Money up in Smoke

The way I see it, you have two pathways to financial independance;

1. Take lots of risk. Be a punter on the share market and maybe get lucky, or start your own business and make it hugely successful; or

2. Be disciplined and patient. Stick to a long term strategy, start early, and allow the miracle of compound interest to kick in.

Most people find the first option exciting but generally fail by making the wrong decision and the people that choose the second option more often than not get distracted by impatience or greed - todays pleasures beckon stronger than tomorrows pain.

I must admit though, I have great admiration for people that smoke cigarettes. They have the discipline and ability to find what is now $17 each day to purchase their poison. This is especially true of lower socio -economic groups that appear to have a higher take up of smoking.

Imagine if this discipline was instead forced on their savings. If a smoker could quit and could instead put that $17 a day aside into an investment, how would this look when they retired - how would this $6,200 per annum which previously went up in smoke change their life?

I have asumed that an 18 year old decides that instead of smoking, they will save that amount each year (until they are 65) and earn an after inflation and tax rate of return of 5%.

At age 65 this investment would be worth approximately $1.2 million (in todays dollars). This is extraordinary in reality because it actually demonstrates that even the poorest people in our society can become millionaires (they can smoke, so why not?).

Double the impact if the husband and wife both smoke.

So the lesson here is to start early and stick with it. Very few people can actually manage to do this which is a pretty sad reflection on our society.