I have this friend. I know, you thought all I did was sit on the computer to blog and update facebook. But, I have a friend, and she has been telling me for years about these books that tell her if she saves x amount for x years, she will be a millionaire by the time she’s 45! Awesome, sign me up! I never can seem to get started though; the 2 problems that immediately scare me away are a) that sounds way too good to be true and b) who has extra money every month to start this!? I am a numbers person so I wanted to spell it out (wait, numbers person or letters person?) and see the proof. Well I did, and I am here to dispel both of these myths!
A) It is NOT too good to be true. Let’s break it down by looking at an example of my friend’s saving plan compared to mine:
- Let’s say that my friend started saving $1,000 per year in a mutual fund (earning 8% annually) when she was 18 years old.
- She added $1,000 per year for a total of 15 years.
- After 15 years, she stopped adding to the mutual fund and simply sat back and watched it grow.
- Now let’s say that I waited until I was 36 years old to begin saving anything.
- I deposit $1,000 per year in the same mutual fund at the same 8% rate for the next 30 years.
- So, my friend invested a total of $15,000. I invested a total of $30,000. But by the time we’re 65, my friend has over three times as much as me in her savings account!
- Well, in this example, neither one of us are millionaires, but the reason I showed this example using $1,000 per year is to point out how easy that really can be. $1,000 a year is only $83.33 per month. Or $16.67 per week. That’s only $2.38 per day! I could find that at the bottom of my purse every day in change probably!
So the point of the story? Well, there are several:
- The sooner you start saving, the more you can reap the rewards of compounding interest. Time really is money!
- It’s totally not too good to be true!
- Does your company offer a 401(k)? Start participating today. Especially if they have a match program!
- We have a financial consultant at the credit union that can talk to you about your savings plan. Give us a call today!
Stay tuned for next week’s blog when I help debunk my second myth – “B) who has the extra money every month to start this!?”
The assumed rate of return in this chart is hypothetical and does not represent the return of any particular investment.Share: