Episode 190- Why2k?

Just about 20 years ago. For those of you who remember, we had Y2K and the madness surrounding going from 1999 to the year 2000 and all the hysteria that so many people talked about that all the systems were going to go down because the computers were not equipped to handle the switch over. From 1999 to 2000 it was essentially an emergency that consumed the entire world. It was relatively a minor glitch, but the way computers process data ending with digit zero had a lot of experts predicting that it was going to bring down financial markets, power grids and all types of government national and international infrastructure. And as that was going down, Elizabeth and I had just started dating a little bit less than a year earlier than that. We’re in Times Square at the epicenter as the ball drop ring in 1999 to 2000 and on top of the whole Y2K thing where a ton of rumors about a potential large terrorist attack that would happen as the ball dropped.

But I had been to Times Square probably eight or nine times for the ball drop and Elizabeth hadn’t been so I thought it’d be a really cool year to go and just see what happens. And as the ball dropped in 1999 went into 2000 nothing happened. There was no Y2K system breakdown, there were no terrorist attacks and by 12:30 that night Times Square, it cleared out and we all moved on to a new decade. But this Y2K podcast is a little bit different. A few years ago, I was talking to my nephew who began working and was saving some money and it turned out that he had saved about $2,000. I have a ton of curiosity about how people spend and invest their money and how they plan for now or they plan for later or how much thought they even give to any of that.

And during a conversation he had told me how he’d saved about $2,000 I’m a curious person. I said, so what are you going to do with that $2,000 and he shrugged his shoulders with a laugh. He said, I dunno, I’m just going to spend it. And it wasn’t an uncommon answer and it wasn’t necessarily a wrong answer, but the way he answered it and the nonchalantness about that answer really got me thinking. So I started doing a little bit of research. I thought about how we make money decisions and how we’re taught to think about money. And through thinking of that and the possibilities that he held in his hand and his bank account is when I realized that anybody could become wealthy. And let me explain that. $2,000 invested at the age of 16 compounded monthly at a rate of 8% would have a future balance of $107,804 that’s over $100,000 50 years later from a $2,000 investment.

But doing that is generally not part of the conversation. So let’s change things around a little bit. Let’s talk about anybody at the age of 16 that is $2,000 and they invest that money instead of spending it, and then they get into the habit of investing $2,000 a month continuously, year after year. And let’s say it’s all that they ever contribute. They can only do $2,000 a year from 16 to 65 there’ll be a little bit less than a hundred thousand dollars contributed 98,000 to be specific over that 50 year period. And the return on that money would be a tad below one point $5 million at the age of 65 that if you’ve never thought about compound interest is pretty eyeopening. And that’s why I was so interested in his answer and I didn’t really feel it was my place to say anything in terms of advice because his parents are there and I’m sure they talk about this stuff, but these are the kinds of conversations we’d also be having with our kids when it comes to money and investing.

And oftentimes it’s a really uncomfortable conversation because as parents we did not do nearly as well with our money as we could have. And often when I talk to people it’s a source of embarrassment and because they didn’t do as well, they don’t feel equipped or confident to talk to their kids about it. But if you’re in that spot, understand what’s past is past. And we all might’ve made those mistakes cause I did. I can’t tell you how much money came in through my hands and then left and there’s nothing to show for it. And I really wish when I had that money at that age, I would have known to invest in things like a Roth IRA because the Roth is amazing and you put it in with post tax dollars but it grows tax free. So I know we have some teenagers that listen to the show and I know that a lot of parents listened to it with their kids.

So this is something to start thinking about. You can contribute up to $6,000 into a Roth IRA for 2020 and again it will grow tax free. Meaning when you take the money out after 59 1/2, and to the teenagers, I know it sounds like a million years away, but it really isn’t. If you are 18 years old and you’re making money, if you found a way to invest $6,000 a year into your Roth IRA, you will have contributed over your entire adult life somewhere around $260,000 but at the end of the rainbow, you’ll be sitting with over $2 million of tax free money at 65 and if you wait to take that money out even longer, it grows even more. I’m talking about this because I think financial education, financial literacy for our youth is so vital for the future success of this country. If more people are financially independent, as time goes on, our society as a whole, the better off for it. There’ll be less need for government programs, there’ll be more money for generosity and donations, less stress, stronger families and family trees, and just a brighter future for everybody. So that’s at six grand, but even at two grand, if that’s what you can do, think about your longterm future, even somewhat. The sooner you start planning and preparing, the easier it will be to become wealthy and make your life and those around you better and stronger. So Y two K for all those reasons we just talked about. I’ll talk to you tomorrow.

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