by Alex Hutchins

“There's a sucker born every minute.”    

Inquiring minds want to know!  However, ole PT never did make that statement.  To read the real story. 

Makes you wonder who really has said anything now.  Or, better yet, who to trust about any advice that may have been given to us recently.  Well, before you disregard everything and traverse to the other side of the spectrum, let me share this with you and the website to back it up.

If you were to save $2.50/day, every day, for 40 years, you would have $36,500; and, if you were to deposit that money each month for each of those 40 years into a Mutual Fund, you would have tidy sum (because of compounded interest) of somewhere around $400,000.

It has been said that typical Mutual Funds have over a 20-40 year period of time, generated a 10-12% return on invested monies, with the understanding that no monies can be extracted out of the account during the 20-40 year time period.

It has also been said, that a general rule of thumb for Trust Fund payouts is at the rate of $400/month per $100,000.

So, if one were to accumulate $400,000, then the payout would be $1600/month or roughly the equivalent of what a middle class American (currently) would receive from Social Security at age 66.       Read more about retirement plans.

So, why is this information important?

Because, this is what Banks, Insurance Companies, and Stock Brokers do with the money that you have given them to manage on your behalf.  Insurance companies use your money to pay death benefits and Stock Brokers use your money to earn commissions while Banks pay you 1-2% interest while they earn 10-12% and sometimes more.

Let me play out a little scenario for you: 

Suppose you are the type of person who might be good at learning (maybe not) but who does not want to waste 4-5 years of your life in college and have to pay off a college loan.  Or, suppose you are the type of person who does not want to learn a trade like: electrical, carpentry, plumbing, etc., but who does not mind working for someone else.  And, let’s suppose that you do not have to purchase a new car every 5 years but are willing to settle for a year old rental vehicle that only has 20,000 miles.  Let’s also suppose that you are not a clothes hound or a food hound or a cruise hound or someone who is high maintenance.  Well, you could work for $10 an hour 5-6 days a week, own or rent, have vacations and enjoy a modest lifestyle and after 40 years of saving, you would have $1600/month on which to live for the rest of your life.

Let me crunch some numbers for you:

$23, 400 à $10/hr X 45 hrs = $450/week X 52 weeks  

$17,550 àAssumes 25% taxes

$35,100 àSame amount for your wife or family income

$2925 àMonthly income after taxes

Monthly Expenses:

$805.23 - $150,000 mortgage for 30 years at 5%
$150 - Car payment
$75   - Car insurance
$200 - Gasoline
$400 - Food
$200 - Utilities
$150 - Cable/Phone/Internet
$200 - Medical (dental & eye)  
$150 - Saving ($5/day)
$200 - Clothes
$200 - Misc.
$2731 - Total  Monthly Expenses
$2925 – Monthly Income after taxes
$194 - Net Gain

  1. one must take a 2-3% inflation rate into consideration
  2. one must take into consideration raises at work and promotions
  3. this scenario does not allow for children at the beginning

If you decided on this venture at age 18 (right out of high school), you could retire at 58 instead of 66 as most people do nowadays.  Additionally, if your wife saved an equal amount of money, your total would be $800,000 and your combined monthly income would be $3,200/month.  Seven years later, when you turned 66, Social Security would pay you another $1,500/$1,600 per month (as well as your wife).
click to enlarge - but lower
 number is better
If you research where you want to start this venture, consider East TN because it costs (on average) 21% less (no State Income Tax or 7%) to live here than in other parts of the country.  It is a good location:  a day’s drive to our Nation’s Capital, half-day’s drive to Atlanta and Myrtle Beach, and 1 hour drive to Gatlinburg and the Smokey Mountains.  With the mountains on one side of the Tennessee Valley and the plateau on the other side, bad weather seldom ventures in.  Please note that this is not a commercial and there are several place in the US that offer something similar

But, the main point here is that one can live comfortable on $2,000 to $2,500 per month.  So, give the bankers a “trucker’s salute” and be responsible for your own money.

No comments: