How to Turn Your Dumb Summer Job Into $162,000

How to Turn Your Dumb Summer Job Into $162,000

Good morning Hank; it’s Monday, July 4, 2011. It’s Independence Day here in the United States,
and today I’m going to talk about financial independence, specifically how young people
can turn their crappy summer jobs into hundreds of thousands of dollars… or the equivalent
in euro, pounds, rial, yen, whatever. By the way, Hank, I’m dressed up and giving
financial advice because I was in The Wall Street Journal last week, which means that
I am now technically an expert in money. Okay, Hank, so when I was in high school,
I worked at a warehouse stacking stereo equipment of various shapes and sizes into semi trucks.
And the game was that you had to fill the semi trucks as much as possible in order to
minimize the number of semi trucks that it took to move the stereo equipment around.
It was basically like manual labor Tetris. Really, it was more like manual labor Tetris
in an un-air-conditioned, 110 degree warehouse with a lot of people yelling at you about
how much you suck at Tetris. Also, I made $7.50 an hour, which is by no stretch of the
imagination a living wage, unless you have someone paying for your food, clothing, and
housing. Okay, so let’s say you make $7.50 an hour
at your crappy summer job. That’s $247 dollars a week in take-home pay. You probably work
about 10 weeks over the summer; you would work 12, but your parents are making you go
on a crappy summer vacation to like, Mount Rushmore or something, and they’re gonna fight
the entire time about your dad’s driving, and there won’t be 3G internet half the time,
and you won’t be able to talk to your friends, and it’s gonna suuuuck! On the other hand, they did pay for your diapers
all those years ago. So, $247 a week over 10 weeks. I’m not a mathematician,
Hank, but I think that’s $2,470 over the course of the summer. ‘Course, you’re going to have
to spend some of that money – you gotta put aside some money for Hank’s new album, Ellen
Hardcastle, you’re gonna have to see Deathly Hallows, you’re probably gonna go out to dinner
with your friends a few times… Let’s say, you know, 500 bucks. Okay, so that leaves you with $1,970. This
is the part where I want you to go to the bank and set up an IRA, which is not an Irish
Republican Army, but an Individual Retirement Account. If you don’t live in the US, they
call it something different, but there are equivalents from Brazil to Europe, pretty
much everywhere. Hank, I’m a very fancy and highly-trained
economist, so I’m not sure this explanation is going to make sense to you, but an IRA
is essentially a machine that produces money using nothing but time. How does it do it?
Through the magic of compound interest. So let’s say you have a $10 investment that you’re
somehow making 10% on. At the end of the year, you’ve made a dollar in interest, and you
have $11. At the end of the next year, you get 10% of that $11, which is $1.10, and your
interest just goes up and up and up and up. So let’s say between the ages of 16 and 19
you’re able to put away $1,970 a year into an IRA account, and then you do nothing for
50 years. We know that the world economy grows, when adjusted for inflation, about 6.5% a
year over the last 100 years. That means that at the end of 50 years, when you retire at
the age of 69, your $5,910 will have turned into more than $162,000, and yes I am adjusting
for inflation. $162,000 from stupid, getting yelled at, manual
labor Tetris! But realistically, you probably can’t put
away $2,000 a summer. I mean, you may have to save for college or you may have to help
out your family. You may have to pre-order 26 copies of The Fault in Our Stars. So let’s
say between the ages of 16 and 21 you put away $400 a summer, for a total of $2,000.
You still have more than $50,000 when you retire. That means when it’s all said and
done you didn’t make $7.50 an hour flipping burgers, you made $125 an hour. But now let’s say I, toddering old man that
I am at 33 years old, put away $2,000 today. I’m still 37 years away from retirement, but
what happens if I put away $2,000? It’s only worth $20,000. That’s compound interest at
work. That’s why it’s more important to save early, to maximize the number of years that
the interest can compound, than it is to save lots. At a lot of banks, you can open up these accounts
for, like, $100. And the bankers are always happy to help you because they get paid for
each account they open. So there really is a way to turn a crappy summer job into a lot
of money, although it’s going to take a while. In short, Hank: you don’t have to be a rich
person to do the things that rich people do to maximize their income and avoid taxes. Alright Hank, before I answer the pressing
question of whether my suit is all business, there is one outstanding issue: YouTube NextUp
Europe. There are a lot of nerdfighters who made it
to the voting round of YouTube NextUp Europe, including Rosianna, who is responsible for
the title of The Fault in Our Stars. I’ve put links to entries from known nerdfighters
in the doobly-doo. It’s really easy – you just click thumbs-up. But the most important
thing is that you watch all the videos and vote for your favorites because you have a
chance to shape the future of YouTube, and that’s something you should take seriously.
I hope that you do. I watched every single video and I hope you will, too. I made a poem. It’s not. I’ll see you on Wednesday.

