I’m going to tell a story about changing someone’s perceptions though before I get into the true power of compounding and its importance in my next post. This story begins with a ride to Illinois State University and a recent college hire my company was using and myself to attend a recruitment event. We had about a two hour ride with the traffic and somehow we got onto the conversation of retirement accounts, which I’m fairly passionate about and having a conversation with someone just getting into the real world I find to be extremely fun to converse with on the topic. You see this person had been fortunate enough to get a job with a fortune 100 company straight out of school in a high performing college hire program. The company pays a pension at 4.5% of your salary, yes the unicorns still exist, AND a 401k with a 6% match. Something that’s unheard when I talk with friends and their retirement plan as we have essentially a 10.5% match, which will turn into 13% by 2018!
This person was talking about how her generation would struggle to even get to retirement because the saving crisis, stock market challenges, and other things outside of her control. She was so focused on only the potential can’t do, that she wasn’t focused on the can do. After a bit of a lengthy conversation about finance and what they should teach you in school, versus what you actually learn, I had her pull up a retirement calculator on her computer. I had her run the basic formula if she stayed with the company for forty years and invested at her current salary and suddenly she found that she would be close to a millionaire.
I had her put her current income, 40 years of work remaining, $0 as I did not want to know what she currently had and you literally saw jaw drop and hit the floor. Cue light bulb turning on. This was someone who basically was putting in the bare minimum who just realized that she would be worlds ahead of her peers and most of the nation if she just did what she was doing. Mind blown when I told her that this was without her pension as well. I also asked if she planned on being in that same position for the next 40 years, which of course got me the stink eye and a resounding NO! Like why would I even ask that question of her. It was then that I had her rerun with what her next s.hort term goal position would pay on average.
Drop mic and watch recent college grad realize saving a million dollars would not be a much of a challenge for her. The final run was the one that completely blew her out of the water:
At this point you saw the realization of long term retirement planning in a 25 year old and what the possibilities were if she just put 6% more in from her newly added paycheck which she hadn’t seen yet, but that she wouldn’t miss because she never had the chance to get used to it to begin with. Being a millionaire was unobtainable for this person because people basically said it wasn’t possible, but through the visual exercise she went from not believing to understanding it and realizing that if she didn’t change anything she was pretty much guaranteed, but with a few tweaks she would not only be a millionaire, but likely a multi millionaire.
Here’s one thing I would challenge every one who I’m lucky enough to get the opportunity to have stop by my blog. Go through this exercise with a recent or soon to be graduate, whether they be college or high school. Showing someone what they can do, versus what society says is the norm is the ability to change someone’s life in a way that is truly meaningful. I’d love to hear of any success you have reaching those who may not have had a chance to start developing bad spending habits and changing not only their savings, but their life course.