How to Turn Your Dumb Summer Job Into $162,000
Good morning Hank; it's Monday, July 4, 2011.
It's Independence Day here in the United States,and today I'm going to talk about financial independence, specifically how young peoplecan turn their crappy summer jobs into hundreds of thousands of dollars.
or the equivalentin euro, pounds, rial, yen, whatever.
By the way, Hank, I'm dressed up and givingfinancial advice because I was in The Wall Street Journal last week, which means thatI am now technically an expert in money.
Okay, Hank, so when I was in high school,I worked at a warehouse stacking stereo equipment of various shapes and sizes into semi trucks.
And the game was that you had to fill the semi trucks as much as possible in order tominimize the number of semi trucks that it took to move the stereo equipment around.
It was basically like manual labor Tetris.
Really, it was more like manual labor Tetrisin an un-air-conditioned, 110 degree warehouse with a lot of people yelling at you abouthow much you suck at Tetris.
Also, I made $7.
50 an hour, which is by no stretch of theimagination a living wage, unless you have someone paying for your food, clothing, andhousing.
Okay, so let's say you make $7.
50 an hourat your crappy summer job.
That's $247 dollars a week in take-home pay.
You probably workabout 10 weeks over the summer; you would work 12, but your parents are making you goon a crappy summer vacation to like, Mount Rushmore or something, and they're gonna fightthe entire time about your dad's driving, and there won't be 3G internet half the time,and you won't be able to talk to your friends, and it's gonna suuuuck! On the other hand, they did pay for your diapersall those years ago.
So, $247 a week over 10 weeks.
I'm not a mathematician,Hank, but I think that's $2,470 over the course of the summer.
'Course, you're going to haveto spend some of that money – you gotta put aside some money for Hank's new album, EllenHardcastle, you're gonna have to see Deathly Hallows, you're probably gonna go out to dinnerwith your friends a few times.
Let's say, you know, 500 bucks.
Okay, so that leaves you with $1,970.
Thisis the part where I want you to go to the bank and set up an IRA, which is not an IrishRepublican Army, but an Individual Retirement Account.
If you don't live in the US, theycall it something different, but there are equivalents from Brazil to Europe, prettymuch everywhere.
Hank, I'm a very fancy and highly-trainedeconomist, so I'm not sure this explanation is going to make sense to you, but an IRAis essentially a machine that produces money using nothing but time.
How does it do it?Through the magic of compound interest.
So let's say you have a $10 investment that you'resomehow making 10% on.
At the end of the year, you've made a dollar in interest, and youhave $11.
At the end of the next year, you get 10% of that $11, which is $1.
10, and yourinterest just goes up and up and up and up.
So let's say between the ages of 16 and 19you're able to put away $1,970 a year into an IRA account, and then you do nothing for50 years.
We know that the world economy grows, when adjusted for inflation, about 6.
5% ayear over the last 100 years.
That means that at the end of 50 years, when you retire atthe age of 69, your $5,910 will have turned into more than $162,000, and yes I am adjustingfor inflation.
$162,000 from stupid, getting yelled at, manuallabor Tetris! But realistically, you probably can't putaway $2,000 a summer.
I mean, you may have to save for college or you may have to helpout your family.
You may have to pre-order 26 copies of The Fault in Our Stars.
So let'ssay between the ages of 16 and 21 you put away $400 a summer, for a total of $2,000.
You still have more than $50,000 when you retire.
That means when it's all said anddone you didn't make $7.
50 an hour flipping burgers, you made $125 an hour.
But now let's say I, toddering old man thatI am at 33 years old, put away $2,000 today.
I'm still 37 years away from retirement, butwhat happens if I put away $2,000? It's only worth $20,000.
That's compound interest atwork.
That's why it's more important to save early, to maximize the number of years thatthe interest can compound, than it is to save lots.
At a lot of banks, you can open up these accountsfor, like, $100.
And the bankers are always happy to help you because they get paid foreach account they open.
So there really is a way to turn a crappy summer job into a lotof money, although it's going to take a while.
In short, Hank: you don't have to be a richperson to do the things that rich people do to maximize their income and avoid taxes.
Alright Hank, before I answer the pressingquestion of whether my suit is all business, there is one outstanding issue: YouTube NextUpEurope.
There are a lot of nerdfighters who made itto the voting round of YouTube NextUp Europe, including Rosianna, who is responsible forthe title of The Fault in Our Stars.
I've put links to entries from known nerdfightersin the doobly-doo.
It's really easy – you just click thumbs-up.
But the most importantthing is that you watch all the videos and vote for your favorites because you have achance to shape the future of YouTube, and that's something you should take seriously.
I hope that you do.
I watched every single video and I hope you will, too.
I made a poem.
I'll see you on Wednesday.