Thursday, October 7, 2010

Easy way to become a millionaire

How hard is it to become a millionaire?  Well it all depends on the path you take and how much time you are willing to wait.  One of the easiest ways is to start saving at an early age.  If you're 18 years old and want $1,000,000 by the time you are 65, you have 47 years to both contribute and allow past contributions to grow.  In this scenario you could have $1 million if you saved $161 away each month (assuming an 8% average rate of return).  That's it.  $161 might seem like a lot to a teenager, but once you are in your twenties, thirties and beyond it won't be such a big chunk of your take-home pay.  

Now let's imagine you couldn't get started at 18 & instead you started 10 years later at age 28.  Now you'd have to put away $368 each month...that is over 2x what you were required to save at age 18.  Why so much more, you ask?  Basically you're missing out on 10 years of contributions and 10 years of your contributions to get that 8% assumed rate of return, but the main reason of the difference is called time value of money.  

Imagine investing $100 for 10 years at the same 8% rate of return.  After 10 years you'd have $222.  Now, imagine instead that you invested the initial $100 for 40 years.  You'd end up with $2,427.  As you can see, it isn't just 4x what the 10 years option earned because the earnings are also being compounded.

So long story short, the earlier you start saving the better.  By starting at age 18 you end up saving $90,804 of your own money (the rest of that 1 million is all growth).  If you started 10 years at age 28 you'd end up saving $163,392.  That is $72,588 more dollars you'd have to come up with just to be able to meet the $1,000,000 goal in time.  So take a look at your finances and see what you're willing to put away each month and you should be able to make that $1,000,000 mark without much problem, especially if time is on your side.

7 comments:

  1. Too bad my life sucks and I make $300 a paycheck.

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  2. nice work here... btw, I have Hayden Panetierre bubbled on Enhanced by MS Paint :P

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  3. good job here!

    you just inspired more bubbles on "Enhanced by MS Paint"... check it out!

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  4. this post made me open my eyes and stop squinting!!!

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  5. Hehe everyone would love to be a millionare!
    So do I!
    Mesty =)

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