The Banking Executive - Decemebr 2021, Issue 156

the BANKING EXECUTIVE 14 ISSUE 156 DECEMBER 2021 The Butterfly Wealth Effect Both of them spend about $150 per month in some form of entertainment takeout or other experience, maybe Netflix, whatever it may be… Here is where they diverge; every morning Millennial A spends about $5 a day on the coffee and maybe a snack from a local coffee shop. Mil- lennial B instead, puts that money into an investment account. This is the only divergence in their life so far; just a morning coffee and snack. Fast forwarding about 30 to 40 years, if nothing else in their lives were to change -meaning that they make the same amount of money and had the same expenses-, this small daily di- vergence will result in Millennial B having a $300,000 investment port- folio by the time of his retirement. Meanwhile, Millennial A will have no investment account. Worthwhile restating that this is just assuming that neither of these Millennials got a raise, promotion or change to jobs during their lifetime. BUT WHAT IF THEY DID?! By introducing another small diver- gence; Millennial B spends a few hours of his free time per week read- ing books or trying to learn new skills which help his career. On the other hand, Millennial A does not do this, and instead replaces that time by watching Netflix or spending time on social media. Millennial A would still likely get some promotions in job of- fers because he is still gaining valu- able experience from work, but Millennial A would progress at a slightly slower rate than Millennial B career-wise because Millennial B is learning new skills during his free time and that's more attractive to his current or other companies, hence he can ask for slightly more money or a slightly better position. In other words, because Millennial B brings more to the table than Millennial A, when both are able to change jobs or ask for a raise Millennia A gets an av- erage salary increase of 3% per year -that is roughly the same for the av- erage worker in the United States- but since Millennial B is a slightly more valuable than Millennial A, he would most likely be able to get a 5% pay raise rather than the average 3%. This is just a 2% difference in terms of what he is able to get for a salary, but this has dramatic effects in the long term. By the time Millennial A is 55 years old, his salary will be approximately $94,000 per year which is a good salary. However, Millennial B would be making $170,000 per year because of the higher salary which has com- pounded over time. Now if Millennial B decided to put the additional income into the saving account, the difference in net worth between these two Millennials could be millions of dollars. In brief this is the butterfly effect, where small decisions we take today would have a significant outcome in the future Type Millennial A Millennial B Net Worth $10,000 $10,000 Yearly income $39,000 $39,000 Entertainment $150 $150 Rent $1,100 $1,100 Groceries $350 $350 Utilities $150 $150 Excess Money Left $150 $150