I’LL GIVE YOU $500,000

Okay, I am not going to give you $500,000 just for looking at this article but this article will show you how to build an asset of that amount. This all came from a discussion between me and one of our children over the bad habit of smoking versus the good habit of saving. Now, we will share it with you.

Smoking is a bad habit. No good can come from it except if you quit. Then many good things happen to you and your body. For this article, it also does some very good things to your household finances. Let’s examine how quitting smoking can be positively expressed on your budget and balance sheet.

On your budget you incur the cost of smoking one pack of smokes a day or two or three. If you smoke one you buy them at convenience stores and at machines at the bar and pay the big price per pack. If you smoke 2 to 3 packs a day you are buying by the carton or from the black market to keep the price per unit down. So let’s assume you are spending $10 per day on smokes. That adds up to $70 per week, $300 per month and $3650 per year (365 days in a year X 10). On your balance sheet that adds up to an asset of $0.00. Yup, for that $3650 spent you have diddly squat, zip, zero, nada and nilch for all that puffing.

So quit smoking and put that $10 a day into a jar and then put that money into a savings account every week or two. For all of you who do not smoke you have 3 choices. Start smoking so you can quit, or just skip the smoking part and pretend that you were a smoker and just save $10 a day. The third option is to substitute whatever $10 a day bad habit you have (retail coffee, beer, wasteful shopping, fast food, etc.) and put that money into a savings plan. The result for your budget is that it is still the same. You do not miss the $10 because you spent it on something that really did not add to your well being.

On your balance sheet you will be adding $3650 per year which will add $3650 to your net worth because you have no liability (you did not borrow anything to do this) attached to it. Now how does this add up to $500,000.00? You just need to challenge yourself with a compound interest calculator to figure that one out. Let me lay out 4 scenarios.

You put this into investments at 5% compounded annually for 25 years and you will have an asset of $185,000.00.

In the second you put this into investments at 5% compounded annually for 30 years and you will have an asset of $255,000.00.,/p>

I can hear the negative thinkers already saying “Nobody pays 5% these days”. Let me tell you that there are lots of places to securely invest your money at 5% compounded annually. If you just butt out that cigarette and use the 1200 minutes (20 hours) per month you spend on the end of a cancer stick doing a little research you will find them in the first month.

But that is still not $500,000.00.

In scenario 3, you use that 20 hours per month in subsequent months to figure out how to get either 8.6% compounded return on investment for 30 years and in scenario 4 you figure out how to get 11.5% R.O.I. for 25 years. In both cases you would have an asset of $500,000.00 at the end of the term. On your budget you miss nothing. On your balance sheet you end up with a $500,000 asset with no liability registered against it. That adds that $500,000 directly to you net worth.

You just won the lottery. Don’t ever say I never gave you $500,000.00. And you got all this for $10. To break even just quit for one day.

Take care of the little things and the big things will take care of themselves. Take care of not spending $10 per day on your chosen vice or vices. Do the other little thing of saving it. Do the other little thing of learning how to invest it. Add time and patience. The big thing of your retirement savings has just been accomplished.