The Why

For a long time, I’ve always only had ONE idea of what would cause the recession. It’s gone from housing, to apartments, to pensions, and back again, but now I have a LOT of predictions. That’s right: we’re in what has now come to be referred to as the Everything Bubble. Everything is a bubble right now. What’s going to pop first? Well… I’m torn… So here are my five guesses on what I think will cause the next recession!

Let me give a little background why I wrote this article. I was a Finance major, and I’ve always been obsessed with the last recession, what led us there, etc. What led us there, the aftermath, and of course, the information it gave us to hopefully predict the next one. I’ve read article after article about the recession, and I feel like there’s always more to learn.

My favorite articles to read are the ones that everyone and his or her mother has seen that says, “This guy predicted the last recession, and here’s what he has to say now.” Those blogs are incredibly misleading because the person (or economist or blogger) that usually predicted the recession predicts a recession every year. That was just the ONE year they were right. They’re permabears (aka someone who always thinks the world is ending). Keep in mind, I’m not that kind of person. If you’ve ever met me, I’m eternally optimistic and incredibly enthusiastic, BUT I do love thinking about the next recession.

So what’s one of my favorite hobbies? Yep, that’s right: trying to predict the next recession. I’m obsessed with it. I love reading finance articles, understand the Fed, and trying to make sense of the current economy and trying to catch where it will go wrong.

For a long time, I’ve always only had ONE idea of what would cause the recession. It’s gone from housing, to apartments, to pensions, and back again, but now I have a LOT of predictions. That’s right; we’re in what has now come to be referred to as the Everything Bubble. Everything is a bubble right now. What’s going to pop first? Well… I’m torn… So here are my five guesses on what I think will cause the next recession!

Housing Crisis 2.0

So first and foremost, I have to start off with the housing crisis. If 2007 and 2008 taught us anything, it’s that you CAN go wrong investing in real estate. Everyone was doing it, and then the music stopped, and it all came crashing down. There are a lot of parallels you can draw in today’s world back to the 2006-2007 world. For example, how many of your friends or family have considered getting into real estate–INVESTMENT real estate? How many times have you heard about prices in your neighborhood or surrounding area rise too fast?

And here’s the other issue. Rates are rising. While you used to be able to get a mortgage in the 3% range, that rate is steadily increasing while the Fed is raising rates. If millennials weren’t able to buy homes at THOSE low rates, then how will they be able to buy them when they’re even higher. And if millennials, and the next generation don’t start considering getting a mortgage, we could see the housing market all the sudden collapse.

But that’s all anecdotal evidence. Let’s look at the facts.

First, there’s housing prices in America. No one can argue that they’ve gone up, but look how closely they are to the last recession:

Don’t believe me, let’s take a look at the market value of all homes in this fun, colorful, and albeit frightening gif:  

What does it all mean? Housing Bubble 2.0.

But it’s not enough to say there’s a bubble JUST because we’re at the same spot we were last time. There’s only a real problem if there’s a pullback and the bubble “pops.” I think there a few factors that could cause a pop in the next few years:

• Rates are rising: if rates are higher, then mortgage payments are higher. If someone can’t afford a mortgage payment, then they certainly can’t afford a higher mortgage payment thanks to rising rates. You don’t buy a house–you buy a payment. Higher rates mean higher payments. Less people buy houses, more supply on the market, prices decrease from bubble levels, underwater mortgages, etc etc etc RECESSION
• Millennials aren’t buying homes: this could go with the above one, but looking specifically at my generation, millennials aren’t buying homes. Now there’s a litany of reasons–lower wages, student debt, not wanting to make a commitment, and all that. But this is a HUGE issue. Also, more millennials are LOVING the apartment boom right now (see below). Millennials can live in luxury (much like some of them lived in the dorms at their colleges financed by student debt); they can have pools, gyms, bars–so why buy a house? And without more millennials buying homes and buying goods for their home and all that, SEE ABOVE more supply on the market, prices decrease from bubble levels, and same old same old…

It is worth noting that a few economists smarter than I am have said that the pullback in housing has already started.

