Would You Quit Driving For $522,258?
“But, I NEED a car!”
Liar, you don’t NEED your car… you just like it.
It makes life easier, there’s no arguing that. And so you like it. Ain’t nothing wrong with that.
But just how much do you value the benefits of a car?
Imagine I offered you $522,258 right now, but with a catch – From now on, you can only ride a bicycle…
Would you be game?
This Is A REAL Offer
But it’s an offer from your current self, to your future self.
If you’re struggling to get your head around that, you’re not the only one.Let me explain…
If you ditched your car today and used a bicycle instead, 20 years from now you could have $522,258 in your bank account.
I know what you’re thinking: “There’s no way my car costs me THAT much!”
Sorry to tell you, but yes it does.
Your car is killing your bank account
That’s the average annual cost of owning a large sedan, according to this AAA report.
This includes gas, maintenance, tires, depreciation, tax, insurance, etc…
So right off the bat if you swap from a car to a bicycle, you’re saving $11,906 per year.
But that’s just the beginning.
Don’t spend, invest
That $11,906 ain’t just $11,906…
It’s $11,906 PLUS all of the interest you could earn from it, if you invest instead of spending.
And no, you don’t need to be a financial genius to invest effectively.
Some very clever people have already figured it out for you… It’s called an index fund.
An index fund is a big pool of money that’s evenly spread out in tens, hundreds, or thousands of stocks or bonds.
For example, you can invest in an index fund from Vanguard that follows the overall performance of all US stocks.
On average, in the long run (10, 20, 30 years) that fund would earn you 7% per year on your money (that’s the historical average of the US stock market).
Ok, now here’s the cool bit…
This is where the magic happens
Compound interest… heard of it?
Compounding interest is when you earn interest, on the interest you’ve already earned.
Quick example: In the first year after ditching your car, you invest your $11,906 and make 7% – that’s $11,906 x 7% = $833.42
You don’t take that money out, you leave it in your investment pool.
So in year 2, you have $11,906 + $833.42 = $12,739.42 – so your interest in year 2 (even by forgetting that you’ll be investing another car-ditching saving of $11,906) will be..
$12,739.42 * 7% = $891.76
Ok, let’s take a step back…
Did you catch it?
Can you see the magic in this?
Rather than getting a flat amount of interest each year (like 7% of your original investment) – you earn more and more interest every single year.
It can be difficult to get your head around compounding interest…
So even if you don’t fully get it, don’t worry… But let me tell you who did “get it”.
Albert Einstein… yes, that guy, the most famous scientific mind of all time.
Einstein said: “Compound interest is the most powerful force in the universe.”
Let me tell you a little secret…
I don’t specifically “get” gravity.. All I know is that if I fall off my chair it’s going to send me crashing into the ground.
If you don’t understand compound interest, all you need to know is that it makes investing extremely attractive and powerful.
Treat it right, and compound interest will make you rich.
Ok, hold up…
Let’s get back to the car
Right, the car. The one you gave up a few paragraphs ago.
The one that’s costing you $11,906 per year.
Go check out this compound interest calculator.
Set it up the same as this image, and click “calculate”:
$522,258.79 in 20 years.
So, there you have it, if you’re willing to bike instead of car.. You can have over half a millie in a mere 20 years.
You’ll also be healthier, happier, and depending on your living situation you might even save a lot of time.
And by the way.. In year 21 you’d make $36,558 in interest.
In year 22 you’d make $39,117 in interest.
So, it takes a while, but…
Compound Interest Is The SH*T
And this isn’t just a car thing…
Let’s take a much more simple example: Quit Starbucks and save $5 per day, and invest it.
That compound interest calculator I linked above will tell you that this $5 per day would turn into $80,053.95 in 20 years.
Pretty neat, right?
Let’s try another…
Cancel your cable subscription and save $180 per month.
$94,748.78 in 20 years.
Einstein is looking even smarter than you realized before about now, ain’t he?
So that’s it…
Find ways to save money, invest it, let the interest compound, and get rich.
Simple stuff, really.