Do you want to make a deal with your parents or with yourself? You can spend every dollar you’ll ever make the rest of your life, because at age 20 you’ll already be set to be a millionaire. The only thing you need to do is save $9,300 by your 20th birthday. Nothing more – nothing less. After that, without getting into debt or touching these savings, you can spend every dollar you earn – if you choose to. And, if you also save a bit of each paycheque, it won’t be hard to reach two million dollars.
It’s the magic of compound interest and works with something called the Rule of 72. Simply take the rate of return on your investments and divide it by 72. That’s how long it will take for your savings to double. So, a 10% return doubles your money every seven years.
Saving that $9,300, investing it, and forgetting about it, at a 10% rate of return will double your money very quickly and very frequently:
Invested by age 20: $ 9,300
At age 27 it doubles to: $ 18,600
At age 34 it doubles again to: $ 37,200
At age 41 it’s: $ 74,400
At age 48 it’s: $ 148,800
At age 55 it’s: $ 297,600
At age 62 it’s: $ 595,200
And at retirement (age 67) it’s: $1,003,000
You could also save $78 a month from age 20 to 67 to get the same million dollars. But that leaves 564 times you’re going to tempted to skip a month, be too broke, or forget to do it, and that risk is too big.
Why can’t every adult accomplish this? The answer is simply, because they didn’t save any money when they were much younger. The longer you wait, the less time your money has to double, and double up again. If you want the money when you’re 67 years old, but only start to save at age 41, you’ll end up with three fewer doubling periods and have about $150,000, instead of a million! In your case, at around age 20, the money has the time horizon to double almost seven times!
It’s your call – it’s your choice. If you don’t do it, you WILL remember having read this, as you start your retirement trying to live on $1,400 or so in monthly government pensions.