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How Not Going To College Will Earn You $20,000,000

February 25, 2008 | Author: Travis | Filed under: College, Economics

College lets you socialize. It helps you acclimate to societal norms and builds your alcohol tolerance. College will get you laid and make you friends. It might even get you a decent job.

However, for the overwhelming majority of students, college will not provide financial freedom.

Everyone from janitors to doctors become trapped in a cycle of mortgages, credit card debt and general consumer suckage.

Imagine if the parents and their child decided to do something different.

Instead of putting their money towards college tuition, they decide to invest it in the stock market. Below I will run through two possible scenarios.

Let me assume a few things.

The parents do not qualify for financial aid.
Their children are mediocre and do not receive scholarships.
They choose a private university costing approximately $50,000 / year.
The money is invested into a stable growth index fund that returns an average of 7%
All earning figures below are pre-tax

Now for the interesting part:

Growth of the Parental “College Account”

Freshman Year = $50,000 * 1.07=$53,500.00

Sophomore Year = 50,000+53,500.00=103,500

103,500*1.07=110,745

Junior Year = 50,000+110,745=160,745

160,745*1.07=171,997.15

Senior Year = 50,000 +171,997.15=221,997.15

221,997.15*1.07=237,536.9505

At this point assume they would have graduated. They have a net worth of at least $237,536.95.

Imagine the kid works a crap job for $8/hour * 40 hours/week * 50 weeks= $16,000 / year…

Pittances. However, that kid is living at home, all expenses paid. They can save, burn or do whatever the hell the want with their money and suffer no consequence.

I would prescribe six months work, six months travel as a way to grow personality and maturity. It is possible to live at a very nice standard of living for $8,000 in many parts of the world (Thailand, Costa Rica, Peru, Mexico all jump out to me as possibilities).

Year 1 = 237,536.9505 *1.07=254,164.537

Year 2 = 2 254,164.537*1.07=271,956.0546

Year 3 =271,956.0546 * 1.07=290,992.9784

Year 4 =290,992.9784 * 1.07=311,362.4869

Year 5 =311,362.4869 * 1.07=333,157.861

At age 27 the child is earning $22,000 on the interest from the parent’s “college” investment and they have $333,157.861 in the bank. They are entirely debt free and probably are now making $16 an hour thanks to promotions and at least minimal effort, bringing home $32,000 yearly. They would have moved out, have some roommates and be enjoying existence and irresponsible adulthood.

At age 32 they decide they want to get married. Their spouse is college educated and $50,000 / year. They continue their middle class lives happily. They have kids, move to the suburbs and three years later enjoy one another’s presence around 50% of the time. A pre-nup would be wise.

When the non-student turns 45, they will be sitting on $1,000,000 and earning more from interest than the combined salaries.

At this point the happy couple can with the same standard of living without working another day in their lives.

Let’s assume that they don’t withdraw money or invest any more money, but continue to work and live off their household salaries. When they die at age 88, they will be worth $19,218,593.50.

Now let’s assume that same mediocre kid wasn’t mediocre, but hardworking and innovative

Assume this child is not mediocre. Assume they hold above average intelligence and more importantly, a drive to succeed in life.

Rather than working for full time for McDonald’s, they work part time and spend 25 hours a week learning css, html and more importantly Ruby/ RoR and php/etc. He networks online and snags a job with an internet startup. He works the next two years at $10/hour and emerges with a skill that pays an average of $30/hour doing freelance work.

He then travels for a year around Latin America, doing freelance work from internet cafes to pay for the $10 hotels and $3 meals. They learn Spanish and build a resume.

Upon returning to the states they get a job with a larger company. They earn $55,000 a year and live well below their means.

They are 21 years old and if the start putting $5,000 a year into their account they will be worth $1,771,753.20 at age 45.

Or imagine they save $10,000 a year and reinvest into something that holds higher risk for larger gain.

Let’s say that while traveling he picked up on the incredible growth in the Latin American real estate market and bought land in Costa Rica.

Two examples of Costa Rican real estate from my real life:

Buy for $30,000. Sell five years later for $280,000. Location: La fortuna

Buy: $8,000. Sell three years later for $75,000. Location: Tamarindo

These rates are not extraordinary. Although it would be ridiculous to buy into these areas now, there are other areas that will be experiencing the same growth a few years down the road.

The Osa Peninsula was just approved for an international airport and I hear that a marina is in the talks.

Beachfront property is absurdly cheap. There is seriously no way that someone can lose money buying land down there as long as they are willing to wait six months.

If anyone is interested in setting buying land with me, send me an email. Seriously.

Let’s say he invested $50,000 in five places over ten years. I would expect him to make at least a 500% profit on each one of his purchases. If not, he just sits on his holdings for a few more years, then sells.

Startup:

Instead of real estate market imagine they split their investment across a number of internet startups.

Remember this kid worked for three years in this sector. He has a decent understanding of what makes and breaks a company.

Start-up Math:

Let’s say that they invest $2,000 in five startups each year.

Two go bankrupt, two get bought-out three years later and one becomes decently big and remains independent after five years.

Let’s say they make approximately 300% profit on the two that were bought out and 1500% on the one that got big after five years.

He made $12,000 on the two that were bought and he chooses to hold the stock on the one that is growing still.

^Above figures probably are grossly optimistic. Indulge me.

He does this for 15 years. He is intelligent and invests more money in the companies that are growing while constantly seeding money into those that are still growing. He makes a shit ton of money.

Between the internet startups and real estate, he will have a diversified portfolio worth many, many times his initial investments.

And we can’t forget college fund, which also will be worth the same $1,000,000 at age 45, assuming he put all his money into startups and real estate.

Could It Work?

As long as the kid didn’t withdraw the $200,000 when they turn 22 and blow it on idiotic liabilities, I don’t see why it couldn’t.

Since this would no doubt happen 95% of the time, legal formalities would be required. Let’s say that at age 32 the child has complete access to the account.

Concluding Thoughts:

To those parents sending their kids off to school, think a little bit more about what you are getting for your money. If your child is an idiot, they will remain an idiot in school and will no doubt waste your money.

Make them pay for school or get some work experience before attending. They will grow up and possibly discover something to be passionate about.

Or not and they will live a life of mediocrity. Blame your bad parenting and genetics if that happens.

Remember that college is not for everyone. If your daughter simply wants to get married and become a mother at age 28, do not waste your money on an education that will serve no greater purpose than cocktail hour.

To those with intelligent kids, the same rules apply. Do not let the system squander talent on worthless classes and professors who waddle around pontificating with a giant white tower shoved up their collective asses.

Let your kid explore. If they don’t come back, it would have been a waste of money anyways.

-Travis Taylor

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1 person has left a comment

Yeah, but in the long run how long will that money last you? And if you do invest it in a business you start what happens when that fails? You will have an incredibly hard time finding a well paying job with out a college degree. Or if you do make some good investments, how do you plan on making money while you wait for them to grow?