So your business is the stuff of dreams. You're bringing in the cash by the truckload and it doesn't look like it's going to let up anytime soon. You're on your way to becoming a millionaire. Or are you?
You are, but only if you know the other secret to success: After you earn the money, you've got to learn how to take care of it.
How many times have you heard about celebrities who made millions--then lost it all to foolish money management decisions? Unfortunately, there are plenty of entrepreneurs who do the same thing.
But you're smarter than that, right? Sure, you're going to have some fun with the money you're earning now. But you also want to plan ahead so there will be some left for later. That's exactly what these teens have done.
On a Mission
Chris Stallman, 19, was on a mission when he started an investment education Web site with his friend Dan Bassett back in 1999. The site, which kicked off as YoungMonthly.com, has since hooked up with PatientInvestor.com to become www.teenanalyst.com. "I'm a young investor, and I remember how hard it was to get started in the stock market, because most of the information is written for people twice [my age]," says Stallman. "I decided to fill the void by teaching other young people to invest in a way that they can easily read and understand."
Stallman receives income not only from his Chicago-based Internet company, but also from the dozens of articles he's written for investment Web sites. He socks away about one-fourth of what he earns each month into stocks and mutual funds.
He's already seen some of the results in favorite stocks like Dell Computer. "I love their computers. My dad owned one, so I decided to invest in something I knew," Stallman explains. "It turned out to be a good investment, because I sold it four months later at 100 percent profit. So I doubled my money in that stock. Afterwards, I was able to increase the number of stocks in my portfolio." Since Stallman started investing at age 14, he has averaged an 18 percent return.
A Little Goes a Long
But my business hasn't hit the big time yet, you say. You don't have any extra money to be investing.or do you? You might be surprised to learn just how little of that green stuff it takes now to become filthy rich later.
Dan Olson, 21, of Dublin, Ohio, landed his first job as a golf caddy at age 10, and he has been saving part of his earnings ever since. "Investing seemed like a good way to make money over a period of time," he says. Olson realized he'd made a good call when the original $2,500 that he invested in stocks and mutual funds tripled in value.
Olson is on the right track, and he's going to keep on going. He plunks $2,000 a year into his Roth IRA, something he plans to do from now until retirement. (For more on IRAs, see "Next Step.") That's about $167 a month, but you can still make great strides with a lot less. Invest $20 a week beginning at age 18, and you'll hit $1 million by age 65 (at 10 percent interest).
Because of compound interest, investing works a little like magic. You know how quickly a leftover balance on a credit card can grow out of control? That's due to the effects of compound interest--the credit card company charges you interest on the interest your account is accumulating. It's the same with investing, only this time, compound interest works in your favor.
Want to see for yourself? Follow this link to a compound interest calculator: Fill in how much you think you can afford to invest and the interest rate you think you'll earn on your money. (Hint: the stock market averages a 12 percent return over the long term.) You may be surprised at how far a few dollars invested today can take you in the future.
Get a Plan
Eighteen-year-old Martin Thompson of Englewood, Colorado, knew at an early age that he would need to get creative about paying for college. For years he saved birthday money and whatever he earned mowing lawns so he could invest in the stock market. Thompson's hard work and commitment to a goal paid off. Along with his sister, he purchased stock in a cable company at $19 a share, then watched it rise to $42 a share.
Investing for your future can't be an afterthought. And it can't be the last thing on your list--something you'll do after you pay your car insurance and set a little aside for the movies this Saturday night. If that's the case, it'll never happen. There will always be something else to spend your money on.
Investing, like any worthy goal in your life, calls for a plan. You will probably have some intermediate goals along the way, too, such as college, your first house, maybe even a college fund for your kids. Go back to the compound interest calculator and figure out what it would take to achieve each of your goals. Then sit down with your budget and figure out where you can squeeze out a few extra bucks. A few bag lunches now can make all the difference later.
Stick to It
Stallman's words of wisdom for young investors? Avoid day trading, get-rich-quick schemes and short-term trading. "I think a long-term perspective is the way to go. Set goals for your future, and invest accordingly," he advises. "I think mutual funds are best unless you know quite a bit about stocks." If you don't have a lot of time to research stocks, a mutual fund makes it possible to turn your money over to a professional investment manager.
Investment education resources, like Stallman's Web site, abound. The best advice? Keep learning, and stay focused. "[Don't] get caught up in the hype and worry about your stocks too much," says Stallman. "If you do, then you're going to make bad decisions. If a stock drops 10 percent in one day, and you immediately sell it because you got nervous, when you look back you usually see you should have held on to it."
Coming from someone who has been featured in The Wall Street Journal and has appeared on CNN, CBS MarketWatch and the nationally-syndicated radio show Jim Jorgen$sen on Money, it seems like sound advice.