Today’s blog is inspired by one of the best Economics teachers (Linda Mikeska). She gave me a copy of this story and I have never forgotten it!
A Tale of Two Savers
Caroline Smith started saving when she was 22 years old, right out of college. Saving involves an opportunity cost—the next-best alternative given up. It wasn’t easy for Caroline to save $2,000 a year then, considering her car loan, the expenses of operating her car, and rent payments. But Caroline was determined to save because her grandmother always said it isn’t what you make, but what you save, that determines your wealth. So, reluctantly, Caroline gave up buying that new car and renting a really nice apartment, and she saved $2,000 a year.
After 12 years, she got tired of the sacrifice, yearning for a brand new red sports car and other luxuries. She didn’t touch the money she had already saved because she wanted to be sure she would have money for retirement, which she planned to do at the end of her 65th year. But she quit saving and hit the stores.
By the time he was 34, Jack was married; he had many responsibilities, and he decided he’d
better start saving and planning for his financial future. He also had heard that it isn’t what you have earned, but what you have saved, that determines your wealth. He figured he had 25 to 30 productive years left in his career. So, with new determination, Jack saved $2,000 a year for the next 32 years until he retired at the end of his 65th year.
Remember- Caroline saved a total of $24,000 and Jack saved a total of $64,000.
Tomorrow’s blog will reveal the answer!