Spending Away The Future
Robert Pittman
Accounting 7310
July 6, 1999
The atmosphere around the coliseum that morning was electric. People were hurriedly lining up and preparing to enter the building for the University of Georgia’s graduation ceremonies. Graduates young and old alike were thrilled to be able to reach the ultimate goal of their efforts: a college degree. Families congratulated the graduates, took pictures with them, and discussed their future plans. The three graduates at the head of the line had all been close through college. John, Lisa, and Steve knew each other since their freshman year in school. Each of them psychology majors, they stayed close by seeing each other in class and at the popular college student hangouts. As they neared graduation, all of them accepted jobs with high-profile companies. John took a job at Georgia Pacific as a human resources consultant. Lisa accepted an offer to do the same job at AT&T. Steve was to become a management trainee at a local Barnes and Noble bookstore. While they were waiting to enter the coliseum, all of them discussed the new opportunities they were facing.
“I can’t believe that I’m actually going to be able to work in HR at one of the biggest companies around!” As John spoke, he was obviously excited. He was shaking his hands and arms vigorously and his face was glowing. He looked around and said, “I just can’t wait to get started. I just CAN’T WAIT! The money is one of the best parts. I’m going to be able to afford so much more than I can now.”
Lisa was also highly excited, as evidenced by the gleam in her eyes and the broad smile across her face. She told the group, “It makes me feel really good to know that somebody will appreciate my help and give me an opportunity to prove my knowledge. I’m going to start after the Caribbean cruise that I’m taking right after graduation. When you work for a living, you can do things like that. Sure it costs money, but I’m worth it, right?”
Steve was a bit more relaxed. Sure he was excited, but he also knew that new challenges and opportunities meant changing the way he lived and thought. Steve spoke less about money and more about responsibility, saying, “I just hope that I can make that adjustment from college life to professional life. I want to be able to start saving for my future and have enough to live comfortably now. I’m really happy about the company’s benefits: we get our pre-tax contributions matched dollar-for-dollar into our §401(k) plans, free life insurance premiums up to a certain dollar amount, free health insurance, and lots of other perks, not to mention a good salary. It’s really a great deal. By the way, how are the benefits for each of you set up?”
Lisa and John looked at each other. Each of them appeared confused, as their lips protruded and their eyes narrowed. It was obvious to Steve that they hadn’t taken any time to analyze their company’s employee benefits. John shrugged his shoulders and said, “I’m not sure. I guess they’re on the same level as others. They have to be able to give their employees the same stuff as most other companies. Who cares anyway? I won’t use that stuff until a whole lot later. It’s not important to me right now. I’ll have plenty of time to save money for when I retire.”
Lisa agreed with John, saying, “I’m not really worried about that. My company has to be on a level with everybody else. I’m not going to retire for 40 years so who cares?”
Steve replied, “I just want to start now. You know, I heard that saving when you’re young makes a whole lot of difference. It might mean the difference in being wealthy and just being satisfied when you retire. The §401(k) plan contributions that I make are deducted out of my salary, so I don’t pay any taxes on them until I retire. Saving money is something that both of you should probably think about. Plus, you never know if something like an accident or an illness could occur.”
After Steve spoke, the graduation ceremonies were beginning. Each of the graduates entered the arena and took their seats. Even though John and Lisa said they weren’t concerned with retirement, they both thought more about what Steve said to them. After the ceremony was over, all three of the graduates exchanged telephone numbers and e-mail addresses. Since they would all be working in Atlanta, they could stay in touch easily. Each of them parted ways and embarked on their new opportunities.
John started work almost immediately at Georgia Pacific. He made the drive downtown and leisurely strolled into the plush corporate offices high above the city. His first day was full of orientation and human resources training. As he sat in the conference room on the top floor of the office building, John listened attentively to the information being presented to him. He followed the presentations on filling out time reports, office policies, and travel arrangements closely. When the orientation session on benefits arrived, however, John began looking disinterested. First he started tapping his fingers on the side of his chair and fidgeting in his seat. Then he began yawning and staring up at the ceiling. John even turned himself away from the presentation and looked out the window at the people far below. He missed the entire discussion on the benefit packages offered by Georgia Pacific.
