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May 10, 2012


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Small choices can make a huge difference. Right now, my husband and I are thinking of setting up a college savings account for our baby, and we simply need to do so if only to get into the habit. We'll put a small amount away every month, but it'll help us develop a habit that we can grow upon later.

The three far reaching events that had a huge impact on our lives and finances were:

1) World War II
2) The Housing Bubble
3) The (or Internet) Bubble

I lived in England during World War II and was a 5 year old child when it started in 1939. One day I was in our back yard looking after my little sister when I saw a German FW190 aeroplane flying very low right overhead. It was so low I could see the pilot. I then saw 2 bombs fall and heard a huge explosion. The bombs demolished a hotel about 100 yards away, killing a lot of Canadian airmen that were billeted there. If the pilot had pressed the release button a fraction of a second earlier I wouldn't be a 77 year old US citizen writing this post. BTW the plane was shot down over the ocean by a British plane that was chasing it.
The war also had a huge effect upon my life. WWII was followed immediately by the Cold War with the USSR which led to the arms race. My emigration to the USA and very successful career in aerospace would have never been possible if it hadn't been for the Cold War and the tremendous growth of the defense industry.

The housing Bubble also happened at a great time. We bought our 1st. home in 1963 for $27K, sold it in 1977 for $90K. We bought our 2nd. home in 1977 for $107K and today it's worth over $1M.

The stockmarket Bubble also came at a perfect time for us. After retiring in 1992 I became a very active investor and as the bubble formed I was able to make 1000% before bailing completely out in March 2000 over a few days as the bubble burst and gave up almost all of its gains.

It's just a difference of opinion but the idea of setting up a college savings account for a baby was the furthermost thing in our minds when our first child arrived two years after we were married. The two of us were totally alone in a new country with one income and very little in savings. Our priority was to just build up our own savings. We came from a culture where parents were expected to provide for their children, send them to public schools, and support them until they obtained a job and left home. Many years later when our youngest daughter expressed a desire to go to our local state university while living at home we offered to pay for her tuition and books. She had several part time jobs and decided that she wanted to pay her own way so we went along with it. She obtained her degree in marketing and was fortunate in obtaining a job managing a high rise office building. Fortunately, or unfortunately depending upon your outlook she met a very wealthy attorney and after the marriage he insisted that she give up the job that she liked so much even before they had children. As things eventually turned out she never went back into the workforce. After 18 years of marriage and the very sad death of a daughter she filed for divorce and obtained a settlement more than enough to support her the rest of her days. She is now in a new relationship, very happy indeed, and we go for a long hike in the mountains every Monday. Our other daughter went to a junior college, and our son never went to college but is a born salesman and doing very well.

Old Limey I love you wisdom. You remind me of my father who is 84.

If it were not for a bad relationship I would have not found my wife and probably happier. If it were not for a lay off in 1993 I would not have found my current employer. If it were not my constant contrarian attitude of paying off a mortgage I would not have my house paid for.

I could go on but that butterfly keeps bothering me about something.

@FMF In a chaotic system where the butterfly effect applies, small changes in input have large, _unpredictable_ effects on output. If the butterfly effect described savings, it would be perfectly plausible that in 10 years, $25 a month of savings becomes $3000, but $24.90 a month grows to $10M, and $25.10 a month shrinks to seventy-three cents. Almost by definition, you can't "use" the butterfly effect, because you have no idea what the crucial moment for a small action is, or what the consequences of that action will be.

Fortunately, the mathematics of savings are actually linear. If you save a little less, the amount of interest you earn in a differential amount of time is _proportionally_ less. Your point, of course, is that the difference compounds exponentially over non-differential time. That's true, it's important, and it's under-appreciated, but it's not the butterfly effect.

Taking advantage of the butterfly effect helps put you in a mindset to do more for yourself financially. One step in the right direction helps to lead to more steps in that direction.

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