For real. Compound interest. It’s a tool to harness, understand and make yours. I love listening to podcasts and reading interesting articles about the crazy rich people in this world, the real people who have worked in a way the Kardashians don’t understand. The Warren Buffets, the Bill Gates, you know, the American Royalty who have worked hard, creating wealth for themselves and are working to create a better world for those around them.
It’s inspiring. I often think about (well, let’s be honest, it’s only when the jackpot is super high and I play, with the odds stacked against me) winning the lottery. I create lists of people I would share my wealth with, that never-ending wealth (hey, this is my dream.) My dreams always include figuring out ways to #1) Automate a continued stream of wealth through various methods of investing, and #2) Taking care of the world around me. When you are working with numbers like 500 million, the compound effect of saving and investing can be mind blowing. I imagine how many people I could help, how many I could inspire to grow their own wealth with the seeds I help them plant. Then, I snap back to reality and hope my $20 website can do the same.
Back to compound interest. It’s the littlest thing, but it’s also the biggest thing of importance when saving. It’s what turns the money you save today into an amount 3x . For example, I’m 40 and I start saving today, putting $100/month into an Index Fund mutual fund (if you are starting out, this is a great way to harness the entire stock market and see positive results over time, more to come on that.) By the time I retire, in 27 years, I will have invested $32,400 BUT the total amount of my savings becomes $95,637 through the phenomenon of compound interest.
When “experts” talk about retirement, they often refer to the $1 million or $2 million you MUST have in order to retire. I don’t know about you, but that number is pretty daunting. Let’s break it down to see what makes sense to you… So, lets say that $100 a month is all I can afford, and I start today. At retirement I have the $95,637. I expect to live an average number of years (81.) Let’s say I know my average Social Security benefit is expected to be $2200 per month. The $100 a month I started to save at 40 would afford me and extra $567/month. I used an average rate of return of 7% (index funds have historically returned 12% over the last 40 years.) So, looking at the $100/month, what makes sense to you? What do you need to live a comfortable life that actually works for you? That’s the biggest question mark for all of us, and the number doesn’t need to be something that feels impossible. Baby steps for the win! Let compound interest do the heavy lifting 🙂