James d. Gwartney

Step 2. Set goals. Incentives matter. Recognize this in your personal life, and let your
goals drive your actions. Set short-, medium-, and long-term financial goals and incorporate
them into your budget. Short-term milestones can be achieved within the next year and provide
immediate gratification. Depending on your situation, they might include the elimination of the
credit card debt on your highest interest rate loan, a significant increase in your savings for

---

224
coverage of unexpected expenditures, or money for an upgrade of your phone or other
technological device. Mid-term goals are achieved over a longer period—anywhere between
one and three years. Purchasing a pre-owned car with cash, putting 20 percent down on a flat
or other home, and building a solid savings account leading to a well-diversified portfolio are
examples of goals that will generally require more time to achieve. Finally, saving and
investing for your children’s college and for retirement, and paying off student loans or a home
mortgage provide examples of longer-term goals that many will want to pursue.
As indicated earlier, saving and investing should be a specific category in your budget.
Obviously the sooner you start saving and spending strategically, the more wealth you will
build. What is not so obvious is how much more wealth you can accumulate by starting early.
Even the smallest amount saved or invested today can make a very big difference. Consider the
following long-range plan.
Start regularly saving €2 a day for two years when you turn twenty-two years of age.
That’s probably not as much as you will spend on coffee, bottled water, or snacks or have in
loose change at the end of the day. Then from your twenty-fourth until your twenty-sixth
birthday, begin saving €3 a day. That’s just a euro more and your income will probably have
increased. Between the ages of twenty-six and thirty, bump up your savings amount to €4 per
day. By not spending this amount daily and putting it aside in an account with a positive rate of
return, you won’t cramp your style much. By the time you reach thirty, you will have saved
€9,490, PLUS the interest received—quite a nice sum. Saving a small amount every day really
adds up.
But here’s the real surprise. By the time you retire at age sixty-seven, the saving from
just this early nine-year period can add more than €150,000 to your wealth if invested wisely.
Even better, this amount is in today’s purchasing power. This will be the case if you earn a rate
of return equal to about what the stock markets have yielded over the last eight decades (more
on this rate of return and the power of compound interest in future elements). Moreover, if you
start early, you are far more likely to continue with a regular savings plan
(?)
throughout your
life. In addition, some of the smartest investors, including Warren Buffett and Shark Tank’s
Mark Cuban, owner of the NBA’s Dallas Mavericks, agree that it’s important to avoid getting
into debt—and starting early with savings will help you prevent that.

---

225