It all started with the Half Price Bookstore. I was home from college and had decided to go into the bookstore with my sister and browse around for a while. Then, the thought struck me, “I’m about to graduate and enter the real world – I don’t know anything about money! I should probably read up on it.”
You see, at the time I didn’t know that much about money, let alone investing. My parents didn’t teach me a lot about it – not because they didn’t want to, but there are simply a lot of things that they didn’t know either. A lot of people don’t, which is why America is simultaneously such a prosperous nation and one that struggles to pay its bills and invest for its future as well. With the end of a chapter of my life looming in front of me – graduation – I had a sense that something wasn’t right. I had to develop in this area and at least learn the basics of how money worked.
As I wandered to the personal finance section of the store, I immediately became overwhelmed by all of the titles in front of me. It turns out that a lot of other people had plenty to share about the subject of money. With my eyes, scrolling the shelves, the spine of one particular book caught my eye. It read, “The Automatic Millionaire.” “Hmm” I thought. “Cheezy title, but it looks interesting.”
After thumbing through it and seeing that it only had a $3 price tag (it was a used copy, after all), I decided to purchase it and carry it home.
After dinner that evening I decided to pick it up and start reading. I wasn’t a big reader at this point in my life, unless it was required of me to study for one of my classes. Then, something unexpected happened. I couldn’t put the book down!
This guy, David Bach, was talking about how simple and automatic it was to turn money into more money, simply by investing it over a long period of time and making regular deposits into different accounts. He described, in simple terms, the principle of compounding – that once a certain amount of time passes, the growth of your money grows on itself. It’s not simply a linear increase, but an exponential one! How powerful!
As an engineering student at the time, it made perfect sense to me. We had learned about exponential functions way back in middle school, and at the college level I knew that there are nonlinear processes that surround us everywhere in nature (physics, biology, chemistry, etc.)
Excitedly I called up my wife (then girlfriend) and told her about the crazy new book I was reading. “Check this out honey!” I exclaimed, “If we set aside $250 per month for 40 years, we’re pretty much guaranteed to be millionaires!”
We were both in shock because no one had ever explained this concept to us before – how we could take a little bit of capital and multiply it into a lot. It was the beginning of our personal finance journey. We didn’t have big incomes yet – in fact we were still in school and worked part time jobs – but knew that as soon as we graduated we would have to be smart with our money in a way that we hadn’t been during our college years.
Time to Invest
Upon graduation, my then fiance and I were fortunate enough to get jobs in the same city. Even though we knew no one but each other, we packed up our Toyota at my college campus on the east coast and drove across the country to the midwest. Just two weeks after graduation, I started my first day at work.
One of the first things I did that first day was look up the options in the 401(k) plan. Following the “recommended” asset allocation from the account custodian, I split up the allocation among asset classes that I didn’t really know much about. These were things like “short term bond fund”, “large cap equity”, and “small cap equity”. Even though I didn’t have a clue what I was doing, I figured that my wife and I would learn about all of these things over time. I was just so happy to get started – so excited to finally earn a decent living after a lot of sacrifice, and to be able to, little by little, begin to build my family’s net worth.
We didn’t know much, but we had taken the first steps of saving and investing. It was a small amount that went to investments every paycheck, but so what? We were getting started and you have to start somewhere. As it has often been said,
Do not despise the days of small beginnings.
We knew it was important to save and invest, but for what purpose? And what was the best way to do it for us? Answers to these next questions began to reveal themselves in the next part of our story.