How I made $415 yesterday

I didn’t do anything. The stock market just went up a bit.

You see, for a long time I’ve been putting small amounts of money into something called a low-cost index fund (lately I’ve been putting a lot more in). I’ve written pieces about it here, here, here, and I’ve done an interview with an athlete about it here.

Over time, the money accumulates, and then it builds on itself. This is called compounding interestwhich is expressed as a percentage. If you have $1,000 in a stock and that stock earns 10% interest in one year, you now have $1,100. You didn’t have to do anything. The next year you’ll get $110, and on and on.

That’s not much money, but imagine if you get $100,000 in that account. That’s $10,000 every year that you didn’t have to work for! Every time you put money into the account it gives it back to you faster and faster. And here’s the thing: the higher your savings rate, the more money you get.

If you get a $200 paycheck and you don’t put any of it into a long-term investment account, you have a 0% savings rate. If you put $100 in you have a 50% savings rate. You get the picture. The national savings rate is an abysmal 5%. Some years it’s only 2%. Many financial advisers recommend a savings rate of 12-15%, but I know people who have savings rates between 50-85%.

Why would you want to save all this money when you could be buying really lit stuff right now?  Well, it turns out that the higher your savings rate is the fewer years you need to spend working. The people who put most of their money into long-term investment accounts can retire in their thirties or forties. They can choose to work, or they can choose not to (more here).

In comparison to freedom, your lit stuff seems more like stupid shit.

Stop being lazy, do your homework, and go open an investment account right now. Your 65-year-old self will despise you if you don’t.

[I recommend looking into Vanguard.]

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