Here’s some facts from  David Haggith published on The Great Recession Blog:

New-home-construction starts are down 12.3% nationwide to a nine-month low due to the largest single-month drop in more than year and a half. That is a huge sign of a nationwide housing market collapse when you consider that this is the time of year when housing is usually on a tear because weather allows construction everywhere. Instead, construction in the US is down … way down … EVERYWHERE.

While that nine-month period back to the last low in construction was merely propped up by hurricane and wildfire rebuilds, as I said it would be (see articles listed below), we’ve already hit the point where those necessary rebuilds (still happening) are not strong enough to overcome the more general housing decline that is overtaking the nation and many other nations. Significant to that point, housing starts fell in all regions of the country. Both single-family and multi-family housing construction are losing momentum.

As an even clearer sign of where we are headed in the near future, housing construction permits are also down … for the third count (third month in a row). So, the decline in permits is now a trend. While single-family permits saw a small gain of 0.8% in June, multi-family permits dropped 7.6%. June had been expected by economists to bring a rebound that didn’t materialize, setting a new trend firmly in place.

Mortgage applications also fell nationwide this week. Some of which are at 9 year lows.

*Ominous music playing in the distance*

Apartment and spec office

So this one is pretty difficult to explain, and may be the one that is the least plausible, but here it goes.

First off, anecdotal evidence: how many new luxury apartments have you seen built in your city in the last few years? How many new downtown construction sites are there for new office buildings? These should come as no surprise because after all, the market is doing well. People are making more money, so perhaps they want to spend them on expensive office spaces and expensive apartments. So what’s the problem?

Well, my issue is what this is doing to millennials. Young professionals are constantly seeing that they can live in a LUXURY apartment, spending way out of their means to live there, and thus not saving for retirement (or more importantly A FRIGGIN HOUSE). Do you need a bar, workout gym, pool, or a coffee shop in your apartment? You may think so, but it’s not the case. And who’s moving into these apartments? Major cities are seeing substantial growth with new arrivees willing to pay top dollar to live in the hip part of town.

But why is this a problem? Well, I could draw it all back to the fact that millennials aren’t saving for a house, and thus, will cause a housing crisis, but I want to avoid that part for this portion. Instead, we need to look at the developers. The developers, after all, are taking huge risks on these apartments. They’re taking huge loans on a gamble–a gamble that millennials will continue to want these apartments and continue moving to these new cities. But as we learned from 08, the music can’t go on forever. And many of these investors are from out of town. Take a look at who’s building some of the apartments in your city–i’d be willing to bet that a lot of the money is coming from out of town. So what will happen when the community bank that lended to them when the investor starts defaulting and walks away? The same thing that happened in 08.

And let’s look at more risks: millennials may start moving to more rural towns after they become disenfranchised by the rising prices in major cities. After all, the WSJ reported that many small rural towns are finding ways to pay millennials to move there.

Then what else is in the hip part of town? The brand new office buildings (and don’t get me started on how horrible of an idea WeWork is). But spec office in downtown areas is not delivering. We’re seeing previously built buildings foreclosing, and that’s because the demand for these has collapsed.

The point of all of this is that developers are taking huge risks in massive ways all across the country. My question is, what happens when the demand stops, and these investors (and banks) are left with MASSIVE assets, but no one to use them?

Pension Crisis

So you’ve probably heard people talk about pensions lately. There’s some states that are doing worse than others **COUGH COUGH MY HOME STATE OF KENTUCKY COUGH COUGH** but then there’s also the federal pension crisis.

Just to give you my favorite fact: the combined pension hole for US cities and states is the size of Germany’s economy. Let that sink in… That means that these cities and states cannot POSSIBLY keep their promise to the workers of a solid pension in retirement. And that could spell horrible complications for the rest of the society–even if you don’t have a pension.

Keep in mind, here’s my opinion on pensions: a promise is a promise. If you were promised something, you should get it. But here’s the issue: we may have gotten a LITTLE carried away with those promises. CLEARLY.

Most municipalities only have one solution: raise taxes or slash benefits. There’s no other solution. And BOTH those solutions will piss a lot of people off.

There’s a couple other factors that are causing issues. Retirees are living longer and longer, and there are starting to be not enough young workers to support them:

Another problem is predictions. We have people running pensions that are predicting outstanding growth, compounding, and great investments… but that’s clearly not the case.

“The next crisis won’t be secluded to just sub-prime auto loans, student loans, and commercial real estate. It will be fueled by the “run on pensions” when “fear” prevails benefits will be lost entirely.” – Lance Roberts from realinvestmentadvice.com

I want to end this section by PLEADING with all those on a pension to find a way to supplement it. Begin saving for your retirement through a Roth IRA, or see if your pension can blend with a self-funded 401k. Whatever it is, just be sure you’re ready in case one day, you’re told: “we’ve run dry.”

Automation

Automation is an easy one. If you haven’t watched this video, I highly suggest it (Humans Need Not Apply). It’s a 15 minute documentary that breaks down all the ways that robots could take basically ANY job in existence right now. And it’s 4 years old. In the last few years there have been major steps made in robotics, artificial intelligence, and automation. Robotic work could take over a majority of businesses in America tomorrow, and we are vastly unprepared for it. We could see unemployment rising above 25% because humans are inevitably unemployable. During the Great Depression, we had unemployment of 25% as well. If that many people are out of work, and literally unemployable compared to their robotic counterparts, what will we do? Will we see a universal basic income? Who knows. Either way, I’m just trying my best to find ways to seperate myself from our one day robotic overlords.

Tech Overinvestment

This is another easy one, and it goes back to the Everything Bubble (where everything is overpriced and about to POP). Investment in technology and startups has skyrocketed. Keep in mind, in a vacuum, this isn’t a bad thing. We have a great economy, interest rates are low (for now), so people have lots of cash and want to put it in the next big Amazon. But here’s the issue–we’re investing a lot of money in companies that are LOSING MONEY. My favorite punching bag is Tesla, and even though the government has given it $5 billion, it still can’t turn a profit. It’s burning through cash like crazy, and still investors are LINING up to give them more money.

“Uber, the highest-valued private technology company, has rapidly growing revenue but remains highly unprofitable. With revenue of $6.5 billion in 2016, it still registered a net loss of $2.8 billion.” – CNBC

And many of these companies unprofitable by design. Of course one could start a pothole company tomorrow, get a loan for the paving truck and start to grow slowly and organically without taking massive investment and growing rapidly like many companies in Silicon Valley. The world of Silicon Valley is “move fast break things,” so you have to keep up. Many companies in this atmosphere are choosing unprofitability for growth. Investment allows them to grow at an unbelievable rate.

But investments in startups are out of hand. Our society right now puts startups on some type of pedestal, when in reality, they’re not doing as well as we think.

“A recent study by the National Bureau of Economic Research concludes that, on average, unicorns are roughly 50 percent overvalued. The research, conducted by Will Gornall at the University of British Columbia and Ilya Strebulaev of Stanford, examined 135 unicorns (a start-up company valued at more than a billion dollars, typically in the software or technology sector.). Of those 135, the researchers estimate that nearly half, or 65, should be more fairly valued at less than $1 billion.”

We love shiny. And there’s a lot of shiny to choose from right now.

But how will this cause a recession? Let’s take a look at the last dotcom bubble:

Investopedia:

Many argue that the dotcom boom and bust was a case of too much too fast. Companies that couldn’t decide on their corporate creed were given millions of dollars and told to grow to Microsoft size by tomorrow. When it became clear that most companies couldn’t, much of the free cash coming from venture capitalists to take these companies public suddenly dried up. A lot of ridiculous companies went under, but so did many companies that could have been viable in the right conditions. This purge set back some technologies in Silicon Valley back decades in addition to destroying a lot of capital in failed IPOs.

