Today I bring you a reflection, which I think is very interesting to do individually because it can provide you with a perspective on money that changes everything.
Have you ever wondered how much money you will earn throughout your life working for others?
If you analyze it from a global point of view, you will realize that many financial decisions you make throughout your life cycle, are crazy or totally unnecessary.
If you put accounts and put in relative value your expenses in comparison with all the money that you can generate throughout your life, you will realize many important things, which have to do with money and also with the style of life that we lead.
For my reference calculation, I will take into account a net annual salary of € 24,000, which for you to get the idea, with prorated extra payments would mean earning € 2,000 on average per month. Not bad right? Maybe there are those who say that it is not a big deal, but they would like many.
Assuming that you retire at age 67 and that between the end of studying late and a year or month in white, we will say that you work 40 years until you retire.
If we only take that salary of € 24,000 and multiply it with 40, we will have to earn € 960,000 over a lifetime. With that, we have an approximate reference number. But let’s be a little finer, before going into detail.
Without being too generous, I will assume that at least your salary will increase on average, 1% each year, based on the previous year. And I add it all. Given that salary update, throughout your life, you will earn € 1,173,272.96.
But that is also a half-truth because you also know that money overtime is not worth the same because of the effect of what the prices of things increase over the years. So I will assume that it is true that each year the average inflation will be 2%, taking into account that these calculations are for Spain and that in developed countries as we hope to continue being, the inflation processes are not excessively high.
I get to the zero moments, discounting at a rate of 2%, each annual salary updated to 1% on the salary of the previous year and I get that the money I will earn working the rest of my life is worth money today € 781,970.81.
That is, look at what I am telling you. That assuming a net salary above the average, throughout your life working, you will only earn € 782,000.
Can you imagine what you would do with that money if they gave it to you today and told you that you will not earn another euro to count from today until the age of 67?
I want you to answer some questions, would you buy that car for € 35,000? Would you invest more than 25% of all your money to buy that house for € 200,000? Would you do it by asking for that 30-year mortgage that will increase the cost of your house by € 120,000 for interest? Would you spend all that money on those branded clothes? And so many things.
Everything changes if you see it from a global perspective. If you realize, many people are in a worse situation than that and that the money they can expect to earn throughout their lives is even monthly.
The system needs us to continue buying and consuming. And that you are not able to see whether or not you can afford it, or what you are giving up in the future every time you finance a purchase.
Then it is also true that throughout life there are inheritances, you can make a good investment with which you earn extra money and that the reality is that many times that figure you have to multiply it by two, because if you live as a couple and work both, you will have more budget, but you will also have more expenses. I don’t even tell you if you have children.
If you don’t save month to month and you spend it all because you live a day, you have it really screwed up. You already know that public pensions are not going to give more than to survive. How you have a health problem, divorce or have a setback of some kind throughout your life with economic consequences, you can get very complicated things.
But we go with the issue of money that you do not spend. Assuming you don’t consume everything you enter and knowing the money you can expect to earn throughout your life, are you really going to continue placing your savings in paid checking accounts and fixed-term deposits?
If not with this global vision, you do not realize that the only escape we have to live a little better and make the savings profitable, is to use the financial markets, is that you do not understand how the system works.
On the contrary, I will also tell you that the same thing that worries me the people who live a day, I feel quite sorry for people who, having been salaried all their lives with salaries below € 2,000 per month, arrive at their retirement with more than 300,000 € having saved all his life with fixed deadlines. Waste is as bad as extreme austerity.
And finally, I want to leave you two more conclusions about the money you can expect to earn throughout your life. Taxes will be your biggest expense throughout your entire existence. Of all that you will earn, almost a fifth of the money you consume will go into taxes.
And the second reflection is that in this system if you live as a wage earner and enter the wheel of consumption, you will be a slave almost all your life. Every time I have clearer the only way out we have to live a little better within the rules of the system is to invest and as far as possible start a business working for yourself. You cannot expect a stroke of luck and the lottery touches you to change your life. You have to take action.
In any other way, within a range, we are more or less doomed to live a similar and increasingly impoverished life. And having a longer life expectancy as we have, we expect an old age very difficult to carry.