Are you ready yet to become a millionaire?
If you are 20 years old, and you have 300 dollars to spare every month, then you are one hell of a lucky person.
If you're 59 and going on 60, it ain't that easy...
300 a month
I read an article where a father told his son to put away 300 bucks a month, and in 30 years that son would be a millionaire. Although the advise, by itself, is sound and solid, it's also a bit wrong. Probably because the dad couldn't count - or was lying, who knows 😁
Seriously though, although the father in question had his numbers wrong, he did have a point. By saving a little every month, and doing so over a longer period of time, number do add up. Add compound interest (interest over interest over interest etc.) and you end up with quite a nice sum.
I tried some numbers in a little Excel sheet...
(deposit of 'x' per month, at interest percentage 'y', interest paid monthly, excluding taxes)
... and reached the following results:
(deposit of 'x' per month, at interest percentage 'y', interest paid monthly, excluding taxes)
So, setting aside 264 every month, from your twentieth birthday, will take you up to 1 million over 40 years.
If you're making decent money, and you're strong and in good health, then perhaps that's the way to go for those without a Harvard education, without rich parents, and who are not part of the 'clique riche' that pass their riches amongst friends and family.
The later you start, the more it hurts... I'm 59, so if I would like to accumulate a million in the next 10 years I'd have to save 6k a month. No way that is ever going to happen.
Risks
You can't simply bury your savings under the apple tree. And you won't make this using a regular saving account.
No, you'll have to trust the capitalistic economic system and buy shares, funds, stocks. If that's not your things, then buy into some fund, but yes. You might run into a bank that falls over, or an unscrupulous white board criminal who steals your life savings.
You might die at an early age, and might not be able to spend a penny of that million. That's life.
Also, you have to stay consistent. You have to put in that 264 bucks every month, month after month, year after year.
Costs and taxes
Then there are banks that charge you costs, and governments that like to tax you. You need to take those into account as well. And stock markets might crash. Companies may disappear.
But the concept works.
Save a little bit, as early as possible, and you (or your spouse or kids, duh) might end up with a lot of money.
Road to Hell
Now, compound interest is one of the reasons why you shouldn't borrow money to pay back other loans. This is why you shouldn't 'stack up' credit cards. This is why you should only borrow money if it saves you money, or allows you to make more money than you have to pay in interest. Because all negative interest (read: interest over the money you own a bank, ie. interest that is increasing your debt) is a road to hell.
Flip the graph, and you end with something like this... Well, don't!
So...
1. Create a little buffer so you DO NOT have to borrow money at all, if possible
2. Once you can afford it, set aside a small amount of money every month
3. Stock markets move up and down, but in the long run (10+ years) they outperform saving accounts - don't panic, you're in this for the long haul
4. If you're not into stocks yourself then look for a managed fund, maybe spread your money over more than one
5. Stay away from loans and credit as much as possible, as that's dangerous territory
Good luck! And remember:
Those who die with the most money... are still dead.
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