Introduction to investing
Have you ever bought and ate a $2,500 pizza?
Rare, exotic, and organic toppings that play on your palette.
The 5 star chef hand-kneading the fair-trade sourced dough.
Topped with exquisite Tibetan-monk made Yak mozzarella.
All prepared in the most exlusive VIP restaurants in NYC.
What could possibly make a pizza worth $2500?
… and what does a $2,500 pizza have to do with investing?
Well, it has everything to do with investing, because that $2,500 pizza doesn’t come from an exclusive NYC eatery, it came from your local 30 minute pizza whole that you order from monthly/weekly.
If you’ve ever ordered a delivery pizza, you’ve eaten a $2,500 pizza.
Let me explain.
Here’s how it works
We all have money at our disposal and we decide how and where we will use those funds.
We buy necessities, pay insurance, put gas in the car, etc.
The money left over is our “discretionary” income.
For many of us that means a night on the town, a conversation at Starbuck’s, a date, etc.
Here is where the real cost of that pizza comes in.
It’s called “Opportunity Cost” the cost associated with doing one thing with your money instead of doing something else. In this case, saving it.
By buying that pizza for the national average price of $16.13 for a large, two-topping, you forego the chance to invest it.
According to this article, noted financial advisor Dave Ramsey points out that 12% rates of return are possible.
Here is where the magic of compound interest comes in.
If you are 20 years old, and that money adds 12% to itself (and any previous interest) until retirement at the age of 65, your $16.13 pizza will be worth $2,521!
It doesn’t end there. Here are a list of a few other common expenses for college students and how much they would be worth if that money had been invested, instead.
| Item Cost Value after 45 Years of Investment | ||
|---|---|---|
| Movie, Coke, Popcorn | $ 23.19 | $ 3,625 |
| A-List Video Game (New) | $ 49.99 | $ 7,879 |
| Date (Metro Area) | $ 173.88 | $ 27,420 |
| Date (Rural Area/Small Town) | $ 82.62 | $ 13,080 |
| Coffehouse coffee | $ 3.22 | $ 1,261 |
Time, interest, and disposable income are in your favor
While no one wants to live completely without some of the fun things in life, if you were to do without 1 of each of the items on the list each month during your time in college (10 months a year x 4 years) your nest egg would be staggering.
By doing this one thing, you would have between 159.02 and 250.28 to invest each month.
Then, at age 65, you would have a nest egg in excess of $850,000.
Almost a millionaire even if you never invested another dime the rest of your life.
You can check out other investment results using the calculators at www.bankrate.com.
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