I have a really hard time turning my brain off. Often, it will take me a couple hours to fall asleep because I have too many thoughts flying through my neurons. (SHUT DOWN BRAIN!) All kinds of things fill my head, but the other night, it was the Titanic that was keeping me awake.
I had read an article about the infamous voyage and couldn’t stop thinking about it. Just like the movie, Captain Smith did have a little warning and took evasive measures. He steered the boat hard left and shut off the engines in an attempt to avoid the iceberg. Unfortunately, he was just a little too late and the right side of the boat broadsided the chunk in just the right wrong way. Amazingly, the Titanic came pretty close to missing the iceberg entirely. The damage to the ship was really minimal:
When Captain Smith surveyed the resulting flood damage, they surmised that the hole must be nearly 300 feet (91.4 meters) wide. In reality, the tear was quite modest — six slim lacerations measuring about 3.2 square feet (around 0.3 square meters).
Did you see that? 3.2 SQUARE FEET of tears sunk the Titanic. Wow.
I started thinking more about the situation. Again, the ship came very, very close to missing the iceberg entirely. If the captain had taken evasive action just a minute earlier, you probably would have never heard of the Titanic. Now, imagine if the captain had known about the iceberg 20 minutes earlier. A very small action is all that would have been required. Moving the big, wooden steering wheel thingy* just an inch or two would have avoided disaster. The sooner you know about a problem or situation, the better you can prepare for it and the less corrective action is needed. The reason being, small decisions can have big ramifications given enough time.
This got me thinking about how people manage their money. Think of the iceberg as the financial disaster that many people face in retirement. You know it’s there and you know about how far away it is (the Titanic Captain would have loved this information). The one variable that really matters is how soon you put your dollars to work for you. If you are young and that iceberg is still far away, not a whole lot is required to be successful. If you wait 10 or 20 years, the ballgame changes drastically. Do you want to be the Yankees or the Cubs?
One example I like to think about is a guy I worked with at the same place as Bad Car Bill. He was probably 23 or 24 and had just been hired on as a software developer. Despite having a perfectly fine Honda CRX (a car I really like), he traded it in for a brand spanking new convertible Corvette. This guy was still living at home and his folks weren’t charging him rent. Consider what could have been if he had decided to invest that money instead. I’ll assume he is 24 and his money will earn a 10% return, which doubles your stach every 7 years. I’ll also assume he doesn’t contribute another cent:
- 24: $50,000
- 31: $100,000
- 38: $200,000
- 45: $400,000
- 52: $800,000
- 59: $1,600,000
I realize this is an extreme example, but its also a very powerful one. All this guy had to do was put up with his perfectly fine CRX and he could have made a massive difference in his life down the road. Instead, he pointed himself right at the iceberg. Talk about a blown opportunity. I don’t know about you, but I want to point my ship somewhere warm for retirement. Forget that 28 degree water and icebergs.
One more example comes from an article I read last week:
If you aim to retire with $800,000 then you need to save. If you have 25 years to make that number, you need to save and invest about $12,000 a year, each year. If you have 20 years, the savings number target is $18,500. If you have just 10 years to save, the number is $55,000 a year.
So the lesson here is that if you wait to save, you’re going to have to work much, much harder. However, if you’re young, you really don’t have to do that much at all. Get a good nest egg rolling before you’re 30 and you’ve set yourself up for big success later in life.
When you have a minute, consider how far in the future your retirement is. Are you making the right decisions now to avoid the iceberg? Remember, the longer you wait, the more extreme you’ll have to be to adjust.
*Can you tell I’m not a nautical expert?
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Mrs. Bookworm says
June 4, 2013 at 2:30 pmMy husband and I started investing in 2011. We should have began in 2008, when we started earning a significant income (prior to that, we didn’t make much). That would have also been the perfect time to buy stocks, when the market was at its lowest! I do regret those lost years. I estimate the opportunity loss to amount to over $200,000. We’re trying to push our limits now to benefit from the power of compounding interest.
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1500 says
June 4, 2013 at 10:08 pm2008 was a good opportunity, but there will be others. You guys are going to be just fine.
#Broke Millennial says
June 4, 2013 at 2:44 pmTitanic was my first PG-13 movie! I was in 4th grade and my Dad made me cover my eyes during the infamous drawing scene.
This is a great post, Mr. 1500! Your co-worker is proof the lack of financial literacy in our education systems is slowly ruining us. Plus, the Bad Car Bill story is one of my favorites.
#Broke Millennial recently posted…An Impassioned Plea for Understanding Compound Interest
1500 says
June 4, 2013 at 10:00 pmHilarious! Did you peak at all?
Dan Mac @ Dividend Growth Stock Investing says
June 4, 2013 at 2:46 pmI see this often with my coworkers. I always tell them to start contributing as much as they can to the 401k retirement savings as soon as they are hired. Unfortunately, when you are 30 or 40 years away from retirement people don’t see the urgency. They want to wait until after they have the nice house and nice car. Then comes the kids and eventually they find they are too late to begin saving in order to retire well. Opportunity missed!
Dan Mac @ Dividend Growth Stock Investing recently posted…Notable Dividend Increases: May 2013
1500 says
June 4, 2013 at 9:59 pmDah! As you and I both know, the nice house and nice car should take a backseat to save. You can have that stuff when you’re 30 and have a nice nest egg rolling.
Pretired Nick says
June 4, 2013 at 3:53 pmI love this imagery. That’s just what I need to keep myself on the straight and narrow! Wish I’d read this 20 years ago. Nice work, Mr. 1500!
