the subject of controlling your money and leave it to you to read more about it

The subject of controlling your money and leave it to

This preview shows page 215 - 219 out of 263 pages.

the subject of controlling your money and leave it to you to read more about it. Remember where I came from as I tell you this stuff—thirteen years in a sleeping bag before I started investing. The first thing I can tell you is we Americans spend way too much money on crap. Spend your money on functionality. Buy what works. The flashy car you drive, the designer labels on your butt and back, and the name on your shoes are irrelevant. You aren’t in high school anymore, so no one cares. And if someone does care, he or she doesn’t deserve your attention (and probably won’t ever be rich). Wear clean clothes and polished shoes, drive a car that runs, and get a grip on yourself. You don’t have the money to squander on frivolous symbols. Stand for honor and dignity, not Coach and True Religion. Entire books have already been written on how to create realistic spending plans and manage debt properly. Go get them if necessary and start cracking. I’ve
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listed several of the best on my website, PaybackTimeBook.com . In all likelihood, you have no idea how much money you spend, and at, say, $50,000 a year, you’re pretty much just making a living. You can do better. There are easy ways to save money. A Health Savings Account (described below) could knock down medical insurance to $200 a month, saving $200. Not eating in restaurants can bring food costs down by $100 or, for some of you, more like $1,000. Sharing housing costs could give you $100 per month. It adds up. Even $400 a month can make a huge difference in your financial future, if you can get that excess cash into a Berky and invest it at stockpiling rates of return. The graph below shows that over a twenty-year period, $5,000 a year invested at 15 percent gives you more than $500,000 you wouldn’t have had without some belt-tightening and a Berky to invest money in.
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This graph shows the impact of various rates of return in the Berky assuming no tax on your gains. Eight percent is the market’s average rate of return. Fifteen percent is the MARR—our Minimum Acceptable Rate of Return. At 24 percent, $400 a month going into your Berky to invest gets your finances shaped up really well. Twenty-four percent, you’ll recall from Chapter 1 , is what I call a “stockpiling” rate of return. Whatever your income, it always makes sense to save your money so you can stockpile more businesses. Some of the wealthiest people in the world still pay attention to every penny A group of executives sharing an elevator with Warren Buffett saw him lean over to pick up a penny off the floor. When he straightened up, Mr. Buffett looked at the penny before putting it in his pocket, smiled, and said, “The beginning of the next billion.” When you’re investing money at 2 percent a year, whether or not you save an extra $100 to invest isn’t all that important. Save $100, invest it at 2 percent a year, and your $100 will only grow to $200 or so in forty years. At that rate you might as well spend it. But if you can get 24 percent, the $100 you saved will be worth $546,000 in forty years. For an investor of Mr. Buffett’s skill, even a few extra pennies are really quite valuable. When he was investing under $100 million in the 1950s,
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his Return on Investment averaged 36 percent per year. If he picked up a
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  • Spring '20
  • Warren Buffett

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