After the presentation was over, all the new employees took a break. John stretched and walked slowly out of the conference room and into the break room. One of his coworkers looked at him and said, “You sure seemed pretty bored during the benefits presentation. You must know all of this stuff already.”
John said, “Nah, I just don’t really care right now. I have my whole life in front of me to save for retirement. I’m sure not going to worry about it now. The other stuff like health insurance I’ll look at later. It’s nothing I’m really concerned about.”
His coworker replied, “Man, I don’t know. I read somewhere that, if you start saving money when you’re young, you can accumulate a pile of it a lot quicker than by waiting until later. I heard that, the longer you can let your investments grow, the better off you’ll be when it’s time for retirement. In fact, the article that they handed us today in the orientation talked about that. It said you need something like $480,000 in retirement money at age 65 to be able to spend $30,000 a year. That’s not even a whole lot of money to live on each year. It’s persuaded me to start saving early. You don’t even have to make a huge return in small stocks or some emerging markets investment, because all you need is an eight to ten percent return. You can make a lot more than that in a good, blue-chip, no-load mutual fund.” John acknowledged his coworker’s comments with a shrug of his shoulders and went back into the conference room for the rest of his orientation. He recalled what Steve said at graduation and considered his coworker’s comments, but decided that the benefits information wasn’t important to him.
Lisa waited a little longer after graduation to start working at AT&T since she went on her Caribbean cruise. When she got back she reviewed her checking account, savings account, and other idle cash balances. After shouting some expletives at herself for spending most of her life savings on a trip, Lisa began thinking again about what Steve said at the graduation ceremonies. Lisa started to review her spending habits and prepared a cash budget. She began saving some of the money she was spending on recreation each month. When she arrived for her first day of work, she listened attentively to what benefits were offered by her company. AT&T allowed her to immediately begin contributing to her §401(k) plan, and she elected to have the maximum amount contributed out of each paycheck. She understood the concept of “free money” in the form of matching contributions by AT&T as well. Since AT&T also matched her contributions dollar-for-dollar, Lisa decided to maximize her benefit at retirement. Since the contribution limit for §401(k) plans is $10,000 in 1999, Lisa elected to contribute $5,000 with AT&T matching all $5,000. After the session was over, all of the newly-hired AT&T employees went to dinner at a posh restaurant on the edge of downtown Atlanta.
While the group was seated at their table, one of the new hires said, “That benefit stuff is boring. I just don’t really concern myself with any of that. I could care less about all that matching stuff and all those insurance plans. I need to buy too much now to put any money into a retirement plan.”
Lisa bristled at what her co-worker just told the group. She sat up in her chair and looked for an opportunity to speak. She quickly said, “I used to think just like you, that I shouldn’t care about planning for the future because there would be plenty of time for it later. I spent most of my life savings on a stupid cruise and realized how dumb that really was. I could have used all of that money to build a retirement seed or an emergency fund. Instead, it bought ten days of life on a boat. I don’t know what I was thinking. After I spent all of my money on that trip, I started thinking about the future. I realized how hard it really was to save money but how easy it was to spend it. I’m worried that, if I don’t save what I should now, I won’t have much of anything left at retirement. Who wants to work until they’re 85?” Her coworker reacted much like John, shrugging his shoulders and changing the conversation topic.
Steve started work soon after graduation as well. True to form, he listened very carefully to the presentation on benefits, even though he already knew most of the information about the packages. Steve took notes and asked questions about his choices in health insurance and other items, such as his investment options for his retirement plan. Steve also elected to have the maximum amount withdrawn from his paycheck for retirement plan contributions, $5,000 in 1999. He reasoned that, when his employer is willing to match what he contributes, he has an opportunity to build half of his retirement plan from free contributions. Steve decided to forego a high volume of social activity now to make his retired years as happy as possible.