100 thoughts on “How to Turn Your Dumb Summer Job Into $162,000

  1. It's not that wise for a young person to save money in IRA. The "tax free" aspect of IRA may be meaningless and interest rates are not that high. At 18 kids might not make enough to pay a 10-15% tax rate on all their money, so the benefit would be small at that point provided that there's no IRA accounts these days that pay 10% a year in interest.
    At that point, it's better people save for school or just save to avoid paying interest rates for the benefit of others.
    My own credit union pays 0.10% APY. Where do people get 10% APY? Please show a reputable and insured institution that pays more than 3% in interest rate.
    At 30-40 years of age an average person's highest tax bracket may be 25-28%, and that's when it's better to start saving in IRA accounts. Or perhaps it isn't. It depends on the interest rate on IRA account and other liabilities like mortgages, school loans etc., the size of the emergency fund. When the income tax rate is lower than 20% it might be wiser to just pay off loans before putting money aside for retirement. In the long run, if you pay off your 30 year mortgage sooner, the savings are much greater. Also, consider when money will be taken out of IRA. Some people might need to take out money earlier when they get sick. Other people still make a lot of money when they are 60-70 and taking out money from IRA may mean they are paying more taxes on it than what they have saved initially on not paying taxes.
    It wouldn't be wise to put money into IRA when the person makes little money, pays small taxes, has no emergency fund, and has a mortgage or other loans. It's important to consider priorities, life goals, expectations, etc.
    It's a lot of information to consider. It's just safer to pay off loans, it's going to have a great return. If there's no need to save for something specific or pay off loans then maybe it's better to invest a little each year.

  2. It is so weird to watch this almost 5 years on with the knowledge Wednesday ended 2 hours 39 minutes ago

  3. ok…so im gonna finish your video but just a minute in i had to stop and write this comment, moreover question, do you see how talking so fast (even for the native english speaker, aka me) is detrimental to getting a real and supported point across? like i get the balance between making a point palatable and well reinforced is hard relative to also needing people to actually WANT to see you videos and keep this thing running…but…dam man i can't help but feel you are using the same tactic many bond movies and other mediums use which is to speed through the necessary and dense parts of information in order to devalue their necessity in understanding the whole idea so those that "basically get it" dont feel left behind but worse actually think they understand (fully) a very complex idea. I get that you are making youtube videos are for the masses but at the same time could you not find a way to either actually provide the necessary information for those that want it in an actually indigestible way in the videos or even just recognize you arent actually sharing the information in a way that will be heard and supply the necessary biblio in an accesible and obvious way?

  4. Hank, you may have wanted to actually recommend a ROTH IRA which involves paying taxes when you put it in, rather than when you take it out. This system is literally SO GOOD that if you're rich you're not allowed to do it, since it means paying like $10 tax on your $100 dollar investment rather than paying $10,000 on your $100,000 takeout.

  5. This is wonderful…. Are you guys going to do a video on investing in stocks by any chance? My dad's been trying to teach me about it but I don't get it… I mean I'm smart enough to realizes how to day trade but I realize that is incredibly risky too. Like I am very curious how to know … what stocks are worth investing in. Best Regards guys.

  6. "Those bankers are always happy to help you because they get paid for each account they open.." -> Wells Fargo=> John is a prophet: QED

  7. At the ever increasing rate and state of human confrontational-ism then in my opinion you'd be better off taking that $2,740.00 and buying a hunting rifle, a hand gun, lots of ammo, and start storing canned foods.

