Take a minute to ponder this question :  Which one of the two options would you select if I were to offer you (a) $1000 a day for 30 days, or (b) a penny on day one, two on day two, four on day three, eight on day four, and so on, doubling the amount for 30 days?

Some of you might have started to add up the numbers for a few days, thought that the numbers weren’t adding up fast enough, and decided to take choice (a).  Others might have already known the power of doubling, and automatically selected choice (b).  Or, with the idea that there might be some sort of trick in place, some may have decided that (b) was the better choice.  However, how many of you actually sat down and worked it out to the end to see exactly where it would go?

Well, the answer, if you haven’t seen this question already is that (a) gives you $30,000, while choice (b) gives you $5,737,418 by day 30.  This simple test exemplifies the problem many of us have with our money.  Too many times we go for the “quick fix” instead of really trying to understand the powerful influence that money has over our lives.  Just as it is not responsible to automatically choose (a) or (b) for whatever reason, it is not appropriate to let your gut reflexes rule your behavior.

We often don’t realize, or even think about how our financial decisions are affecting our lives.  Do you drink Starbucks coffee everyday before work?  If it costs you $2.75 per weekday, you are spending roughly $700 dollars per year on coffee.  Seven hundred dollars invested at 6% per year equates to $3,945 dollars in five years, $9,226 in 10 years, and $38,405 in 25 years, and $55,340 in thirty years.  What kind of TV cable package do you have at home?  Do you have the basic package, or do you have all the extra channels?  This difference can equate to around $25 dollars extra spent per month.  This amount invested at 6% equates to $1,744 after 5 years, $4,096 after 10 years, $17,324 after 25 years, and $25,112 after 30 years.  How many regular cash outflows in your life can be cut and re-directed towards savings?

Don’t get me wrong, this is not to say that you do not deserve to have some of the finer things in life.  You work hard for your money, and you deserve to treat yourself occasionally.  There is no reason to live an unhappy life because you are totally depriving yourself. However, if you think about some of the things that used to make you happy when you were making less income, you will realize that happiness seems to change according to your income.  Items once thought to be luxuries are now purchased so frequently that they have become necessities.  Making more money should not mean that you spend more money.  With each dollar spent, ask yourself in what way is this going to benefit you; think about the investment.  Before you buy that $2,000 jacket on impulse, ponder your purchase decision overnight.  Most likely, you will find that you are not inclined to make that purchase the next day.  “There is an appointed time for everything.  And there is a time for every event under heaven.” (Ecclesiastes 3:1)  The right investment at the wrong time is the wrong investment.  This applies when buying coffee; and also applies when purchasing real estate, stocks and bonds.

I urge each of you to make a budget of your expenses.  Watch the budget and maintain it year after year.  As your income grows, you will be able to see where your extra money is going.  Put that extra money towards savings.  The sooner you begin to save, the faster your money will work for you.  A proficient financial planner can also assist you with this process.  If you save just $2.74 per day – $1,000 per year- and earn 10 percent on the savings, you will have $486,000 in 40 years.  Start just one year less, and save for 39 years, you will miss out on $45,260 worth of savings.  If you haven’t started already, plan to start saving today!

God bless, and make that money work people.

Author:  Ryan C. Mack, President of Optimum Capital Management, LLC
If you have any questions call 718-623-3423 and email info@optimum-capital.com.