I found an article on The Motley Fool which does some interesting math. They look at three examples of how saving $20 a day could make you a millionaire. Let’s look at them:First – Saving $20 a day and letting it pile up under your mattress (it will be a pretty lumpy mattress after a while). Just accumulating the money will make you a millionaire in more than 135 years. Maybe your grandkids would like this but it’s not very good for us.
Second – Taking the $20 a day and investing it in treasury notes (4.16% yield). Not much risk here and you can be a millionaire in under 46 years. If you start at 20 you will be a millionaire at 66. Ok, within my lifetime here (knock on wood). But still I’d like to do better.
Third – Investing your $20 a day in a low-cost index fund (in this case Fidelity Spartan 500 Index). Now we can become millionaires in about 26 years. We take on more risk, assuming that the market will continue it’s historical return of 10-11% annually but we get to millionaire about twice as fast as investing only in treasury notes. This is more my speed.
Let’s look at what $20 a day is: $140/week, roughly $600/month, or $7120/year. That may be a tough investing goal for some but what I like is the idea that a million dollars is attainable.
Now looking at my previous post We Will Retire! I listed a 2008 financial goal of putting $8000 in our Roth IRA accounts (my wife and I). This would be a little more than $20 a day ($22.47 to be exact). If we follow that goal every year and invested in a low-cost index fund tracking the S&P 500 we will have a million dollars in less than 26 years. This doesn’t include money in our 401k or 403b plans, savings, or pensions. That’s pretty inspiring for me! My goal might just have set us up to be millionaires!
I understand there’s still risk involved. There’s no telling what the market will do or if we’ll be able to always contribute that amount every year (not to mention what one million would be worth or the fact that it’s a million shared between my wife and I) but if we can invest that much it’s not so difficult to reach one million.
Will you be a millionaire? What’s your plan?
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In 26 years, a million dollars will not be what it used to be. You will need to use inflation adjusted or real return values for S&P
A million is already not what it used to be! Remember when winning 5 million in the lottery would set you and your family up for life?
The point here though is that it is possible to save great amounts of money. You need time and discipline.
In addition to saving and following a discipline budget, pursuing something that you have a passion for and finding a way to monetize it, may just get you to your financial horizon, a bit quicker, while you’re healthy enough to enjoy the benefits.
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