I know a million dollar is not what it used to be, but it still is a MILLION dollars. So, who wants to be a millionaire? Or what does it take to become a millionaire?
Spending less than you earn and investing the difference is the first thing that comes to mind. But a bigger deal is time. Let me show you why.
Say I turn 25, start working (late start much) but have no clue about any of these things. So, I earn and spend. A few years go by and just like that, I turn 30.
And then I get to see the light of what I missed and how much harder it just got if my goal was to retire with a million bucks by the time I turn 65.
I know, I know, I am still a spring chicken and thinking about retirement is something only old people do. But remember, I am old. I just turned 30.
Though it’s not late yet but we all know that the more we put it off, the harder it gets. How much harder?
At 30, to get to a million dollars by 65, I need to set aside 701 dollars each month assuming my money grows at 6 percent rate of return each year. That is lower than what the stock markets have historically returned but I like to assume the worst and hope for the best.
But say I delay it to 35 and now I have to save 996 dollars to get to that same goal. At 40, it is 1,443 dollars and then it’s over. I mean it gets exponentially harder.
The word exponential is important because if you noticed the top end of the bars, they tend to curve up and curve up fast. That’s exponential growth. That’s compound interest. Nothing magical but then it is.
Here’s another take on the power of time and systematic investing. And all we are talking about is a mere 100 dollars one time or 100 dollars a month for 50 years. Yes, there is a difference but setting aside 100 dollars each month is a manageable sum for literally anyone.
The difference in final wealth though between a one-time investment of 100 dollars versus investing that amount every month for 50 years at that same 6 percent…
Not even in the same galaxy.
And all you had to do was set aside a cup of Starbucks worth of change each day.
Thank you for your time.
Cover image credit – Ron Lach, Pexels