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Allocating Capital
Manage episode 307196038 series 2977278
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Some people enjoy tutoring and aren’t interested in growing a company and hiring employees, which I understand. You might like driving around to people's houses and doing in-home sessions. But eventually, like when you're 80 or 85, you're going to want to stop tutoring. You're going to want some retirement funds, and planning on Social Security might not be a good bet.
It’s a good idea to save 5% to 10% of your earnings and reinvest that back into your business, if you want to grow your business. Or if you don't want to hire anyone, you can still invest 5% to 10% of your earnings into a Fidelity account or Vanguard fund. Set up an IRA or Roth IRA. Do some research on those. They can end up generating tax free earnings. I would recommend looking into a Roth IRA, that seems like a pretty good option for most people.
What you do with the money you save depends on how active you want to be. A good place to start is buying some index funds. The Total S&P 500 Vanguard index fund is good. Stick some money into there every month. Eventually you'll be surprised at compound interest. It's the eighth wonder of the world, as Einstein said. You start with some income from your tutoring, and then eventually your investment income might be greater. At that point you can still keep doing the tutoring, because you enjoy it. Or not.
Most of us get into tutoring because we like helping others and want to make a difference. And that’s great. But it's also good to think about ourselves and our families. Putting some money away in case a catastrophe happens is a very good idea.
If you want to be more active, you could buy some shares of companies, like Facebook, Microsoft, and Berkshire Hathaway as long term holdings. Buy some and hold it for 50 or 60 years. It's probably going to be worth a lot more at that point than it is now. Especially some of those strong companies with a moat that aren't going anywhere. There are thousands of people right now working at Microsoft, trying to make a better company. And if you own some shares, they are literally working for you. Even the CEO.
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