Warren Buffet vs. me: Starting a snowball at a young age

December 24th, 2008 · No Comments

I’ve recently started reading the book “The Snowball: Warren Buffet and The Business Of Life” and I’ve already come across something that just amazes me.  On page 85 of the book it states, “At age 14 … [Warren’s] savings now totaled around $1,000.”  Do you realize how impressive an accomplishment that really is?

We’re not talking about someone saving $1,000 in 2008 dollars.  No, we need to factor in inflation to really understand what Warren’s accomplishment in late 1944 means in today’s dollars.  To be a bit conservative, since the book isn’t very specific about when Warren actually got a bank statement displaying a balance of $1,000 in his savings account, let’s only consider the cumulative inflation since January, 1945 until November, 2008.  The site inflationdata.com allows us to do this fairly easily, and bases its numbers off of the Bureau of Labor Statistic’s CPI data (which many people think is actually underestimating inflation lately.)  From this, we see that the inflation rate was 1,093.40%. This means some kid trying to duplicate Warren’s accomplishment currently needs to have saved $11,934!!  (Remember that the formula for calculating is: result = (1+X) * original where X is the inflation rate as a decimal, in this case 10.934.)

This makes me wonder at what age I might have matched Warren’s achievement.  The earliest possible date would assume I saved all my earned income; that definitely didn’t happen because I was buying music equipment, albums, and sheet music back then.  Instead, because I don’t have income records from that far back, let’s figure out when I remember having earned the equivalent amount in a single year.  I think this is a fair comparison, even actually a bit aggressive, because it’s the first possible year I could have saved that much if I had decided doing so was important.  Then again, the book does have Warren spending some of his money prior to his goal too, so perhaps this is still too aggressive? I’m a bit up in the air on this so let’s just go with it because it is the closest I can get to remembering my financial state back then.

Let’s consider a year I was in high school, say 1985.  The inflation rate from January, 1945 until January, 1985 was 492.70%. So, I would have needed to earn $5,927; which I can assure you I had not done, even though I had a full-time summer job.  Let’s try again, say 1987.  The inflation rate now is 524.72%, meaning I’d have needed to earn $6,247.  I’m getting closer because I think I earned about $6,000 that year due to having a full-time summer job, plus an after school gig that year in high school.  I think it is safe to say that I didn’t earn enough to come close to Warren’s achievement until sometime during my college years, and that’s assuming I had ever decided to save any income for any period of time instead of spending it.  In reality, I don’t think I was in a situation to save any money until after graduation from college when I had a serious income and realized I might need a cushion in the event I lost my job.

I think my behavior is typical of most Americans.  Yet Warren did it when he was still 14 — which if I’m getting my school years right is about 8th grade!  Once could easily take this comparison, be depressed, and give up on ever achieving any serious wealth.  I’m choosing to take it as a motivator to learn more about how to best leverage our income to achieve what my wife and I want.

Tags: Personal Finance

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