Don't plan, work.
This was a simple piece of advice I heard today in passing, and I agree, to an extent. With the extent being that I reckon work is more important than planning, but planning should be done in order to create an intentional direction, with part of the work being a feedback loop that monitors and guides for adjustment.
Yet, work is out of favor.
Pretty much daily, I see several articles or am in conversations where it says something like "Boomer gives unbelievable advice to the young" as if older people don't know anything. Then, there are articles essentially encouraging young people to give up their work or do as little as possible, to cheers from the peanut gallery.
You are being lied to.
If you want to get ahead in this life financially, you have to work. Sure, the work you do should be considered, but if you are looking to minimize your work, rather than maximize your income, you are likely not going to do that well. There are several reasons for this, but a couple of the main ones are that working brings opportunities you are likely to miss otherwise and the main one I will focus on now is, having additional income is financially investable, having additional time is not.
One of my friends came to the realization whilst we were talking the other day that he should have done what I had mentioned to him probably five years ago, which was to get a side job doing something (anything) to increase his disposable income. I did the math for him and he realized that doing five or six shifts a month stacking shelves at the local supermarket, would conservatively give him over a 10 percent increase on his normal income.
So, in a hypothetical scenario where he earns 5000€ from his normal job, has a mortgage, a car payment, utilities and food etc, he saves 500 a month (10%). This gets split into investments and a little for savings to build a reserve. This is 6000 a year being invested. However, if he is able to add 10% to his income, his investment potential doubles, meaning that he has a 100% increase in investment, 12,000 a year. If he had started this five years ago, he would have inputted 60,000 in total. Assuming 10% returns and straight line inputs of 1000 per month for all of that time.
@ 5 years
Contributions = 60,000
Value = 77,500
@ 10 years
Contributions = 120,000
Value = 205,000
@ 15 years
Contributions = 180,000
Value = 415,000
What this means is that all other things remaining equal, after 15 years of a second job, he would be 207K better off in his portfolio. But, things don't remain equal, because in those 15 years he will also likely get increases in his income through pay rises, promotions and as well as investment opportunities.
Fifteen years is a long time!
No, it isn't. Starting this at thirty years of age means having at least (assuming 10%) 200K more invested at forty five years, which is still twenty plus years away from retirement. Even if the person quits the part-time job and contributes nothing more to the portfolio, getting 10% on the 415K for the next twenty years would mean having 3.04M worth in the portfolio, to go on top of the compulsory retirement fund contributions made on the job, which will pay an annuity.
The problem I find with a lot of people is that they look at what they are earning now, without considering what the value of it is in the future. This is largely because we aren't good at seeing into the future, let alone compounding value over time. However, we are pretty good at looking backward, and this is essentially what the "Boomers" are doing when they are giving some advice, which is saying what they wished they had realized when they were younger.
And, one of the other things that holds people back is the "embarrassment" of being a professional and doing an odd job of some sort on the side, like flipping burgers or stacking shelves. However, that fifteen years of "shame" working part-time, is the difference of millions - being able to buy apartments for kids, investment properties, stocks, Bitcoin.
For instance, let's say after 15 years of odd job on top of professional work, that additional 207K was put into two small investment apartments mortgage-free, the rent they would generate would likely be able to keep adding the additional 500 that the side job was giving, without the work. Putting that into the investment along with the other 500 from the work for the next twenty years until retirement (1000 p/m), would mean the portfolio is now worth 3.8M.
And remember, this is all straight line earning on the 5000 a month, which would change over those years, assuming expertise are kept relevant and employable. And, from the hypothetical above, my friend was paying a mortgage from 30 years of age, which would have been cleared by 55, ten years before retirement, giving an additional 10 years of potential contributions, or, holidays.
At retirement, there would be
Not bad from adding an odd job into the mix for 15 years.
And, fifteen years is the time we are in school up until a bachelor degree. They say that education is the most valuable investment you can make and there are far more hours put into those 15 years of school, than that of the odd job. So, which one has the higher return?
Well, as said, if you are trying to work less, you have to work more, because those school years allowed for my friend to have a good job with opportunity and skills that can grow with the changing economy. Without that, stacking shelves wouldn't be the side job, it would be the job. But, part of the education should realize how the value of time investment works and just like getting in on the ground floor of a successful startup will see massive returns, the value of the odd job is highest in the early stages, as long as it is invested wisely.
Personal time is valuable of course, but I think that these days, we maximize our free time, but overvalue the way we spend our time. This is even more true when whilst we are minimizing our work, we are also struggling financially and are forced into saving more, rather than making more.
Everyone is scared of the bear markets, but it is at these times that the value of work is at its highest, because it means that extra can be invested into low prices, making them far more valuable in the future. Yet, it is during the downtimes that people will often work less and eat further into their savings to maintain a lifestyle they can't afford to live, and invest. This essentially pushes a person into a personal bear market cycle, where eventually, there isn't enough income to keep the value of life up.
And then, the chances are that a person will end up stacking shelves to make ends meet, rather than stacking them to increase investment potential. Or, live off handouts.
Which is more embarrassing?
So, while I agree with the "work" part of the quote at the start, a little planning can help understand what the end goal of the work might be - or at least - point in a useful direction.
Taraz
[ Gen1: Hive ]
