Save Early and Become a Millionaire
Photo by theritters.It’s easier than ever to become a millionaire. So what’s the secret? Don’t laugh, but it’s plain old saving. Getting an early start on your savings coupled with the right investing strategy will bring you up to millionaire status. The catch? You’ll have to wait a few decades.
According to the MSN Money article Start on your first $1 million at age 16, the simple recipe to become a millionaire has five simple steps:
- Work 4 summers, from age 16 to 20
- Save the income in a Roth IRA account
- Invest in a simple, low-cost equity portfolio
- Wait 47 years
- Collect at age 67, untaxed and ready to spend (maybe on a new hip by this point)
The article takes into account that, starting from age 16, a person earns $2000 each summer for four straight summers. Then if invested in a Roth IRA, it will grow, tax-free, for as long as the account exists. All withdrawals from the account after age 59 1/2 will be tax-free. The money grows to $25,917 by age 30, $197,943 by 50, $547,037 by 60 and finally gets over one million by age 67 or $1,114,423 to be exact.
Two problems I see right away. First, getting an average return of 10.7% isn’t as easy as the article says it is. But, then again, some people say the opposite. The article also states that if you invest in small company stocks, whose long-term annual return clocks in at 12.5 percent annually, you will have even more money. Nice to know.
Problem number two, as you’ve probably already guessed, is that one million won’t be one million in 40 years due to a little something called inflation. Im guessing one million in the future might be equal to $250 thousand now. It’s still a nice chunk of change that if properly managed, could support you though your old age. And for only four measly years of saving, could save you a lot of financial trouble down the road. Albeit far, far down the road.
Plus this plan doesn’t have to be set in stone. Don’t stop saving at 16 to have even more waiting for you in 40 years. Or if you didn’t start at 16, who says you can’t start now? The 20s are the new teens anyway…
Also, another good reason to save would be to use it as an emergency fund. Many 20 somethings don’t find jobs straight out of college, or at least, jobs they want to stay at. This cushion of savings can really help take the pressure off when you’re unemployed. And as soon as you land that great job with the corner office and cushy black leather chair, start putting money back into the account. And while you’re at it, send a few bucks my way for giving you the idea.
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To become a millionaire is not that easy as it is written in the article. The most important factor is saving early. Hardly anyone can put this into practice because it is just the theory.