Is it hard to get rich? If you're young, not really.
Its fun to play with financial calculators and see what
If you have just graduated from college and are about 22
years old and if you put $100 a month in an IRA that
grows at 10% a year, you will have
around $865,000 at age 65. 10% a year is about what you
should expect if the money was placed in a no-load S&P
500 Index Fund.
So for about $23 a week or $3.30 a day you will be close
to being a millionaire.
If you contribute the full $4000 a year allowed right now
(rising to $5000 in 2008), you would have $2,600,000. For
about $11.00 a day, you would have a small fortune.
If you didn't want to take a chance with the stock market
(after all, it goes down sometimes), you would
still have over $600,000 if you could get a 5% return.
If your grandmother leaves you $10,000 in her will and you
invest it for the same 43 years at 10% without adding
another cent, you'd still have over
$600,000 if you placed it in a tax sheltered account.
Time and the power of compound interest are on your side.
So if you're in you twenties, do whatever you have to
scrape together that IRA contribution. Every day you
procrastinate is another day your money is not working
However, most people in their twenties need the money for
more important things, like new cars and HDTV's. You also
have student loans to pay, children to raise and the new
mortgage to pay off. But if you prioritize your life and
stick to a budget, $11.00 a day is doable, although you
might have to scrimp here and there.
Consider that most people are spending their livings
paying the freight for borrowing 'other people's money".
If you save and invest, other people are paying you to use
your money. It's a lot more fun to see your money working
than having to work yourself.
It gets harder to amass wealth as you get older. If you wait
until you're 32 and put away $4000 at 10%, you would have
about $975,000, still a respectable amount.
At 42, you'd only be able to accumulate approximately $350,000.
If you're 50 and can start putting $5000 (those over 50 are
allowed "catch up contributions") away today, you'll have
around $175,000 at age 65.
Everyone knows that Social Security is not going to allow for
a comfortable retirement. Even if the plan can continue to
pay out forever, which is questionable right now, the money
you receive will be far from generous and is subject to
You might have a good pension plan at work now, but will
you be able to hold your current job to retirement?
If you have a Roth IRA, you can withdraw the money tax free
after age 59 ?. Imagine having a million tax free dollars
you can play with. It will well make up for the small
sacrifices you have to make to get there.
No matter what your age, start saving what you can now
- today. Even if you only amass $100,000, you'll be
better off than most people entering retirement.
Chris Cooper is a retired attorney who has spent several periods of his life deep in debt. At http://www.credit-yourself.com he tries to pass on some of the knowledge he picked up in his journey to become debt free.