Today I want to introduce you to the Crossover Point, that magical place where you have enough saved that you can live off your investment returns. To start, let's talk about one of my money heroes, billionaire Warren Buffett.
Buffett wasn't always a billionaire. He started from scratch, just like you and me. Here he is in 1948 — when he had less than $10,000 to his name:
What a dork!
Buffett began making money when he was six years old. He'd buy packs of chewing gum for three cents each, then go door to door selling them for a nickel. (He refused to sell individual sticks; you had to buy an entire pack of Doublemint or nothing.)
“He could hold those pennies, weighty and solid, in his palm,” writes Alice Schroeder in her excellent Buffett biography. “They became the first few snowflakes in a snowball of money to come.”
From chewing gum, Buffett graduated to soda pop. He sold bottles of Coca-Cola to his neighbors in Omaha, and he even peddled his wares to sunbathers while vacationing at Lake Okoboji in Iowa. Buffett sold used golf balls. He hawked peanuts and popcorn at University of Omaha football games.
All the while, he kept score. He deposited his pennies and nickels in the bank and kept track of his savings in a passbook.
At a young age, Buffett began to grasp the extraordinary power of compounding. Again from Schroeder's book: “The way that numbers exploded as they grew at a constant rate over time was how a small sum could turn into a fortune. He could picture the numbers compounding as vividly as the way a snowball grew when he rolled it across the lawn.”
When he was ten years old, Buffett vowed to become a millionaire by age thirty-five. By the time he turned eleven, he'd accumulated $120. He used his cash to buy his first three shares of stock. He had 24 years and $999,880 to go to meet his goal. [Read more…]