The earlier you start saving and investing, the easier it will be to achieve your goals. Not only will the regular amounts you need to save be lower, but the total amount you need to save will also be lower.
Let’s take a look at the worked example below. You want to have $2,000,000 in investable assets (not your house or your belongings, but in shares, property, term deposits, cash etc) by the time you are 60. I have chosen $2,000,000 for two reasons. Firstly $1,000,000 is so cliché. Second, for the younger crowd, by the time you retire, $1,000,000 will definitely not be enough to provide you with an income stream for life given inflation over the timeframe.
Given the current savings rate, property prices and consumerism mindset, most people of my generation will have to work until they are 75. And still probably have nothing to show for it. But you are reading this because you are different!
The more interesting part is below. This shows the breakdown of the $2,000,000 between the amount you have to save and invest, and the return on these investments. If you start at 20, you only need to save $650K and the remaining $1.35M is investment returns. But leave it to 55 and you will have to save and invest $1.75M, with only $250K being investment returns.
This is due to the magic of compounding (remember the class at school on compounding that you didn’t pay attention to – I bet you wish you did now!). Compounding occurs when you earn ‘returns on your returns’ (or interest on your interest). This is where many people fall down in their quest for financial freedom. They save and maybe invest, but the ultimate goal of the saving is to buy something and not keep the funds for the long term to grow.
This is the pure definition of not working hard for your money, but letting your money work hard for you.
“Start today, because sometimes tomorrow becomes never”
Contact me if you would like a custom model built with your age, current balance, inflation adjusted with the age you wish to reach financial freedom.
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