About three months after graduation, all three friends met at a local restaurant for dinner. Steve arrived first, driving an older model, mid-sized sedan and wearing jeans and a casual shirt. Lisa came straight from work, wearing a business suit. Lisa was driving the vehicle she had while in college: a small, practical sedan. Steve and Lisa embraced near the door of the restaurant. Steve listened attentively while Lisa described her views on saving money. He was impressed with her change in focus and her practicality. While she was speaking, Steve also noticed that she was a lot more attractive than he had remembered. At the risk of disrupting their solid friendship, though, he did not try to push for a more intimate relationship. While Steve was listening to and admiring Lisa, John arrived at the restaurant. Lisa and Steve were awed and disappointed by both the size and impracticality of the new Jaguar convertible he was driving. He stepped out of the vehicle and shocked his two friends again with his flashy attire. He was wearing an olive-hued Italian suit, cufflinks, and a shiny gold Rolex watch. Steve heard Lisa under her breath mutter “Oh my.”
After greeting each of his friends, John followed Lisa and Steve to their table in a dimly-lit corner of the restaurant. They sat down and started discussing their new jobs. John started by saying, “It’s great. I’m having a blast learning about the corporate world. And, as you can probably tell, the real world isn’t treating me bad either. It’s great to be able to afford stuff you really want. Sure it costs a lot, but all I’m worried about is paying the bills each month. As long as I can do that, I’ll be fine.”
Lisa countered him by saying, “I guess that means that you’re not saving any of the money you’re earning, right?”
“Nope. Not a cent. I don’t have to. I’m young and I have a long time to worry about all that retirement stuff.”
Steve rolled his eyes up toward the ceiling. He couldn’t believe that his friend was being so impractical now at the risk of jeopardizing his comfort in the future. He decided to change the subject so that the table discussion didn’t degenerate into an attack on John for not saving money. Steve turned to Lisa and said, “Tell us about your job. I heard that you’re staying really busy.”
Lisa said, “It’s fantastic. I love the opportunity to meet new people. I’m doing a lot of traveling, too. When I travel, the company pays me a per diem. The best part is that the per diem covers all of my daily expenses, which means that I can save a lot of money from my regular salary. I’m pumping a lot of money into my §401(k) plan and I’m saving on the side, too. I have a Roth IRA set up and I’m saving for the so-called rainy day. With my Roth IRA, I can put $2,000 of my earnings in after tax and invest it in anything I want. I’m investing in an international stock mutual fund, a money market mutual fund, and some corporate bonds. The money that I pull out at retirement will all be tax free. I just don’t think you can lose with saving money like this.”
Steve was just about to describe his job when John beckoned the server over to the table and said, “Can we see your wine list please?” John turned to Steve and Lisa and said, “Don’t worry, you two. I’m going to pay for dinner and I don’t want to hear any discussion.” The server immediately produced the wine list and John selected a $70 bottle.
Steve was visibly upset by John’s outlandish selection of wines. He stared hard at Lisa, attempting to communicate his anger at John for spending so much money on a bottle of wine. Steve said, “OK, I guess I’ll pay next time. By the way, my job is going great. Like Lisa, I’m traveling almost constantly. In the past month, I may have stayed in my apartment about ten days. It sure helps when it comes time to pay the bills, though. You wouldn’t believe how much money you can sock away by just staying out of town. It’s a great deal when you’re young.”
The three friends continued their dinner conversation without discussing money again. They enjoyed dinner, although John ordered a much more expensive entrée than Lisa and Steve. When the check arrived, John pulled two crisp $100 bills out of his billfold, placed them of the table, and said, “Are you all ready to go?”
