Background information on the Audience
This essay is aimed to persuade a twenty six year old man who works at the Labour Office in Boston on a permanent basis. According to the my estimation, he is getting a monthly salary of about sixty thousand dollars. However, he does not own an apartment and therefore, rents a house in Boston town for six thousand dollars a month. In addition, he is not married, opts to lead a bachelor’s life and therefore, has no children for now. Further, he is not extravagant in his spending and can in my opinion, save some good money in a month. He is certainly going to complete his masters’ degree in the next seven months, a factor that will put him in an even better position.
Persuading the Peer to start saving for Retirement
This essay explores several texts on how to save for one’s retirement, as well as long term projects like buying a house and concurrently run other affairs including consumption and paying fees to complete a master’s degree. I chose this audience because we are not only of the same age group, but I therefore know most of the challenges that such an age group might face.
Before proceeding, it is of paramount importance to understand some of the terms that will be used repeatedly in the essay. Savings refer to that part of income that remains after tax and consumption (Nordhaus). Investments can be defined as the remaining portion of individuals’ income after tax and consumption (Ballard).
Indeed, an individual can save or invest his income. When one chooses to invest all his income in a project, it means that he may not be able to save. On the other hand, if all income after consumption and deductions is saved, then it implies zero investments. In reality, most people find it impossible to buy expensive items in a short period of time but then realize that others with a relatively low income already possess such properties. In our daily lives, we see most retirees dying of hunger due to lack of income and yet others lead happy lives. The two situations can be explained by two phrases, save for your long term projects and save for your retirement, respectively.
According to Wilcox 2009, the Americans do not save their personal incomes, and this he outlines, has an impact on their lives in future. The author clearly states that savings affects the personal lives of individuals as well as the entire economy. He further laments that income earners in America will have inadequate funds when they retire, due to the fact that they consume more, and save less for their retirement (Wilcox). It is therefore important to start saving at an early age, so that one does not experience problems after retirement.
I strongly believe that it is possible to purchase expensive properties despite the fixed monthly income one gets in the form of a salary. However, this requires sacrificing the little income for a number of years like ten years. My peer, who earns a salary of sixty thousands dollars a month, can buy an apartment instead of paying rent after every month. Assuming, that the total expenses for the whole month including the school fees for his masters degree is $ 30,000, then the remaining amount of money can be used for other useful purposes including investment in the long term projects and in this case, buying a house. In fact, it does not require so much sacrifice; the person needs to deduct a small proportion like five percent of the remaining amount and save it on a yearly basis until such a period when the amount is sufficient to buy a house. In the country, most apartments for a medium income earner would go for between a hundred to two hundred thousand dollars. In case this person intends to buy such a house, then in ten years, he will have accumulated enough money. For instance, if he saves five percent of his salary every month, then in ten years, a hundred and eighty thousands dollars will have been accumulated, putting him in a position to buy the apartment.
According to Michael 2010, money and time are related (Thomsett).Going by this statement therefore; the amount of money saved for the apartment will be slightly higher. Assuming the bank’s interest rate is 10% per year, and then the five percent saved will have grown to over two hundred thousand dollars. In order to generate the amount after ten years, the general formula has been provided as the principal amount multiplied by the interest rate and then the time as follows:
On the other hand, the person can save a lot of money before he reaches the retirement age. By use of the illustration used earlier on, assuming he saves ten percent of the remaining amount after deductions of the expenses and further it is assumed that he retires at the age of sixty years, then it is possible that he will have accumulated over one million dollars. The same formulae as indicated above shall still apply in this case.
As has been highlighted above, it is very much possible to buy very expensive assets using the low basic salaries that most people get in their jobs. However, there are those income earners who are not willing to save any extra coin since they want lead extravagant lives in the present but fail to think about their future lives. Although most countries give retirement’s benefits to the retired employees, it is crucial that people do not entirely depend on such funds. There are various cases all over the world where there retirement benefits take years to reach the intended person. This in most cases comes about due to corruption, where such funds are mismanaged and ultimately end up in the wrong hands.
However, there may be reasons that are justifiable enough as to why people do not save for their retirement. One of the reasons is that the income levels are too low to cater for even the basic needs. Under such circumstances, then saving becomes a big problem to such people.
Another justifiable reason would be due to tight economic conditions like high inflation times thereby reducing the purchasing power and consequently low savings and investments.
In order to ensure continued savings despite such problems, one may look for part time jobs in order to increase their earnings and thereby be in a position to save. On the other hand, during the economic crisis, it is important to change ones life style in such a manner to reduce the unnecessary luxuries and therefore, increase the savings and investments.
From a personal perspective, I have been employed in a bank for the past five years, essentially since the completion of my first degree. My salary has been fixed at forty thousand dollars a month. My monthly expenses are fifteen thousand dollars while the rest go to savings. Currently, I have over three hundred and fifty thousand dollars in my current account. I prefer to continue saving the amount until it is sufficient to buy an apartment in the next four years. In addition, I plan to start a saving scheme for my retirement.
My peer is in a better position, as he has a higher income such that he can even save more. Besides, the fact that he will be completing his masters’ degree in the next few months means that his expenses will decrease substantially, and his income may improve. Indeed he is in a better position to save for a long term project as well for his retirement.
In conclusion, it is quite clear that each income earner has the capacity to save a small proportion of his or her income both for long term projects as well as for retirement. It is also crystal clear that one can increase his earnings using the means already highlighted in an effort to increase on savings. To this end, I would urge my peer to start a saving plan that will ultimately be of great benefit to him in the future.
Ballard, F. ABCS of Arbitrage Tax Rules for Investment of Bonds Proceeds by Municipalities. Chicago: American Bar Association, 2007. Print.
Harney, T. Basic Concepts and Epidemiology. UK: Radcliffe, 2007. Print.
Nordhaus. Economics. Mexico: Mc-Graw Hill, 2005. Print.
Thomsett, M. Compond Interest:The Power of Money. The Managers Pocket Calculator (2012): 3. Print.
Wilcox, Ronald. Why Americans Don’t Save and What to Do About it. Whatever Happened to Thrift (2009): 1-2. Print.