Compound Interest: The Reason Your Blue Collar Friend has More Money than You
“I use to make a lot of money back then.” I can not tell you how many times I’ve heard a sad statement similar to this from a 40 or 50-something who has had little success, income or net worth to show for his years in the labor force. (Note: saying “his” in this case isn’t remotely sexist. It’s always been men I’ve heard talk like this.) One time when listening to an especially pitiful man who was in his mid-40′s complain about how he didn’t achieve the success he thought he would I said, in a very non-sarcastic tone, “you should’ve become a welder.” He then looked puzzled for a moment and said that his friend in high school went to welding school right after graduating and he ridiculed him for the decision. The downtrodden man I was speaking to went on to say, he now makes over $100,000 a year working on high end technical welding projects, lives in a great home, has over half a million dollars in liquid and has never been unemployed in the last twenty years.
What is the moral of this anecdote? Compound interest, a lack of unemployment, not changing careers and always getting your income from the same place are under-rated benefits that many in the white-collar or self-employed world don’t notice the value of. The transactional cost of switching careers, constantly sending your resume to everyone under the sun you might possibly want to work for and always looking for just a little bit more money isn’t the mentality that makes someone financially stable.
No, not everyone in the blue-collar world fits into this mold, but those who do are a valuable lesson to the stereotypical professional types who are just looking for the next best job and opportunities in life.
It can be proven mathematically that you are better off making an average of $50,000 a year for twenty years and it’s more profitable than making $100,000 for two years, then trying to run your own business and losing money for the next year, then getting a job just to pay the bills for two years, then getting back into something fairly lucrative, and so on until you retire.
When I started my website and began promoting it, and believe me I had very little accurate vision for how I would make it succeed, I found it refreshing that for ounce in my life I wasn’t trying to just make money until I moved on to what I really want to do. This means instead of fighting for two years to make something work and then maybe moving on to something else, I could finally focus on building my web presence for the long haul.
To put this argument in a more mathematically friendly way, try using a compound interest calculator or IRA calculator online and see what the difference between saving just a little bit each year is. Think about how much better and well known someone becomes at what they do when do it consistently for twenty years instead of changing professions ten or more times.