Steve and Lisa looked at each other and said, “Yeah. I guess. Are you?” John nodded. The three friends left the restaurant and exchanged their goodbyes. They agreed to keep in touch with each other and get together for dinner again very soon.
Weeks turned into months, and the friends gathered occasionally for dinner. After about two years of work, the group gathered for dinner at the same restaurant. This time John was the first to arrive. He was still as sharply dressed and still drove his flashy convertible. He waited for his friends to show at the restaurant. Steve arrived next, dressed casually and driving a new but practical mid-sized sedan. He shook hands with John and the two discussed the progress of the Georgia Bulldogs, who had just been beaten badly at home by the LSU Tigers, the odds-on favorite to win the college football national championship. Lisa arrived shortly after, dressed conservatively and driving the same vehicle that she had two years ago. Steve noticed that she was just as attractive as ever. She excitedly greeted her friends and the three sat down at their table.
After discussing the weather, friends, and sports, the dinner conversation of the three moved to their jobs and the new experiences from them. John said, “My job’s getting kind of boring. I’m not doing much of anything different than the last time. I’d love to try to change jobs but I can’t because I have way too many bills. I wish I could just walk away from my car payments and my credit card payments but I just can’t.”
This news came as a total shock to Lisa and Steve. They always thought John was happy and excited about the work he had and the job he was doing. The information that they just received concerned them, and they asked John to explain the problems that he was having in greater detail.
John started to appear upset, wringing his hands and glancing around the restaurant. He avoided eye contact with his friends, knowing that they would make him feel ashamed for living so extravagantly. He said, “It’s not so much about the actual job or the people but my position. See, I feel like I should have been promoted about six months ago but I got passed up. I bought a new house thinking that I would get that promotion and the extra money that comes along with it, but I didn’t. I guess my spending should have waited until I actually got the new position at work but I just couldn’t pass up the great deal on the house.”
Steve looked at John and said, “Have you talked to your supervisors at work? Maybe they can tell you why you didn’t get that promotion and put together a raise for overtime deal or something like that for you. I’m not going to tell you that you made a mistake, but I think you know that you should have waited to buy the house until your financial situation improved.”
Lisa said to John, “I think you should start looking for a new job. You never know what’s out there. You have to stay here since you bought a house, but you should be able to find something else. Maybe somebody that you deal with on a daily basis needs some help. Have you looked into any of that or not?”
The expression on John’s face lengthened. His eyes once again moved away from his friends, this time focused on the floor. He said, “That’s the bad thing. I already have looked for a job and can’t find anything paying what I’m getting right now. I’m pretty much stuck where I am. I am going to talk to my supervisors about an overtime deal, though. I just wish I hadn’t bought that house right now. That was a bad move.”
After John finished his story, Lisa and Steve were hesitant to talk about the good experiences that they were having at their jobs. There was no way that they were discussing how much money they were saving, especially since John would probably perceive that as bragging. When the server arrived to take the dinner orders of the three friends, John did not order any wine and he ordered one of the less expensive entreés on the menu. Until this meeting, John had always ordered expensive entreés and wine, angering his less extravagant friends.
After dinner was over, Lisa looked at John and said, “Have you learned anything about saving money based on this experience? Maybe saving money would have helped you out in this tough situation. I remember that, after my cruise, I was angry with myself because I couldn’t justify spending that amount of money at one time. If something had happened to my health or my job, I wouldn’t have had anything to help me through the tough periods. That’s when I decided to stay away from the extravagant lifestyle to make sure that I would always be comfortable.”
John said, “Yes, I know. I really should watch the way I spend money more closely. If I lose my job or get sick, I can’t do anything. I would probably have to immediately try to sell my house and my car. I would still probably have to take a big loss on the sale because I would need to sell it right away. I can only hope that I’ll be able to save more money at some time in the future.”
