The Law of Large Numbers.

Bill Parrott |

How often do you think about numbers?  I think about numbers all the time.  On a recent drive from Houston to Austin I started thinking about numbers wondering how much money a college graduate will earn over their working lifetime.   Per the National Association of Colleges and Employers the average starting salary for a graduate last year was $50,219.[1]   A graduate from the class of 2015 might work for forty-five years.  If she gets a 2% annual raise during her career she’ll earn over $3.6 million dollars.

On the surface $3.6 million dollars appears to be a lot of money but what does it mean for our recent graduate?

Our graduate joins a company with a 401(k) plan and contributes 10% of her pay to their plan.  Over the life of the plan, she will contribute $360,000.

A few years later she buys a home for $250,000.  Her thirty-year mortgage has a 4% interest rate.  Her interest and principal payments will cost her $343,440 over the life of her loan.  This figure does not include taxes or insurance which will, of course, add to the cost of her home ownership.

She gets married and starts a family.  She and her husband eventually have two kids.  It will cost our couple about $500,000 to raise their offspring.[2]   It will cost another $760,000 to feed this family of four.[3]

To send their two children to a public university will cost the family another $600,000.[4]

During her forty-five-year working career this family of four might own twelve cars.  Purchasing twelve cars with an average price of $30,000 and a typical 60-month loan will cost the family over $395,000.

She and her family like to travel and make memories.  The cost of their family travel will be over $285,000.[5]

How about healthcare?  This young family could spend over $715,000 on healthcare premiums during their working career.[6]

Let’s recap the numbers:

Lifetime income = $3.6 million.

Retirement Plan Contributions = $360,000

Mortgage = $343,000

Food = $760,000

Education = $600,000

Cars = $395,000

Travel = $285,000

Healthcare = $715,000

These expenses add up to $3.45 million leaving little left over for other fun family items like taxes and home repairs. 

What should our recent graduate do?  It’s important for her to live within her means.  If she makes $2 and spends $1, then life will be good.  She should also create a family budget to identify where her money has gone and where it’s going.  In addition, she should invest for the long-term and focus on creating generational wealth.   Last, she should enjoy the journey!

All hard work brings a profit, but mere talk leads only to poverty. ~ Proverbs 14:23

Bill Parrott is the President and CEO of Parrott Wealth Management.

October 21, 2016




[1], accessed 10/20/2016.

[2], Lum Thuy Vo, Wall Street Journal, June 22, 2016.

[3], Nancy Hellmich, USA Today, 5/1/2013.

[4] Money Guide Pro College Cost Calculator, 4 years at a public university.

[5], Sally Black, July 12, 2013, Vacation Kids Website.

[6], accessed 10/20/16