Tuesday, December 27, 2005

Save $5.00 a Day

27 December 2005

For many years now, I have been challenging young people to begin saving $5.00 per day at age 16. I point out to them that with 10% annual interest over 50 years, they would then be in a position to retire at age 65 with approximately 2-1/2 million dollars saved.

For the many young people who spend a significant portion of their income on tobacco, alcohol, street drugs, lottery tickets, video games or junk food, I point out that the necessary $5.00 per day can easily be diverted from these distractions towards a much more desirable long-term end. This is also a useful challenge for those who desire to become “millionaires” quickly – they can in fact quite realistically achieve their goal if they are willing to do it more slowly.

I also challenge young people that their ability to save has little to do even with their employment status, as a person temporarily on “welfare” can easily spend $5.00 per day on cigarettes or other unhealthy or unwise lifestyle choices. That is, even a person receiving social assistance can become a millionaire by saving $5.00 per day (though there is the small problem of means testing in many jurisdictions, which would apply as the person’s savings accumulate - therefore I recommend employment, and not welfare, as the best long-term survival strategy).

The point I have made over and over again is that most all of us have routine items on which we spend money regularly that are replaceable with savings. While my most-used example is cigarette smoking, for some it is snack food or junk food. For others, it might be gasoline powered transportation, or an expenditure on an area of interest that promotes passivity - say television subscriptions.

If we were to save a consistent portion of our discretionary income rather than spend it, and compound it with dividend payments as are available on many widely available investments, the payoff of the investment can rapidly become self-reinforcing.

For example, my wife has been investing in Canadian oil and gas income trusts for several years. Due to good fortune in timing in this case, her investment has so far more than doubled over the past 3-4 years (despite the Harper government's recent and regressive taxation moves), and she is already well on her way to becoming a millionaire. That is exceptional, but it illustrates the kind of possibilities that are available. (Disclaimer: Neither she nor I are "there" yet, but we are both advancing steadily towards that goal with a clear savings plan.)

For a very conservative investor today, I suggest considering regular purchases of gold, as are available through a Kitco pooled bullion account. This alternative and most secure form of money has the potential of appreciating considerably over the next decade or more.

I strongly advise that long term investors choose secure and conservative investment vehicles which are right for the times. Therefore, some investment acumen is indicated, as no single investment is a good choice at all times. All investors must do their own "due diligence," meaning that they should always invest as they see fit, and never simply as they are advised by another.

Therefore, related to my basic admonition to save, I strongly urge that conservative investing skills be taught in our schools, and also be passed on from parents to their children.

At a minimum, investors should be aware of broad (secular) cycles in various asset classes, and attune themselves to the asset classes that are presently undervalued, and therefore have reasonable prospects of attaining fuller valuation based on fundamental considerations over the passage of time.

So, whoever you are, and whatever your life circumstances, I challenge you to set aside some portion of your income for long-term investment. $5.00 a day is enough to make millionaires of many. $10.00 or $15.00 a day of course make possible considerably greater long-term accumulation.

Is it then true that virtually anyone who desires to become a millionaire can do so? I would maintain that the answer is in fact a resounding “yes.”

Of course, there are clear exceptions to the above rule, as many individuals have little or no access to disposable income of any kind. But for the great majority of North Americans, the assertion that anyone who chooses to can become a millionaire is absolutely and unequivocally true.

That is, the accumulation of wealth is far more a matter of planfulness and strategy than it is of good fortune or higher income. What to do? If all other plans fail, save $5.00 a day! Let the rest follow from that….

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