Pretired Nick recently posted…Pop your own housing bubble
1500 says
June 4, 2013 at 9:58 pmThanks Nick! I with I could go back in time to my early 20s and tell myself a couple things as well!
Lisa E. @ Lisa Vs. The Loans says
June 4, 2013 at 4:21 pmI love the connection to the Titanic! Perhaps I should use this example when trying to convince my bf to start saving for retirement! We’re both in our early 20’s and he claims we’re too young and he doesn’t have the time to worry about it right now. On the other hand, I wish I had started when I was 18!!!
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1500 says
June 4, 2013 at 9:56 pmOh man, show him the light!!!
Not having enough time is no excuse. It doesn’t take any time at all since the basis of your portfolio should be an index fund. Buy VFINX and be done with it!
Mike@WeOnlyDoThisOnce says
June 4, 2013 at 8:28 pmLove the analogy–so resonant. To continue with it, vigilance also helps us confront what life throws at us.
Savvy Financial Latina says
June 4, 2013 at 2:31 pmI hope this is true because we are making a huge effort in saving for the future! I have been trying to increase my 401K contribution until it hurts, in order to max it out.
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1500 says
June 4, 2013 at 10:00 pmHa, you are going to be just fine. Actually, you’ll be a lot better than fine. 🙂
SZQ says
June 4, 2013 at 10:02 pmTrust me………..it WILL be worth it! Having TIME is everything!! You’ll be so very very glad one day! We just took early retirement – and it’s kind of funny, because we’ve been such good savers for so long – and have learned to live on so much less (and yes, still be happy!), now that we are retired and are financially set for life, it’s sometimes hard to change (spending the extra money)! We did buy a second home in AZ to spend the winters, so that is costing us a bit – but otherwise we really haven’t gone hog wild. It’s just a nice feeling knowing you are financially secure. KEEP SAVING!! And if you have young children…….start teaching them young about money!!!
1500 says
June 4, 2013 at 9:54 pmYeah, exactly. This is why we have 80 year olds working at McDonald’s and Walmart.
1500 says
June 4, 2013 at 9:55 pm23 is still pretty awesome!
I wish I would have started at 8! That lawnmowing money would have been better spent on Berkshire Hathaway than whatever nonsense I was wasting it on!
Net Worth Snowball says
June 5, 2013 at 12:56 amWow, I had no idea a measly 3 SF sunk the entire freaking Titanic. Crazy! And what a splendid movie that was for an awkward 6th grade boy to watch. Made me a big fan of Kate Winslet anyways even though I’ll never understand why both she and DiCaprio couldn’t share that enormous floating dresser.
I love the analogy in regards to personal finance. As someone whose car choices have resembled Bad Car Bill, I definitely try to focus on even the small leaks of cash that can grow into amazing amounts if invested instead.
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The First Million is the Hardest says
June 4, 2013 at 11:24 pmI can relate to ‘bad car bill’. I went out and bought a brand new car right after I got hired at my first job out of college (thankfully not a corvette!). Looking back I view it as one of the largest mistakes I’ve made. I really wish I would have held off and started saving that money instead, I’d be so much closer to my financial goals today!
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Lindsey @ Cents & Sensibility says
June 5, 2013 at 4:20 amHi Mr. 1500
The Titanic and iceberg is a great analogy for planning retirement – I like it. I have a ‘defined benefit’ pension (which means they promise to pay XX amount when I retire) with my employer but I also put 6.5% of my income towards retirement investment portfolio.
Regardless of the ‘defined benefit’ promise, I tend to get a little squinty-eyed and suspicious regarding pensions given the current fiscal climate. Really, anything could happen – it’s better to have a back=up plan. Screw you Iceberg!
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Brian says
June 5, 2013 at 1:37 pmYeah, I could tell you were a nautical expert when you called the Titanic a boat…
You point still remains that it is important to save early and save often!
Ree Klein says
June 5, 2013 at 2:44 pmBrilliant and relevant analogy. And, I LOVE Matt Becker’s comment:
“I guess the big problem is that it still takes action and the danger really isn’t visible. Action only becomes easy when the danger is imminent, which is why so many people only wake up about retirement savings when they hit their 40s and 50s. ”
Being that I’m at the trailing edge of the boomer generation, I see the ramifications up close and personal. I got serious about my finances in my early 30’s, but that meant first digging my way out of bad habits, changing my attitude about money and learning to save.
Ree Klein recently posted…How Do You Define Prosperity? (And a Give Away)
1500 says
June 6, 2013 at 5:07 amYeah, exactly! The danger is so far off that it’s easy to ignore. Friends make all kinds of excuses. My favorite one comes from a very healthy friend who insists that he will die young.
Mrs. Pop @ Planting Our Pennies says
June 6, 2013 at 12:51 amLove the analogy Mr 1500. Small course corrections early have significantly bigger impacts than large course corrections at the last minute.
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Jane Savers @ Solving The Money Puzzle says
June 6, 2013 at 1:46 amI fall asleep in less than 10 minutes every night.
You are good at saving and investing money and bad at falling asleep. I have no money to invest but drift off peacefully like a little baby every night.
I am not having a great month financially and we are only 5 days in to June so I need something to be positive about.
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1500 says
June 6, 2013 at 5:05 amJane, I’m sorry about your bad month, but happy that you don’t lose sleep over it. I wish I was closer; I’d help you out with things like your pesky window.