Friday, January 21, 2011

get that money out of the mattress young man/woman!

So, you've just graduated (or flunked out) of whatever school, university, trade-school, or Starbucks Coffee College and you're now the proud owner of some (or a lot) of student loans, or a lousy rust-bucket car or a bus pass and working for some lousy shop with an overbearing boss and demanding customers.  Your ideals are in tact and you're dreaming of your break or next step up on the corporate ladder.

Why should I invest now I hear you asking?  I can barely afford my $7/day latte habit.  I only have $10 left over to invest... you can't buy anything with that?  Why bother?

Simple answer: Compounding.

And no, I'm not talking about compound interest because at today's rates your savings depreciate relative to inflation.  There are many financial products out there that are happy to pay you.  Why?  Everything and everybody is in business.  It's human nature really.  You need to eat.  This creates a demand for food.  Somebody has to grow that food, somebody has to transport that food and somebody has to sell that food to you.  You of course also need clothing, housing, transportation etc..  What does this mean to me you ask?  Well it's infrastructure with thousands of busy people working at thousands of jobs all working making money, spending money all contributing to the demand.  Demand goes up and down over time, but with more people there will be more demand until our poor little planet can no longer support us.

Again, I can hear you shaking your head, "I don't have any money though!  How does this un-solicited factual tid-bit help me?"  Easy: There are many products and services that you buy or use every month.  You can own a small piece of those companies and those companies will distribute their profits to share holders in some form or another.  You have to start small of course, but the sooner the ball starts rolling the sooner your profits will start paying for line-items on your monthly budget.

I know you're still objecting and saying this is all pie-in-the-sky or a pipe-dream or some other clever vernacular which no doubt questions my parentage, my state of mind, my lack of sobriety etc..  But you have a cell phone right?  Chances are it's with one of the big 3 telco's in Canada.  (Rogers, Telus or Bell)  If it's not, then it's probably one of the "discount" brands that are owned by the big three.  While the stock prices of each is rather pricey, it doesn't take very many units of these stocks to generate enough income to pay your entire monthly bill!  Yes, that means your cell phone becomes essentially FREE!

Other examples include property management companies.  You no doubt pay rent unless you're living in Mom's basement, or have found a lovely waterproofed cardboard box and have a good location tucked away under a billboard near the bus station.  Property management companies own and operate commercial and residential real-estate holdings and generally pay investors every month.  (You pay rent every month, so they pay their investors every month)  Many many apartments all over town are owned by such corporate entities so why not own a piece of them?  The unit prices are generally low and the monthly payments are often in the 6-10% range.  (6-10% per annum)

I'm not saying there are no sacrifices you have to make though.  Take for example your $7 latte addiction.  that's 2 lattes a day for say 200 days a year.  That's $1400 yearly.  Now fast forward 10 years and it adds up to $14,000!  (Or more if you eat cake/cookies/snacks while you have your cuppa.)  Based on this logic I "invested" in a very nice italian espresso machine.  (I actually did a work-exchange deal for it to get the price down).  And I have my coffee fix at home.  Even though I spent a pretty penny on the machine (and grinder... and yes, It's a nice machine, so the plumbing to get it hooked up to my water too) in the long run it will save me thousands of dollars.  So instead of chugging $7 of coffee a day, I decided to start investing it.  How much income is it generating for me now?  Nearly $100 a month.

If you start investing at age 18 and STOP contributing at age 45 (27 years) you will have MORE to retire on than somebody who starts at age 35 and contributes all the way to age 70.  (35 years)  So you put away less and come away with more.

DO IT NOW!  Even if you can only come up with $25 a week!

Next time: types of investment products and why most of the ones sold to novice investors are rubbish!

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