Money is on the brain this week. It is official — the early bird does get the worm. I recently came across a Dave Ramsey money article that especially peaked my interest. It basically is the simple truth about money that almost all of us probably know. Yet, the visual he shared just hits you smack in the face.
I do not want to steal the visual from his website, so I will explain and link back to his site for the full picture. Meet Ben and Arthur. Ben starts investing at age 19 and puts $2000 in an account each year for 8 years straight and then does absolutely nothing with the account until he retires at the age of 65. A total investment from the ages of 19-26 of $16,000. A lot of money to put away in those early years of his life. Arthur begins investing $2000 when he is 27 years old and continues to put $2000 away from 27 to when he retires at age 65. Arthur invests a total of $78,000 over 39 years. A difference in $62,000 in the amount that was actually put away between Ben and Arthur.
The result: at age 65 Ben has $2,288,996 and Arthur has $1,532,166. Ben came out $700,000 ahead by starting 8 years earlier and only put away $16,000. Compounding interest is an amazing thing. How do we spread the word? I do not know many 19 year olds that a) care about investing, b) truly understand compounding interest, c) have $2000 a year they can or want to spare.
Why not have a prerequisite that you have to complete a personal finance class to make it out of freshman year of college (no matter what your major). Or maybe it is a class that every high school graduate must take (since many might never go to college). The class could teach many types of life skills, and maybe those that truly understand it might actually decide not to purchase that video game they are dying to have and rather put a bit more into their retirement.
To think that all it took was $16,000 for 8 years, rather than $78,000 for 39 years. If I only knew when I was 19 what I know now, I might have made very different choices, especially thinking of that $700,000 difference at age 65. How do we make compounding interest sexy?
How many of you would benefit from a safe in your home that allows you to put an item inside and not be allowed to have it back until the timer on top lets you back into the safe? How many of you would benefit from being blocked from the sweets, candy, or beverages in your home? Maybe it is not about being blocked from sweets, maybe it is Candy Crush on your cell phone, or your Wii remote? I recently found this cookie jar/kitchen storage bin called: The Kitchen Safe. The lid has a digital timer on top that allows you to lock up any item and only be allowed in after a certain number of seconds, minutes, hours, or days. (It will lock up to 10 days).
The idea originated as a way to control junk food cravings, and has led to controlling many other household/lifestyle cravings. The Overview page on their website shows a variety of items locked away, toys, video games, credit cards, cigarettes, and cell phones to name a few. It sounds like The Kitchen Safe is just the product to allow for timeouts on our favorite addictions. For kids and adults. At the moment only the clear bin is available for purchase on their website. The white version is out of stock until Summer 2014. A clever idea to offer both options. I imagine the white is out of stock, because if you do not have to look at what is locked away, while you wait to be able to open the safe it may be much easier on you (or your kids and family). The clear safe encourages a bit of self-control, because what is stopping you from smashing it? The $49.95 price tag. A high price to pay for a little bit of discipline.
Controlling temptation is hard to master. Hopefully The Kitchen Safe will help along the way, that is if you have not taken a hammer to it first. Here is the video from their website to show you how it works: