Is it hard to get rich? Not really, if you’re young, get rich slowly by using the power of compounding to grow wealthy.
It’s fun to play with financial calculators and see what might happen next.
Get rich slowly by using the time and power of compounding
Assume you have just graduated from a good college, are about 22 years old and I just started your first real employment. If you put $100 a month in an Individual Retirement Account (IRA) that grows at 10% a year, you will have about $865,000 at age 65. 10% a year compounding growth is about what you should expect if the money was invested in a no-load S&P 500 Index Fund or no-load Nifty 50 or Sensex in India.
So for about $23 Rs 1500 or a week or $3.30 a day, you would be close to being a millionaire.
If you contributed the full $4000 a year allowed right now to an Individual Retirement Account (IRA), you would have $2,600,000. For about $11.00 a day, you would have small finances, In the case of the Indian market, the Nifty 50 has grown around 13% annual rate over the 20 years time periods.
If you didn’t want to take a possibility with the stock market because it goes down sometimes, you would still have over $600,000 if you could get a 5% return in the worst-case scenario.
If your grandparents leave you $10,000 in his/her will and you invest it for the same 43 years at 10% without adding another cent, you’d also have over $600,000 if you placed it in a tax-sheltered account.
Time and the power of compounding interest are on your side and you will get rich slowly. So if you’re in your twenties and want to get rich, do whatever you have to scratch together that Individual Retirement Account (IRA) contribution. Every day you delay or postpone your action is another day your money is not working for you.
However, most individuals in their twenties require the money for more important things, like new cars and phones. You also have school loans to pay, youngsters to raise and a new mortgage to pay off. But if you prioritize your life and adhere to a budget, $11.00 a day is doable, although you might have to economise here and there.
Consider that most individuals are spending their lives paying the freight for borrowing other individuals’ money. If you save and invest, other individuals are paying you to use your money. It’s a lot more fun to see your money working to help you get rich slowly than having to work yourself.
Think about the effect expenses have on your financial future. If you bought a late-model used car rather than a new one, you would presumably save $10,000 or more depending on the model. That $10,000 as noted above, would grow to almost $600,000 by the time you’re 65 if invested in tax-sheltered accounts and you will get rich slowly by saving this extra cash.
Now look at it from the opposing angle, the extra money you spend on that new car you earn for and must have now, will cost you $600,000 by the time you’re 65 and the car has long since been recycled into tin cans.
I’d presumably buy the car too, but it’s helpful to consider the consequences.
It gets more difficult to get rich slowly as you get older. If you wait until you’re 32 and put away $4000 at 10%, you would have about $975,000, still an exemplary amount. At 42, you’d only be capable to accumulate around $350,000. If you’re 50 and can begin putting $5000 away today, you’ll have around $175,000 at age 65.
Everyone understands that Social Security is not going to qualify for a comfortable retirement. Actually, if the plan can continue to pay out forever, which is questionable right now, the money you receive will be far from affable and is subject to taxation. And you might have a reasonable pension plan at work now, but will you be capable to hold your current job to retirement?
If you have a Roth Individual Retirement Account (IRA), you can withdraw the money tax-free after age 59 ½. Visualize 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 rich slowly.
No matter what your age, initiate saving, get the benefits of the power of compounding, what you can now – today. Actually, if you only have a mass of $100,000, you’ll be better off than most individuals entering retirement.