Conclusion

So first off, I should probably admit that I’m an eternal optimist. The market will always have recessions, but it always rebounds. While I do have fears of the market failing, I definitely don’t know when it will happen, but I know whatever it is, we will persevere.

Secondly, no one knows when the next recession will ACTUALLY happen. I like to think I can predict WHAT will cause it, but NO ONE knows WHEN. Don’t let any of my advice keep you from investing or making any big decisions in the market. The only big mistake you can make in the market is missing out!

Finally, I would love to hear feedback on this blog. If you agree, if you disagree, please let us at Drunken Money know. You can email me at paul@drunkenmoney.com OR you can always comment on our social media. Whatever medium, I’ll try my best to get back to you! Would definitely love to hear your thoughts!

So you want to start a podcast? First off, you made the right choice. I’m biased obviously, but I love podcasts as a medium. You can be driving, running, or relaxing around the house, and you can consistently be learning. And you can learn about anything. Want to learn about a murder committed in the 1970s that you’ve never heard of, but is CRAZY? Well there’s a podcast for that. Hoping to get into mediation more deeply? There’s a podcast for that. Or maybe you’re a millennial who wants to learn more about personal finance, adulting, and entrepreneurialism, then there’s OBVIOUSLY a podcast about that.

But what’s your podcast going to be? For the sake of this podcast, I’m going to assume you already have an idea, and we’re not going to go too deeply on what your podcast should be about, but my only advice is that you make sure you do it on something you’re passionate about. It makes it way more fun, and if you find it interesting, there’s almost a guarantee that someone else will too.

But let’s get down to it. There are a few things you need to start a podcast, and we have suggestions on all of them:

Website

You need a website first and foremost. You probably have some experience with what it’s like to build a website, and believe me, there’s a million ways to do it. So what’s the best way?

Squarespace

There’s the already-made, less customizable, ready-to-go websites like Squarespace. Now this is what I would suggest for anyone who doesn’t want to spend much time making a website. And plus, you’re a podcast. You don’t need a super flashy, crazy website–you need a website that gets your content out there and displays your brand. I think Squarespace does a good job at that AND has plenty of podcast templates. It’s also pretty easy to publish your rss feed and get your podcast off the ground a bit faster.

WordPress

For the ambitious out there who want a bit more control on their podcast, there’s also WordPress. Through WordPress you can have more choices and a lot of customization options. You’re basically building it yourself. There’s unlimited plug-ins, templates, and tools to help build a successful podcast through WordPress, BUT it takes more work.

FULL DISCLOSURE: we started with a website on WordPress because John wanted to learn how to build a website. Long story short, it sucked, so we ended up paying someone (Jon Matar) to help us make one. When we did that, however, it made it so much easier for the developer to convert our website because we already had content on WordPress they could use.

If I could go back and do it all again, I would have done Squarespace to start, and then when we had more money, paid someone to build us one on WordPress. Squarespace is just an easy way to have something that looks gorgeous immediately, easily, and cheaply. Soapbox over.

Equipment

Microphone

There’s a million options here for microphones. Remember, your audio is now the only thing you have, so it’s definitely worth it to have good equipment, but don’t overthink it. If you have great content, you’ll catch a break.

But for microphones, there’s the cheapest option: your iPhone or Android (you’d actually be surprised at how great the audio is on phones), and then there’s the most expensive option: the Heil PR 40 Dynamic Studio Recording Microphone. But you don’t have to blow the bank to get studio-grade equipment. Drunken Money swears by the Audio-Technica ATR2100-USB Cardioid Dynamic USB/XLR Microphone . These are great, offer professional grade audio, not too expensive, and plug directly into your computer via usb. Super simple.

Hardware

Once you have the recording equipment, many people will tell you that you now need a setup to plug your mics into, where you can mash and mix and mess with the sound, but honestly, you can do a lot on your computer. We have a usb splitter that gives you extra usb ports, so we can get three mics plugged in at once, but then all the audio collects on the machine.