  8. The best way to do this is to start a Roth IRA. The reason is because a Roth IRA allows you to pay the taxes up front and then you owe no tax on the principle when you take it out. Considering a teen would be in the lowest tax bracket, this could save them a large percentage when they take it out. By the way the IRA does not just produce money. You have to allocate it to various investments. The more risk you take the more potential reward. Perfect market timing is impossible but there are times that buying is a bad idea. Interest rates are likely to rise soon, it is much better to buy after this happens so you don't get locked into low rates on safe investments like CDs or lose base value on riskier assets like stocks. Still good advice though as saving is good for everyone as it allows for more investment across the market.

  9. Sounds great! Oh, drat I also receive SSI(supplemental security income). And as long as you are tied to SSI you can't own any investments or you lose your SSI unless you qualify for a grandfather clause which I do not because I have been on SSI my whole life, so if I ever have more money including investments than my state allows me(which in my case since I live in California is a mere $2000.00 total including just basic banking accounts)I lose my SSI which I need to survive. So in my case I either work full time to cover my own rent and board and than I can invest in something or I can never invest in anything. Bites to be me.

  10. I so wish I'd discovered all of this when I was younger. I'm not that old at 27, but mainly, I wish I'd done more for my independence when I was younger. Being terrified of driving though hindered that incredibly as I didn't get my license until I was nearly 24 so not that long ago. Only now am I taking baby steps of independence, which I've always wanted, but I hate working…rather, I hate the jobs I keep getting but I feel I'm stuck in a bit of a loop. I'm never hired for jobs outside of customer service because my resume screams customer service (a job market that usually doesn't require a degree).

    But I'm tired of customers…and while call centers used to be good for those that wanted to also go to school, nowadays you have to fight, kick and scream to get a schedule that works with school.. Anywho. my younger sibling and I will be sharing a place for a year coming up and then after that,we'll move out on our own. With he and I sharing rent and stuff, if I can keep a full time job, I'd like to take that chance to try school again. I NEED a degree; I'm not naturally gifted with things. I have to be taught how to do something new, I rarely just pick up on it on my own. And I need a degree that minimizes my contact with customers since at heart, I'm not very talkative. Though online customer support (one of my first jobs) is alright.

  11. These two books serve for a high school and college level money management course:

    Think and Grow Rich by Napoleon Hill
    Money: Master The Game by Tony Robbins

  12. See I could put away money now, but that $400 would be a lot more useful to me now than 52000 later since I really need that money now

  13. Thanks for the idea. I'm 23 and I have about $2000 laying around that I actually wouldn't have any problem investing. I'll definitely look into this.

  14. But most people that age NEED that money immediately for college and/or living expenses. That's the problem! Also, you'll take a huge 10% hit (plus all applicable fees) if you pull it out early.

  15. I flip and rent real estate for a living and I average a rate of return of about 28%; but that's because I mostly don't finance (no financing costs) and am hyper efficient at this point. So that money is actually better invested in my real estate enterprises.

  16. Most people are going to buy a house when they get older. Instead of putting in the IRA its better to put it towards your mortgage first..a $300,000 house over 30yrs if you add an extra $300 to your monthly payment you can save $50,000 in interest and have your house paid off 7 years early

  17. only problem is by the time 50 years have past the inflation rate have made the money you made worth 1/30th what that money was when you made it so your 160000 can only buy you half of a new battery pack for your car. the cost of an average home will be 1 billion and only the top 1% would be able to afford to buy one so the rest of us 99% will have to rent or live outside.

  18. Lol, who the hell is gonna buy Deathly Hallwos, just borrow it from the library since it's a Harry Potter book.

  19. at the time this video was made this made sense but in the current economic climate this is a really bad investment. due to low interest rates. especially since most of these ira's have a majority index funds and the stock prices are artificially inflated since companies can borrow money to buy thier own stock back pumping the price. your best bet is to hedge your money in equities.

  20. A Roth IRA would make more sense because it's after tax money your putting in so you wouldn't have to pay taxes on the money you make from the ira

  21. Except that most kids today are using that shitty "summer" job to help support their familes, and they aren't going on vacation anymore. So there's no money to put in a thing called an IRA. And you aren't getting 10% on any account anyway. That's the rate they give to millionaires, not part time burger flippers. Not many IRAs are s earning 10%, and no savings account is either.

