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Chapter I - The Four Obstacles to Building Wealth
As you begin trying to accumulate wealth, you'll encounter four major obstacles. The first is the most deadly, but if you think it's the economy or taxes, you're wrong. Your biggest enemy, as I can attest from having worked with thousands of people just like you, is yourself. Without question, procrastination is the most common cause of financial failure.
You know the story of Jack and Jill. But did you know Jack was pushed? (Never mind.) As a result of his head injuries, Jack decided not to go to college. Instead, at age 18, he got a job, enabling him to contribute $2,000 to his IRA each year, After eight years, he stopped, having invested a total of $16,000.
Meanwhile, his sister Jill, inspired (guilt-ridden?) by Jack's accident, went to medical school. At age 26, she began her practice and started contributing $2,000 to her IRA. And she did so for 40 years, from age 26 to 65. She invested a total of $80,000 and sheput her money into the same investment as her brother Jack. Thus, Jill started investing the same year Jack stopped, and she saved for 40 years compared to just eight years for her brother.
By age 65, whose IRA account do you think was worth more money?
Assuming Jack and Jill each earned a 10% return, Jill accumulated $885,185, but Jack collected $1,035,160 - $149,975 more than his sister!
While Jack had invested only $16,000 to Jill's $80,000, his money earned interest for eight years longer than his sister. It wasn't the money that made him successful -- it was the time value of money. Jack didn't procrastinate: By investing sooner than Jill, his account grewlarger.
I have heard the complaint that procrastination does not belong at the top of my "Enemies of Money" list. There must be other, more serious causes for financial failure, right?
Wrong!
Obtacle #1: Procrastination
I cannot stress enough the need for you to get started right now. Procrastination says you'll do it tomorrow. It's easy to see why you put planning off until later: After all, who has time? You've got lots of deadlines and you don't need another one. You've got to get to work on time, get your kid to soccer practice and prepare for visiting out-of-towners this weekend. With today's deadlines, you don't have time to work on something whose effects will not be felt for 20 years. But that's okay because you're young and you'll still have plenty of time later! Right?
Wrong!
Maybe this is why so few of my firm's clients are under 30. It just seems that young people don't want to talk about something 40 years away: They're more concerned about this weekend's party!
In fact, I've heard all the excuses people use: If you're in your 20s, you figure you've got 40 years to deal with it, so you'll put it off until you are in your 30s...
... but by then, you've got a new house, new spouse and new kids -- and you're spending money like never before. Who can think about saving at a time like this? You'll deal with it later, after things settle down in your 40s...
... when indeed you're making more money than ever, but now you find that your children are entering college. On top of that, your income growth isn't as rapid as it used to be. No problem, you say, because by the time you hit your 50s, you think your major expenses will be behind you...
... Only to discover that your kids start to get married (with you footing the bill) and maybe they need help buying a house, too. And your parents probably need some help as well, because they're getting up in years. And you can't remember the last time you got a promotion; after all, you're now a vice president. The only wayyou'll get promoted is for somebody to retire or die. You're also finding that the cost of living has never been higher, so planning for retirement will just have to wait a bit longer...
... and when you hit 65, you lament your anemic savings and wish you had started 40 years ago.
I see this all the time.
If there is only one thing in this entire book that you need to take on faith, it's this: There is never an ideal time for planning, and while you can always find a reason to put it off, don't. Do it now. Procrastination will cause you financial ruin more effectively, more completely, than the worst advice a crooked broker could ever give you.
The Cost of Procrastination
There is, in fact, a specific cost to procrastination. If you are 20 years old and you want to raise $100,000 by age 65, you need to invest only $1,132 today (ignoring taxes for the moment and assuming a 10% annual return).
But a 50-year-old would need to invest nearly $22,500 to obtain that same $100,000. This is the cost of procrastination. As you can see, it's not money that makes people financially successful, it's time.
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