SpI happened onto a reddit thread this morning during my bedtime scroll. The prompt was “What is a rich person’s secret that is actually accessible to the middle class, but most people are too intimidated to try?”
I like these types of questions, because most of the time I do not see new information. Which makes me feel good. Meaning I think that I have my finances figured out, but just in case I like to read these to see what I can learn.
The first comment was to live in your means and invest your extra money. And I think that this is harder and harder to do because we all get influenced all the time. Hell, even yesterday I bought a hair serum (Mise En Scene Perfect Original Serum 80ml) btw only and I repeat ONLY because I saw one of my favourite IG women talk about her hair. I think her handle is mo_styles? But don’t quote me. She’s great and her platform is all about helping people with curly hair how to manage/care/love it. She’s the sweetest too… but I got sucked into paid advertising and bought something that I don’t need.
Now it’s about only 25 dollars… so I’m giving myself some slack. But farther down the reddit comments was a link to a compounding interest calculator. And then I start playing around with it. Did you know that an initial deposit of five thousand dollars compounded monthly for twenty five years with a monthly contribution amount of one hundred dollars (with an estimated rate of return) gets you almost 200,000 dollars by the end of it? Bonkers. And I love places like reddit because they have a personal finance subreddit so you can learn about investing yourself.
Because I have a not so secret hatred for personal financial advisors. Now I have nothing against this group of people, but I do think that they are scamming all of their clients. Why? You gotta look at the fees and trust me this will tie back into the compounding interest calculator. So if you want to invest in the stock market one of the main things you should pay attention to is the management expense ratio. You want that to be as low as possible. The stock that I buy has a MER of .06%. Financial advisor’s fee can go up to two percent! The difference between .06 and two percent is huge if you account for the loss in your compounding interest calculations.
For that initial deposit, you would loose 97 dollars to the advisor. That 97$ if invested with no additional contributions can turn into 1,181.30$ after twenty five years. And this number gets even bigger and bigger if you contribute anything.
So, speaking of interest… please do not use a financial advisor. Go to reddit, learn a bit yourself. Save yourself a bunch of money and retire happy. That would not suck.