  22. 7.50 an hour wtf, i live in trinidad where the exchange rate is roughly 1ttd to 6.6usd and the minimum wage is 15.00 an hour, the equivalent in usd is 2.30 an hour. What is lyfe.

  23. The banks are not the best place to put your investments especially long term. If you want high interest rates while saving and making as much money as possible you need a financial specialist that will guide you into becoming financially independent. It's crazy that so many people, especially young people want to be more financially literate but with no way of knowing where to begin. I work with a company that sits with clients for free and does just that. I wish there was a way we could reach to these people that want to learn about how money works, and teach them on how to make money work for them. Great Video with great concepts but there are better options, especially for the summer job example

  24. “Set up an IRA, which is not an Irish Republican Army”

  25. Aghhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh


    ALSO you're relying waaaay to much on the stability of the dollar when a pretty large number of people have been absolutely screwed by economic collapses that only become increasingly likely as economies continue to expand

  26. (I love Rosiana !! )so, i have newly joined the nerdfighter community and this is great . What in the world was i waiting for !! All of the nerdfighters in the comment section and you – the vlogbrothers , you guys are just incredible . ( fun fact – i love to watch your videos in an increased speed, it sounds great . i hope that's not weird. ) And also , please continue writing books , you guys are changing the youth ! ( i like fault in our stars as much as hazel likes AIA) and also i found many of my friends did not like will grayson(actually they didn't understand it) but trust me , it is brilliant . i had a request – can you actually turn that broccoli tree vid into a book ? [ lol did not plan on typing so much ] probably you won't see this but posting it anyways .. 😀
    edit: i need more books from you John Green ! be fast. and i love looking for alaska too . ( actually all of your books; literally ALL)

  27. Yeah… that money would like disappear with the cost of living during the time you'd take it out… Not that putting money in an IRA is bad.. But it damn sure isn't the answer

  28. Oh boy this video hasn't aged well. Interests are horrible right now. I get 0.05% per year in interest. Two thirds of my net worth is in ETFs right now.

  29. Fun fact: If you work a seasonal job, you don't legally qualify overtime pay in the United States. Obamacare's employer health-care coverage requirements also don't apply. This means your boss will have no problems scheduling you for 40 or even over 60 hours a week, allowing you to make more than you ever could with a part-time summer job.

  30. It needs to be cooler to be generous, or even sustainable, than it is to make money on investments. Right now it's not, and income inequality continues to grow. Investments make more than working, even more now than when this really took hold about 20 years before you got your summer job. That's problematic.

  31. This is correct but not a totally complete picture. Opening an IRA does not generate money. You have to already be invested in something that generates money (like a mutual fund with good return) and invest that account into the IRA. Putting your own paychecks into the IRA doesn't generate the money, it simply protects it from being taxed on by the government. An IRA is like a sandwich bag, but the sandwich is money invested somewhere else.

  32. If i was CNBC, i would cancel those Shark Tank reruns, there is too many victims of dangerous products including RCA Bipolar

  33. If i was CNBC, i would cancel those Shark Tank reruns, there is too many victims of dangerous products including RCA Bipolar

  34. If i was CNBC, i would cancel those Shark Tank reruns, there is too many victims of dangerous products including RCA Bipolar

  35. If i was CNBC, i would cancel those Shark Tank reruns, there is too many victims of dangerous products including RCA Bipolar

  36. What all the financial dudes fail to realize is :
    what am I supposed to do with 160,000 dollars when I'm 60 ?!?!

    I am not just shouting "I want the money now" , I'm just arguing that life is short and you need to live it when it matters.
    If I got even half of that when I turned 30 or 40 then now we're talking.

  37. Have to wait till I’m out of college – currently 20 in my junior year & I go to a private college that would count that account against my already minimal financial aid ?

  38. It’s weird clicking on old vlogbrothers videos and thinking “Hey, wow, John was kind of handsome.”

    Maybe it’s the glasses.

  39. A hundred and sixty two dollars? He should see how much health insuranc cost for fifty years, for two people? Then he should adding two heath insurance policies for twenty. That's just a start.

  40. I have been thinking about and procrastinating this video's advice for EIGHT WHOLE YEARS. In those 8 years, how much would $1000 have turned into?

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