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How a Teen Can Make a Million Dollars with No Work

June 19th, 2007 by rosie · 11 Comments

When I think of how easy it is for a teenager to make an easy million for retirement, I almost get sick because no one told me about this 15 years ago. Now I’m already old. If I want to make a million dollars, I have to work extra hard for it. But these teens today don’t have to work – and here’s how a teen can do it. A million bucks, with a small initial investment. It’s nothing shady or illegal – just the miracle of compounding interest, or what Einstein called the Eighth Wonder of the World. Basically, compound interest refers to the fact that whenever interest is calculated, it is based not only on the original principal, but also on any unpaid interest that has been added to the principal. The more frequently interest is compounded, the faster the balance grows. Yeah, this may sound like a boring economics class, until you see some examples of how it can work.

Un-Example number one: Sensible Sam. He just turned 16 and got a summer job at the local mall. His first paycheck goes towards some new shoes, a new Wii game, and pizza. But then he decides to put some money aside. Smart. Should he just put it in a savings account? Well, that’s what everyone else does. His goal is to save for a rainy day. He opens a savings and checking account and is on his way to being the typical American young adult, who has a few thousand bucks in the bank, then wracks up some serious debt with credit cards and student loans, and then spends years trying to pay it off. He gets a good job after college and works for the rest of his life, trying to save for retirement while living a middle-class life. At age 65 he has about $95K saved (the average amount saved for retirement according to a 2004 report by the Congressional Research Service, not including the 37% of households that have NO retirement savings.)

Example number two: Savvy Steve. Steve also just turned 16 and got his first job at Taco Bell. While he also squanders his first paycheck on material things not really needed, he then decides to start putting money aside as well. Not sure what to do and what his best option is, he does some on-line research. His goal is to make lots of money with little effort. Hence, the Roth IRA looks good to him. So, he contributes $2000 to his account the first year, and $2000 each year for the next three years, which brings the total investment to $8000. Not a lot of money, really. Then he gets caught up with college and his career and life in general and he just forgot about it. But at age 67, he is happily surprised to find that his initial $8k, with an average 10.7% annual return, has grown to $1,000,000!

Comparison example number three: Richie Rich and Regular Ray. As a graduation gift, both Richie Rich’s dad and Regular Ray’s dad decide to give them money that they CANNOT touch until retirement. Richie Rich’s family has a little more money, so he gets an initial $20K deposited into a savings account; then his dad commits to adding $20K every year until Richie retires. Regular Ray’s dad only has one $20K to deposit into a mutual fund that year. Richie Rich gloats a bit while Regular Ray feels like he just got the shortest stick. At the time, inflation is 3% and Richie Rich’s account makes enough to cover that, while Regular Ray’s account makes 10% over inflation. After 10 years, Regular Ray’s graduation gift turned into $51,875, while Richie Rich’s gift is now worth $200,000. Not very impressive, YET. But when they both retired at age 65 is when it gets interesting. Richie Rich accumulated $940,000, all directly from his father. Regular Ray ended up accumulating a whopping $1,763,950. Now Richie Rich and his dad feel like they got the shortest end of the stick! And they did.

While there may be some variations, depending on inflation and interest rates, compounding interest can really add up. So even if the initial investments are not so big, the returns can be. The trick is to invest early and to invest often.

I only wish I had known about this 15 years ago!

Go here or here for a compound interest calculator and see for yourself.

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    Tags: Advice & Inspiration · Money Management · Thrifty Living

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    Comment by LA
    2007-06-19 20:29:46

    And that, my friends, is how the rich get richer and the not-so-rich don’t. The rich don’t actually work for their money; their money works for itself.

    I wish someone had explained this to me when I was 16!

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    Comment by Rosie
    2007-06-20 02:11:31

    So true. It’s all about being educated about money- from tax loopholes, to compounding interest, to the stock market.
    I had a few thousand in the bank at that age that I never spent, until i bought a used car (cash) and then paid for most of my wedding.
    If only I had known….

    Comment by Mike
    2007-06-20 12:57:32

    This seems pretty interesting, but i never dreamt of having 1 mil bucks when I’ll be old. What good will it be? I want them now… So, got any plans on how to make 1 mil bucks till i hit 30? That would really be something ;)

    PS: Just kidding, great post

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    Comment by shawn
    2007-06-20 17:55:08

    Yeah I want that too. But to be fair, I’m willing to wait a reasonable time, so…I want the million within the next two years.

    Can we have a post about how to make a quick million??? Please Rosie?

    Comment by Rosie
    2007-06-20 20:10:01

    OK, shawn. I’ll be thinking about that.
    here’s as interesting article about that http://domainsmagazine.com/Domains_17/Domain_1614.shtml

    so, it can be done! and you might even get the idea in a few minutes!

    Comment by Genesis
    2007-06-20 19:56:49

    Wow. I´m not sure you need a million when you are 67, but even half that by 45 would be nice! I´m going to have to make sure my kids know about this.

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    Comment by Brick Blogging
    2007-06-21 14:16:21

    I’m actually annoyed that I didn’t have internet access as I was growing up. It’s so easy to do a start-up these days with just one or two friends. I would’ve loved to at least gain some experience from that as a teenager.

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    Comment by Vic
    2007-06-21 16:44:39

    Excellent article. That’s why it’s called ‘capitalism’. ;-) Any young ‘uns out there – the stockmarket over time is better than a bank – see Warren Buffett for proof. Vic

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    2007-06-25 19:26:15

    [...] the lowest – interst accounts because it is always better to be safe then sorry. All have to say is check this post out  for the Church mice out [...]

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    Comment by fruityoaty
    2007-06-29 23:00:19

    I wish all this Goodle ad $$$, PayPerPost stuff was available to my generation when I was younger… My 13-year old cousin is making decent money off his blog. So weird.

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    Comment by shawn
    2007-06-29 23:33:06

    Yeah man if I could have been writing articles back then I would have made some serious dough. I used to draw an entire comic every single day. Religiously. And it was almost always hilarious. Even the gangstas at my school would ask me to see it and we would all laugh together in a moment of love and understanding. Then they would threaten my life. But anyway all those comics would have been GREAT content for a daily post on a blog and I can only imagine the amount of readers I would get, the AdSense clicks, and then the book and movie deals.

    You know what happened to those comics? I think I threw them all away years ago. They gone.

    Okay Massa P, now tell me what deal with Pi is? I don’t know the super-secret password to get in!!


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