Software

Again, LOTS of options out there, but since this is Drunken Money, we always go with the best bang for our buck. For all of our podcasts, we use Garageband, the native audio mixer on all Macs. There’s another GREAT application called Audacity. I don’t know how it’s free because it is SO great, and honestly, it’s probably what Drunken Money should be using…

Podcast hosting

There are two big players out there when it comes to podcast hosting: Libsyn and Blubrry. Both of these have monthly pricing, easy publishing, and plugins that work with wordpress and website templates super easily. To be honest, it doesn’t REALLY matter what you pick, but FULL DISCLOSURE, we go with Libsyn, and we’ve been nothing but happy (we originally used Soundcloud, but it didn’t give us as many stats as we wanted).

Logos, Design, Intros, etc

This is where you get to have some marketing fun and branding!

Logos

You probably know a few friends right know who could design you an awesome logo, and we strongly encourage this (but make sure you pay full price for someone’s work – we, at Drunken Money, are all about saving money, but we’re also about supporting friends and family and MAKING money. If someone is taking the time to make you a logo, you NEED to pay them for their services. You don’t want to show up on /r/choosingbeggars!)

There’s also tons of options online if you don’t know any graphic designers. Drunken Money used a website called www.40dollarlogo.com. Pretty straight forward obviously. There’s also Fiverr, where you can get ANYTHING done. It’s a pretty cheap freelance website with awesome people.

Podcast Intro

Again, you can have as much fun here as you want, but you have to get soemthing that perfectly introduces your brand, makes sense, and sounds a bit professional. We used Fiverr for this. We found someone who makes podcast intros for a living, gave her a script, and now we have the intro you, our listener, hear on every podcast. We love it.

Guests/content

Once you have an idea and the equipment, you can publish anything you want, but now it’s time to get some content and guests. You’d be surprised how willing people are to come on your show. Whatever it is, people love talking about themselves (myself included), so giving them an option to share their story and knowledge with a wide audience makes finding guests easy. The key to having a successful podcast is having big names, and then having THEM repost it. That’s it. But in reality, you’re not going to have Jennifer Lawrence on your show tomorrow, so start small, and eventually, you’ll get a big name that will want to help you out.

Conclusion

Starting a podcast was one of the best decisions I ever made. It all started with a drunken evening with a buddy I met networking, but it’s turned into something that I love doing every week. I get to meet so many people, learn more about EVERYTHING, and of course have a few drinks.

I cannot stress enough: if you’re thinking about starting a podcast, just do it. It doesn’t’t have to perfect. You have the rest of your life to make it perfect. But the more you wait, the further behind you’ll always be from the early adopters.

Story from Forbes

Is the freedom of press under attack? Are podcasters a threat to society? The Department of Homeland Security certainly thinks so.

As part of its “media monitoring,” the DHS seeks to track more than 290,000 global news sources as well as social media in over 100 languages, including Arabic, Chinese and Russian, for instant translation into English. The successful contracting company will have “24/7 access to a password protected, media influencer database, including journalists, editors, correspondents, social media influencers, bloggers etc.” in order to “identify any and all media coverage related to the Department of Homeland Security or a particular event.”

“Any and all media coverage,” as you might imagine, is quite broad and includes “online, print, broadcast, cable, radio, trade and industry publications, local sources, national/international outlets, traditional news sources, and social media.”

There you have it. The Department of Homeland Security thinks it’s necessary to monitor bloggers, podcasters, local journalists, and everyone in between? Why? Well, some of the reasons seem a bit convoluted, but much of it seems to be circling the insurgence of “fake news” and the thought that all news should be monitored. Let’s not forget when an Indiana State Rep wanted to have all journalists licensed. It’s all seeming a bit 1984 for me.

To Drunken Money, what is the creepiest part of this whole report, is what the DHS hopes to do with this information. If you’re a content creator or a journalist, could you be subject to harsher times leaving the country or not get a Visa? That may not be the craziest thing to happen especially because if you want to get a Visa, you better be prepared to hand over the last five years of your social media history.

