can end up with an investment portfolio worth over 1.05 million dollars. If you want to try it out, go ahead and use this calculator to see for yourselves. 

So now that we’ve established that your daily “Frappuccino Abomination” not only sets you up for a life of diabetes and high cholesterol but also deprives you of a million dollars in a lifetime, let’s move onto the importance of investing early. 

Time to introduce a very basic concept: the rule of 72. The rule of 72 allows us to find out how much time it’ll take for our investments to double in value. It is however an approximation, although a very close one. Let’s say that the return “r” we make on our investments is 8% per year, just like the S&P500. The amount of time it takes to double an investment is given by 72 divided by r. In our case, we double our money every 9 years. If I invest 100$ today, in 2030, I’ll have 200$, in 2039, I’ll have 400$, in 2048, I’ll have 800$, by 2057, I’ll have 1600$ and by 2066, I’ll have about 3200$. I’ll be up 32 times on my money over just over 45 years. 

What if I had waited 9 years before investing that same $100? I’d end up with only 1600$. Those 9 years cost me 1600$ on a 100$ investment. This is the importance of investing early. If you decide to invest 200$ per month between the ages of 20 and 30, you’d end up with just over half a million dollars. If you decide to invest that same 200$ per month between the ages of 30 and 60 for a total period of 30 years, you’d end up with less than 400.000$ when you retire at 63. In the first case you’d have only contributed 24.000$ to make over half a million dollars whereas in the second case you’d have contributed close to 72.000$ to make less than 400.000. This is why, if you ask any respectable financier what they wish they had more of in order to make higher profits, a lot of them would answer: “a time machine”. And no, it’s not so that they can buy GameStop stock before the squeeze, but because by waiting 9 years, you can double your money. By waiting 18 years you can quadruple it and so on. Thus, lost time costs you exponentially more the longer you wait. 

Between the ages of 20 and 30, you can make the most money you can for your later life. Do whatever it takes to invest as much as you can, work multiple jobs, live as though you were a student and be frugal because 10 years of intelligent financial decisions can set you up for a lifetime of success. To put it into perspective, let’s say that after graduating at age 22, your first job pays you well and you get a $10.000 bonus. Instead of spending that $10.000 on a nice Rolex Yacht Master, put it into the S&P500. By the time you retire at 63, that $10.000 will be worth over $230.000. So, it really is up to you: do you want a Rolex today to remember your company’s superior financial performance in the year 2021 or would you rather buy something else when you retire? How does cruising around in a Ferrari Roma sound? How about buying and renting out a studio apartment in New York City? Or throwing a party on your 50-foot yacht called ‘Frappuccino Abomination’? 

You can find here a financial planner that I have designed exclusively for the readers of this article. It will help you set yourself up for a lifetime of good financial decisions. You’ll be able to see with your own eyes just how important it is to save young and maybe even understand the key to early retirement. You’ll need to download the file and view it on your device directly. I highly recommend that you download it and use it offline as an Excel file rather than a Google Sheets document.