Our Money Can Become Employees For Us! Wait…huh? What Do You Mean?

I have 2 nieces that are new to money. They are very young, not having the learning experience of money nor any/all issues related to it. It is interesting to get their attention to speak with them about issues related to money as their worlds/minds are focused on their current activities (dance, swimming, school, piano, etc). However, they, like many children, receive money as gifts either at the holidays or their birthdays, or both from family members. Now comes the important item. WHAT DO THEY DO WITH THIS NEW MONEY THEY JUST RECEIVED? They, of course, want to spend it for something they like. When I tell them, “No, invest it so it can become your employees.” they look at me with not only a, “What are you talking about? face but also, a sad face, having me suggest they not get what they want to buy with it. They don’t understand!

How many people want their own business? How many people want to be in charge of their own lives, where they don’t have any boss hanging over their heads telling them things that don’t make sense to them and don’t seem to align with what they believe is best? Answer: I believe most people. Now, I don’t paint everyone with the same brush as there are some who are happy with the 40 hour work week, being able to come home to their families without the constant, 24/7, fears of owning their own business. However, if I ask the question, “How many of you would like the combination of both? The ability to have your own business with no risks and the ability to have a consistent, known, paycheck every week with no risk of owning your own business by working for others? If I am confusing people, here is what I mean.

Most of us know how rich people get rich. The people that many of us are jealous of because they seem to have such a better life than us by comparison? They seem to get all of the benefits, all of the rewards, all of the joy of life. It is because they all have many people working for them on their behalf for their financial success. No one can do this by themselves as there is simply not enough time in our lifetimes to do this by ourselves. All of the rich people get many others to work on their behalf offering jobs others are willing to take in order to make a living. But remember: Business need to make a profit or they will go bankrupt. Therefore, this priority of a profit is the domineering motive, not the financial success of its employees. Employees are only paid enough to keep them there, keeping them there to continue to work on behalf of the owner. This is the deal about employees. The more, the better for the owner (of course with the assumption there is the equal amount of demand by consumers for the company’s product). Therefore, why would you not want as many “employees” as you can for your business? I can tell you firsthand that whenever I received a check for my interest from my investment, my life was immediately better because I knew I did not have to work (physically) hard to earn this. Next, this wasn’t a paycheck from helping someone else get rich. It was a check earned by my money earning more money…all done by myself.

Let’s go back to the situation of my 2 nieces. There are 2 basic options: 1. spend their new money/gifts from family members or 2. save/invest it. To make this clearer, let’s put a monetary amount on this “new money” I am speaking about. Let’s say your child has received a total of $500, either in 1 gift or maybe more throughout the year. Instead of spending it once they see what they really want to buy, they invest it? First, what is this “investment” I speak about? Well, there are a few. First, we can go to the local bank (Chase, Bank of America, Citibank, etc) and tell the account people we want to purchase a Certificate of Deposit (CD). They tell us, “Great, we can do this for you and give you an interest rate of 3% for the year.”

This means, if you chose this method, your child would receive $515 for the first year you own this CD. The math is as follows: $500 initial deposit x 3% (.03) = $15. The point of it is this extra $15 is $15 you did not have to work for…in essence, this $500 became an employee for you and your life’s success by earning extra money for you without having to work for it.

There are 2 possible responses to this that immediately come to mind. First, is the, “Wow! I have $15 more than I had and can now buy more…and I did not have to work for it (called “passive income”). Yes, you can and this is the positive way of looking at this. Second, I hear the complaint of, “$15 for 1 year? That is nothing! I could have done so much more with this $500!” What this response is is completely missing the lesson! The lesson again is you can have your “own business” with employees that make you money and you don’t have to work for it. You only answer to yourself. You cannot be fired! Who are the “employees”? Your money you invested! Let’s say we equate $10 equalling 1 employee. Doesn’t this mean we now have 50 new employees working for us on our behalf to earn us money…not the bank, not themselves, us! And!…each time you have more money and you invest this money rather than buying something you want, you have more employees in your “new business”. What is your “new business? Your investments with employees that are working on your behalf…growing all of the time.

Next, instead of going to the bank, you could take this $500 and invest it in the stock market. Investing in a mutual fund (more on these stock market investments in another post) like an S&P 500 fund has historically generated a return of over 10.5%.

If we take this same $500 and multiply it by 10.5%, we will receive a payment of $52.50 after the first year. This, again, is $52.50 we did not have to work for

Where does this lead us to? Well, if we repeat in year 2 and so on for simply 20 years, here is what the our initial $500 can lead to using the simple investment of the S&P 500 mutual fund and this same 10.5% annual ROI (return on investment):

• Year 1: $552.50
• Year 2: $610.51
• Year 3: $674.61
• Year 4: $745.45
• Year 5: $823.72
• Year 6: $910.21
• Year 7: $1,005.78
• Year 8: $1,228.09
• Year 9: $1,357.04
• Year 10: $1,499.52
• Year 11: $1,656.98
• Year 12: $1,830.96
• Year 13: $2,023.21
• Year 14: $2,235.65
• Year 15: $2,470.39
• Year 16: $2,729.78
• Year 17: $3,016.41
• Year 18: $3,333.13
• Year 19: $3,683.11
• Year 20: $4,069.84

What are the lessons to be learned?

• 1. The understanding of how our money can become our “employees” working for us, never talking back to us nor giving us trouble, never having the risk associated with a normal business, and how the money grows and grows and grows.
• 2. That if we are able to save even a little bit of money, then this itself can become another source of income for us that makes our lives better.
• 3. The power of compounding. Below you will see another example I have been favoring for the longest time. I will wrap up this post with this:

We have Social Security as part of our retirement plans as we get older. However, it is always a topic of debate on whether it will go bankrupt or not. So, here is food for thought:

What if we give every child $5,000 at birth, put it in this S&P 500 fund, say, “You cannot touch this until you are 62 years of age. However, it will allow every single person to be able to retire.” Proof?