Again, it’s all quite frightening, especially for anyone who calls themselves a creator or a blogger or a podcaster, and Drunken Money isn’t even that popular. I can’t even imagine how some of the popular podcasters must feel right now…

 

It seems like all our friends are “investing” in Bitcoin, Ethereum, or the new crypto-currency of the day. I have heard more talk of Coinbase in the last 6 months than Berkshire Hathaway among my peers. Well, we hate to burst your bubble, but we believe cryptocurrency is one of the worst “investments” a millennial can make (note: we aren’t discussing blockchain or how the technology can revolutionize the world, just the pointlessness of purchasing cryptocurrency).

So, why do we think purchasing cryptocurrency is about as useless as trying to make money by gambling on the KY Derby? Our thoughts are summed up perfectly by two of our favorite people, Mr. Money Mustache and Warren Buffett.

As Mr. Money Mustache points out:

“We’ll start with the answer: No, you should not invest in Bitcoin. The reason is that it’s not an investment. Just like gold, tulip bulbs, Beanie Babies, 1999 dotcoms without any hope of a product plan, “pre-construction pricing” Toronto condominiums you have no intent to occupy or rent out, and rare baseball cards are not investments.

These are all things that people have bought in the past, and driven to completely irrational prices, not because they did anything useful or produced any money and value to society, but solely because they thought they would be able to sell them to someone else for more in the future.

When you make this kind of purchase, which you should never do, you are speculating, which is not a useful activity. You’re playing a psychological, win-lose battle against other humans with money as the only objective. Even if you win some money through dumb luck, you have lost some time and life energy, which means you have lost.”

Not a fan or never heard of Mr. Money Mustache? Well, you’ve probably heard of Warren Buffett, who should be one of everybody’s heroes when it comes to investing:

“A long-time value investor, Buffett compares cryptocurrency to gold, which he sees as a nonproductive asset. ‘It’s essentially not going to deliver anything other than supposed scarcity because you can only mine so many,’ Buffett said at the Berkshire Hathaway annual shareholder meeting on Saturday. ‘So what? What does it produce itself?'”

Additionally, Buffett points out that if you had $10,000 to invest in 1942, you would have $51 million if you invested in the S&P 500, but only $400,000 if you invested in gold. While we won’t know for sure how cryptocurrencies will fair in relation to gold, I would bet everything I have that investing in the S&P 500 will outperform cryptocurrency long-term (and as a millennial investor, you should only care about the long-term).

Also, I won’t bore you with the details, but the IRS treats cryptocurrency as a security (stock), and not a foreign currency, which means every time you trade one cryptocurrency with another, it is a taxable event. Which also means if you have a gain and trade it before a year, you will have to pay taxes at your ordinary tax rate (which is not good and defeats one of the biggest tax breaks you can have – the long-term capital gains tax rate).

So, in summary, cryptocurrency is not a Drunken Money approved investment for millennials hoping to plan for an early retirement. It is an “investment” that is built on speculation and hope, and has no underlying value (it is not a company that makes money for you), and it could result in awful tax consequences if you aren’t careful.

Be a smart investor and choose investments that actually produce value (such as a company that pays dividends), and let your investments grow so you can enjoy an early retirement.

Have any topics you want to be covered or amazing people you’d like us to interview? Let us know! You can email us at info@drunkenmoney.com. You can also find us on Facebook, Instagram, Twitter, and Linkedin. Please be sure to subscribe to our weekly mailing list at drunkenmoney.com/subscribe.

Job Shortages

You’ve probably heard about the job shortage in America. Many cities and towns are struggling to find workers for a wide-range of jobs such as manufacturers, engineers, mechanics, and many more. And with unemployment at an 18 year low (and the Federal Reserve forecasting even lower unemployment over the next year), it is clear that there simply aren’t enough people to fill these jobs.

The Wall Street Journal is reporting now that many midwestern towns are paying millennials to move there to combat this job shortage. These can come in many forms, but few millennials are receiving grants to pay down their student loans, make a down payment on their home, and in one rare case, the chamber of commerce held a ceremony to give the recipient an even bigger check.