Steve paid the bill for dinner this time and the three friends left the restaurant. Each of them agreed to meet again soon and said that they would check with John in the next few weeks to see how he was doing. After John left, Steve and Lisa both expressed concern about John. They decided to get together in the next week and talk about his situation more. Steve was excited about the opportunity to meet Lisa without John present, not only to speak about John’s situation but also to explore his chances of knowing Lisa on a more personal basis and, perhaps, reveal his feelings for her. They agreed to go to dinner the next week.
When the day for Lisa and Steve to go to dinner arrived, Steve picked Lisa up at her apartment. The two went to a different restaurant and had dinner together. They had a mutual admiration for each other, as both of them had many of the same goals and desires. At dinner, they discussed their friend’s situation, but not in depth. They mainly discussed items such as future plans, relationships, views on success, and, finally, their feelings for each other. After that dinner, Lisa and Steve were inseparable. They began to date just as their careers required less travel, meaning that the two could spend more time together. Although they were both becoming highly successful, they still lived well within their means and saved a large amount of their money. Two years later, Lisa and Steve married each other and started making plans for their future together.
During this time, John had been working to improve his relationships with both his coworkers and his superiors. He was well aware that he needed to ensure that his job was safe, so he worked hard to make himself as indispensable as possible. He worked late three nights a week, assisted on weekends whenever possible, and took less vacation. Unfortunately, his financial situation did not improve much because John couldn’t control his spending. He always tried to justify capital improvements to his house: a deck, a pool, and a sauna were just a few of his major purchases. Every time John saw his friends Lisa and Steve he described his new additions to the house. Every time Lisa and Steve heard about them they tried to reinforce the importance of saving money. However, the lesson Lisa and Steve tried to relay to John never sunk in and he continued to spend money constantly. Lisa and Steve began to realize that, unless something very unfortunate happened to John, he would never learn the importance of saving extra funds for unforeseen problems.
Unfortunately for John, that very unfortunate happening occurred. His employer decided to eliminate most of the human resources personnel at Georgia Pacific. John was called into his supervisor’s office one Monday morning at 9:00 for a meeting. He was told that his services were no longer needed by the company and that, effective immediately, his employment was terminated. John was absolutely stunned. He started wringing his hands. His face turned almost ghostly white. A huge lump built in his throat, making it nearly impossible to breathe. He started to feel sick as chills overran his body. He became very dizzy and his head suddenly felt much heavier on his shoulders, making it a chore to keep it from falling to his chest. He looked down at his feet and wondered what he was going to do. His first impulse was to threaten physical violence toward his superiors. He thought about all the extra time and energy he had invested in his job over the last five years and became very angry. He calmed down, though, and slowly exited his supervisor’s office. As he was packing his personal belongings, he thought about Lisa and Steve and the message that they tried to relay to him. He looked down at his fancy watch and his highly expensive wardrobe and realized the mistake he had been making for the past five years. John had spent away any security he had now that his job was gone.
After he lost his job, John started taking measures to improve his financial position. He immediately put his house and convertible up for sale. Realizing that he urgently needed a job, he began to search newspaper classifieds for work. He got in touch with former coworkers who recommended companies. He called Lisa and Steve to see if they knew anyone who needed help. He also got in touch with some of his former college professors for assistance. Finally, John found a job with a stable company paying close to the same salary as his previous job. However, before John found the job he had to sell his house and his car at decently large losses.
Once John started his new job, he elected to have the maximum amount withdrawn from his check to contribute to his retirement plan. John also bought a more practical mid-sized vehicle and a relatively inexpensive house. He felt more confident about both his future comfort level and his current spending habits. Even though he never told anyone, he was always insecure about how much money he was spending but he was afraid to stop spending and lose his status level. The group of friends began to lose touch with each other, but John and the now-married Lisa and Steve met at their usual restaurant to talk about the events of the past few years.
Lisa and Steve were the first to show up at the restaurant. They had just finished purchasing their new vehicle, a large sport-utility vehicle. Lisa and Steve were beginning to make sacrifices to support and raise their three children all under the age of five. Lisa had cut back to a part-time employee for AT&T, and Steve was able to set up an arrangement with Barnes and Noble to work two days a week out of his home. Lisa and Steve were also able to coordinate their schedules to ensure that one parent was always home with the children. John arrived at the restaurant soon after Lisa and Steve and grinned at his old friends. He shook Steve’s hand, gave Lisa a hug, and asked about their additions to the family. Lisa showed him the entire picture timeline of the family, leaving no detail out of the lengthy monologue. After the presentation mercifully ended thirty minutes later, John made a mental note to never ask Lisa to see pictures of her children again.
The conversation topic changed from children to jobs, and John was the first to speak. “It’s been wonderful. I was so lucky to learn my lesson on money when I did, because I realized that I could have been in deep trouble if I had kept my level of spending as high as it once was. There was no way that I would have been able to keep paying the bills on that house, that car, and all those improvements, not to mention still having to meet my monthly expenses. I finally realized what you two were trying to tell me all along. I appreciate your guidance.”
He continued, “I ran across some statistics the other day that I thought were really interesting. They compared a person who put money aside at a young age and a person who put money aside at an older age. I have the paper right here.” He reached into his black canvas briefcase and pulled out his comparison chart. “The young person put $20,000 aside from age 25 to 34 at a rate of $2,000 a year. At age 65, they had accumulated over $550,000 with a ten percent return. The older person put aside $60,000 from age 35 to 65. At age 65, the older person only had about $330,000 accumulated with the same ten percent return. As it stands now, I am investing in my retirement plan at work and an IRA that I set up recently, but it’s just not building as fast as I want it to. It really makes good sense to save early. I just wish I had learned that lesson ten years earlier.”
Lisa and Steve smiled at each other. Steve spoke first, saying, “It’s so good to see that it all makes sense now. It’s a hard lesson to learn, one that has hurt people a lot more than it hurt you. We are just so glad that you’ve finally started saving money.” He looked at John’s wardrobe and noticed that the pricey clothes and the expensive accessories were no longer a part of his appearance. Steve said, “Yeah, we noticed that those swanky suits and sharp-looking watches are gone now. It just doesn’t pay to spend a lot of money on stuff like that when anything will do.”
Lisa nodded her head in agreement. She nudged her husband and said, “Steve here has been pretty tight with his money over the years. I have been too, ever since I took that damn cruise that sucked my life savings dry. Even though you want to buy the fancy cars and the expensive clothes, you learn that it’s not always best to do that. I wish I had learned the lessons on saving money sooner than the cruise, but that’s what it took for me to prioritize my life. Now, we’re seeing how important those savings really were. They’re giving me and Steve a chance to give our children comfortable lives. We were able to buy a house big enough for all of us and just finished buying a new vehicle today.”
John said, “By the way, I forgot to tell you two that I’m getting married. I proposed to my girlfriend about two months ago and she accepted.”
Steve and Lisa looked at him and said in unison, “That’s great!” Lisa said, “So tell us the whole story: what’s her name, how did you meet her, how long have you two been dating, and when are you getting married?”
John replied, “Her name is Kelly and, actually, she’s someone I knew since high school. She and I had stayed in touch through college and then got reacquainted about five years ago at our high school reunion. We’re getting married in about a year and we’ve been dating about three years. I just hope we’re as happy as you two are.”
The friends continued reliving their old college days and talked about the road that was facing them. Steve said, “John, it’s going to feel like tomorrow when these kids are going to be headed off to school. Then, before you know it, it’s going to be time for college. Man, I just can’t believe that the time has flown by like it has.”
“I know” John replied. “Did you even think that it’s been fifteen years since we graduated from high school? Every time I think about that, I just get more upset with myself over the lack of caution I had over my spending habits. At age 33, I ought to have a decently large safety net of cash if something happens. Mine is just starting to grow now. It’s a shame that I didn’t see the need to save much earlier.”
The friends finished dinner and headed for the door. Knowing that they probably would not see each other again for quite some time, John extended to them a personal invitation to his wedding. They agreed to be there and told him goodbye. The friends parted ways again, but Steve and Lisa felt very good about how John was starting to prioritize items in his life. They both agreed that John was on the right track for planning for the future, and they also thought that he was finally starting to grow up.
After the wedding was over, John didn’t see his friends for quite some time. When he did see them, they had just a few minutes to visit. He was busy at work and with his new family. John and his wife had three children of their own, and things finally settled down enough that he was able to get together with his friends to catch up on all the lost time. They agreed to meet at one of the local parks this time, since the children could begin to become acquainted with each other. John’s children were ages 4 to 8 and Steve’s were 11 to 16.
“Hey Y’all!” Steve was very excited to see his friends, as he yelled at them from across the park. They met up in the center at one of the park benches and started talking about parenthood. The two wives exchanged stories about each of their children while the husbands talked money again. Steve said, “Whew! Good thing that I saved some money early. My oldest told me yesterday that she thinks she wants to go to Notre Dame for college. I’m doing my best to push her toward Clemson or Tennessee or, heck, even Georgia, but she won’t hear it.”
John replied, “Man, it’s a good thing I don’t have to worry about all that yet. I’m sure it’s coming soon, though, and I’m getting ready for it. I can’t believe that, ten years from right now, I’ll have a kid headed for college. It’s just happening really soon. I’m glad that I was able to get into a job where I can put some money aside, otherwise college can destroy your savings. Mine still can’t go to the real high-priced schools but hopefully they will be able to once it’s time for school. You know, Steve, I was reading an article yesterday on a family with three kids where the parents were trying to retire at age 55. They were able to pay off all of their debts, get their retirement accounts built up enough, and save a sufficient amount for their children’s education that early retirement was possible. But with my kids getting ready to go to school and all of the other expenses still there, I can’t retire early.”
Steve said, “I can’t hardly believe how much some of these schools are charging for tuition now. That’s not even counting all the books, the meals, the apartment, and the other living expenses. It’s ridiculous. But it’s just another thing that saving money lets you afford. I’m just so happy that my kids can go to school at Notre Dame if they really want to. I’d feel bad having to tell my children no when I knew it would be a good educational experience.”
The families had a leisurely lunch at the park and decided to get together again soon. They parted ways again and, on the way back to their home, John stopped by a service station. He bought the children each a soft drink and got one Powerball lottery ticket since the jackpot was around $350 million. They headed back to their home and spent the rest of the afternoon doing yard work and swimming at the neighborhood pool.
John was watching TV the next morning and heard that the winning Powerball ticket was bought in the Atlanta metro area. He wrote down the winning numbers from the drawing the previous night, as he suddenly remembered that he purchased a ticket the day before. He went out to the car to get the ticket. When he compared the numbers on his ticket to the numbers that he had written down, he couldn’t believe his eyes. He was the winner of the largest Powerball jackpot in history! He passed out from the excitement and hit the kitchen floor. When he regained consciousness, he adjusted his now-fractured nose and ran through the house awakening all of his family members. “We won! We won! We won!” He kept screaming until everybody in the house awakened and joined his party in the kitchen.
“What on earth happened to your nose? And why are you jumping around?” Kelly, his wife, couldn’t decipher what was happening. He sat everyone down and calmly explained what had transpired. He told them about the lottery ticket, the numbers on TV, and the broken nose. Soon, the entire family was jumping around with him in utter excitement. They started making plans with the money, as ideas from a new house to a private jet were offered. John hesitated on agreeing to any of these ideas, however, because he knew how difficult it could be to stop spending money once the family started. He agreed that they needed a larger house, a new car, and possibly a pool; however, he stopped short of getting things that he thought the family didn’t need. He invested the remainder of his money in mutual funds, money market accounts, bond funds, and real estate. Although he quit his job, he stayed busy as a freelance consultant for corporations looking to understand employee behavior. He also stayed loyal to his close circle of friends, including Lisa and Steve. The families gathered at John’s new house after the excitement of the lottery winning had subsided to discuss this turn of events.
