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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