Millennials on the Move

Since 2007-2009, many millennials have opted to move away from rural towns instead to big cities such as San Francisco, Austin, or New York, but these cities are having their rents skyrocketing way past wages. Now the idea of moving to some of these cities would be unimaginable because of the rent alone. And the rural towns that these millennials left behind are now struggling in their own way. Small businesses are all ranking labor shortages as their No. 1 business concern, according to the National Federation of Independent Business. What other way to get millennials to move back, then to offer them more money?

It’s clear that there is an issue in America, so these small towns such as Hamilton, OH are finding new ways to bring the right talent to fill in the gaps. Time will tell if this strategy will work.

As millennials, we hear all the time how we should save our money and invest for retirement, but do any of us actually know how much we should be saving? 2% of our gross salary? 5% of our after-tax income? 10% of the country’s average household GDP adjusted for inflation? What does it all mean?

Well it turns out the amount we actually need to be saving for retirement is a very simple calculation, and it has nothing to do with how much you or I or anybody else earns today.

It depends entirely on how much we think we’ll want to spend in the future.

Generally, a safe rule of thumb is that we will be able to withdraw 4% of our total investments each year in order to keep our principal and adjust for inflation. So, to quickly calculate how much we need to retire, let’s say we can live off $30,000 each year when we’re old, have no kids in the house to pay for, and have no debt (if you don’t think this is realistic – check out mrmoneymustache.com and learn something). By using the 4% withdrawal rule, we will multiply the $30,000 by 25 (1/.04) to get to $750,000 total savings needed to retire.

But how do we determine the amount we should invest each year?

We will need a present value calculator (I use moneychimp.com).

Using me as an example, I am 25 and want to retire in 25 years (at age 50, because I don’t want to be old and half dead when I can finally stop working), so I will need the future value of what I invest today to be $30,000, which is $750,000 divided by 25.

Using a present value calculator, we will enter the future value we want our investment to be (in this case $30,000), our time until we need the money (25 years), and our discount rate (we will use 5% – which is the approximate compound annual growth rate adjusted for inflation for stocks from 1970 to 2015 of 6%, adjusted for a 15% capital gains tax rate).

The present value calculator tells us that this year we should invest $8,800 to end up with $30,000 in 25 years. If we adjust the years to 24, we will find that next year we should invest $9,300 to get the same result. Every year we get closer to retirement, the more we will need to invest to get the same future value result because there will be less compound interest.

I know you’re probably thinking, “There’s no way I can save $8,800 per year right now”. Well I call bullshit. That $8,800 comes out to $170 per week, or $24 per day. I’m positive if we sit down and look over we can find things to cut out of your spending to get us to that goal. And if not? Remember, this is just an estimate based on one set of facts. You can always adjust the number to account for your projected spending during retirement and the age you want to retire. Say we want to work part-time after age 50 and expect to make $10,000? The number we need to save will decrease significantly (it will be less than $6,000 for this year). Same goes if we make the retirement age 65 instead of 50, we’d only need to invest $4,250 this year ($82 per week).

Now how should we invest? We’ll cover that in another episode, but the common recommendation is to diversify our investments as much as possible. Personally, I like to use Betterment for some of my investments because it automatically withdraws money from my bank account (I never miss the money and it takes advantage of dollar cost averaging) and it invests my money in a very diverse range of domestic and foreign stocks and bonds.

I know this was an information dense episode, but remember at the end of the day, a happy retirement is right around the corner. We just need to plan ahead and work towards our goal. And again, the only number that matters is how much we need for retirement. Once we know that number, all it takes is a little math to determine how much we should be investing each year. With a little disciplined investing we’ll be well prepared to retire early and be able to enjoy life. Think how great it will be in 25-30 years to sit back together, drink a beer, and be able to enjoy the next few decades of our lives in comfort.

I hope you enjoyed this episode. Please let us know your thoughts at drunkenmoneypodcast@gmail.com. Check us out on Facebook and Twitter.