“So this is what the house of a multi-millionaire looks like” joked Steve as he shook John’s hand. He hugged Kelly and told her congratulations as Lisa did the same. The two families reacquainted themselves and strolled to the deck behind John’s house for a barbecue. As they went to the backyard, John retold the story of buying the ticket, hitting the floor, and living as a millionaire ever since.
“I’m a little less concerned about having to pay for an Ivy League school now” said John, as everyone else laughed. “It feels nice to have some breathing room there. I guess it just goes to show that good things can happen to those who wait. But I told the kids right from the start that we wouldn’t be spending on lavish things like furs, jets, yachts, and other high-priced items. We know all too well how easy it is to spend money but how hard it is to make it. Oh, speaking of school, what did your oldest decide to do about college? Is she still going to go to Notre Dame or another school?”
Lisa answered by saying, “She’s Notre Dame through and through. We have done everything that we can to make sure that it’s where she wants to go and it sounds like that’s it. She’s going to do well up there. Our middle one is thinking about joining her.”
The families sat down at their places around the picnic table and enjoyed their dinner. Even though John and his family had become multi-millionaires overnight, the money did not change their attitudes or their character. They spent a large amount of time talking about why the Georgia Bulldogs couldn’t ever seem to knock off the LSU Tigers, as the Tigers were on a ten-game winning streak against the Bulldogs. After discussing sports, they talked about the old college days and agreed to get together again soon. Unfortunately, the families lost touch with each other. Each of them prepared to send children off to college and dealt with the “empty nest” syndrome.
After all of the children were in college, Steve and Lisa both decided to retire from work and embark on trips around the United States and the world. With the large amount of savings that they had accumulated in their retirement plans and other investments, they were able to travel comfortably for quite some time. John and Kelly obviously had no problems with affording retirement, as they began doing the same amount of traveling.
John always considered himself very fortunate to have won the Powerball jackpot, because he knew that he would not have been able to put his three children through Harvard, Yale, and Princeton with the amount of savings he had built through his job. He thought back to his days of irresponsible spending and considered himself fortunate that, as Lisa had said then, nothing devastating happened to him. He lost his job but was able to get another one easily. If he had fallen ill, he realized that he would have been in a very difficult financial position. Thus, he made sure to teach all three of his children, both explicitly and by example, the importance of saving money and not living beyond their means. Well into retirement, John and Kelly still lived comfortably but not extravagantly.
Steve and Lisa also considered themselves very fortunate. They were happy to have learned about saving money when they did and were also happy to have been able to set money aside early. Because they did so, each of their children was able to go to Notre Dame and they were still able to live comfortably when they retired. They also taught their children the value of saved money.
Each of the families learned an important lesson: spending more money than you earn can get you in trouble. It can make an unplanned occurrence a catastrophe. It can also negatively affect a person’s outlook on life or relationships with other people. Most importantly, it can make retirement extremely uncomfortable. Proper planning for the future means spending conservatively before retirement. Truth be told, who really does want to work until they’re 85?
REFERENCES
Apostolou, Nick. Class lecture. Accounting 7310. Louisiana State University, Baton Rouge, Louisiana. June 15, 1999.
Applegarth, Ginger. “It’s Never Too Soon to Start Saving.” Found at
http://www.moneycentral.msn.com/articles/retire/invest/1216.asp. July 5, 1999.
Crumbley, D. Larry, CPA, and Smith, L. Murphy, CPA.
Keys to Personal Financial
Planning, Second
Edition. Hauppauge, New York: Barron’s Educational Series, Inc., 1994.
Mulrean, Jennifer. “Reality Check: Can You Retire Early?” Found at http://www.msnbc.com. July 5, 1999.