When you’re young, everything costs 10 times as much

July 23, 2015

by — Posted in Uncategorized

This is an interesting little epiphany I had the other day:

At 8% annual interest, after 30 years, an initial investment is 10X what it originally was, not taking into account tax + inflation.

(In reality it’ll clearly be lower when factoring into account tax + inflation (unless you’re lucky), but definitely still a formidable multiple of its original value. I’ll just keep saying 10X for the nice, round figure and simplicity. If you’d like to be ultra conservative, feel free to think of it as 5X.)

That being said, as a young person (defined as say, anyone 30+ years away from retirement), costs are infinitely higher than they will be later in life.

This holds true given the principle assumption that every dollar you don’t spend today, you’ll save and invest. If that’s the case, then every dollar you don’t spend today will be worth 10 dollars in 30 years.

Consequently, every dollar we *do* spend today reduces our future net worth by $10. This was a pretty revelational thought for me, as it put heretofore inconsequential amounts of money into true perspective: eating out with friends, $20? No – it’s actually $200. Going to see the movies for $15? $150. Buying that new iPhone for $650? $6500. Buying that new car for $20,000? $200,000.

The cost of a 4 year college education? On average, apparently $45,000/year for a private non-profit school, or $180,000 total…or $1,800,000 in 30 years. Hell, let’s just be conservative as fuck and knock down $800,000 from that number, and say you’ll have $1,000,000 in 30 years. So if you just saved all that money instead of going to college, you’d have at least a million dollars when you retired.

How does that compare to how much people actually have when they retire? Apparently, more than 55% of households between the ages of 55-64 don’t have any retirement account assets. And even just counting the people who do have something, the median at that age range is just $104,000.

That’s pretty balls absurd. If you just saved $20,000 between the ages of 20 and 30, you’d be basically guaranteed to have at least that much money by the time you were 60.

I’ve never heard of anyone else come to this same epiphany in quite the same way, and certainly no one’s standing by yelling at every 20 year old making sure they’re aware of this, so I figured I’d post it here as food for thought.

For myself, personally, as I do invest just about every dollar I don’t spend (minus a relatively stable floating cash cushion), this has very real daily life applicability. Frankly, I’m a little bit horrified at the true cost of everything. Thankfully, my expenditure is pretty minimal – I’ve spent a total of $268.10 and 553.81 Mexican pesos so far this month, everything included (food, gas, shelter, Denmark Airbnbs, Fancyhands personal assistants…) – but that’s still like $3000 in future money I could have had. So sad.

Conversely, any money you earn while young is also potentially 10X the value. This is arguably even more interesting, and can definitely impact some career choices. Maybe being an investment banker for 5 years while you’re young and then spending the next 60+ years of your life doing whatever the hell you want isn’t all that bad of an idea after all, provided you actually stick to it and don’t kill yourself in those 5 years.

And maybe taking that low-paying job with the promise of future incremental wage increases isn’t really that great after all. $10,000 more now is worth more than $50,000 30 years from now – assuming you don’t blow that cash and save it until that distant future.


Just some food for thought. Going to file this one under ‘life hacks’.

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