Maybe it's a Generation Y thing, or maybe it's me.
But it seems too many young Australians have a real problem with saving money. We just can't do it.
I know from experience, it's not cool to save your money by taking your own lunch to work or buying a plain t-shirt for $10, instead of spending $70 on the branded variety.
But buying a brand new car on finance, or taking a minority interest in a highly leveraged first home, makes perfect sense.
However saving doesn't have to be 'too hard' and boring. In fact, just by saving and investing $10 per day now, you could retire early with over $1.12 million! I'd say that's cooler than a $70 t-shirt.
And $10 isn't much money nowadays, anyway.
It could be saved on two large coffees or maybe the difference between a packed lunch or take-away lunch. I'm sure many young people could find a way to do it.
How does $10 turn in $1.12 million?
Let's say you take your $10 per day, and invest in the stock market (reinvesting the profits). The Australian stock market has, since January 1900, produced an average annual return of 12%.
After 32 years, the total value of your money would be $1,112,694, if you achieved a 12% return, compounded annually.
If you're a 25-year-old woman reading this, it could mean retirement well before 60 years of age.
But let's say you have to wait five years to start saving and investing. Your money would be worth $618,215. Still a healthy chunk of money, but unlikely to be enough to enable you to retire as early as your clever friend.
Stocks to get you there
The cornerstone of this simple theory is saving.
But the investing component is arguably more important.
Buying the same old stocks like Qantas Airways Limited (ASX: QAN), National Australia Bank Ltd. (ASX: NAB) and BHP Billiton Limited (ASX: BHP) isn't likely going to prove a winning strategy.
Indeed many investors have come and gone trying to achieve a 12% average return per year.
However, one investor who has achieved a return FAR better than 12% is Warren Buffett. Young investors everywhere should take a leaf out of his book.
