Did you ever wonder how the rich got that way? It didn’t come from their jobs, it came from their investments.
When you are young, you don’t want to think about retiring, there is too much fun to be had. However, the smart thing to do is to plan ahead because the earlier you plan for it the less it will cost and the more you will make.
Can you really retire with a million bucks? The answer is “yes, you can.” It is not difficult to put together a large nest egg. Maybe you can only make half a million, maybe you want two million. How much you will have at the end is determined by how much you can invest on a regular basis, and how much time you have until you choose to stop working.
The keys are to make a plan for investing and to be consistent and regular.
Here is an example of what you can expect: if you invest as little as $500 a month and are in your 20s, by the time you are at retirement age (mid 60s) a 6% rate of return will net you over $1,000,000. If you can eke out a mere 2% more (8% return) that amount jumps to 1.75 million! If you are 40 you have less time. The same investment will net less than $350,000, which is still nothing to complain about, while an 8% return gets you over half a million. It can add up quickly.
This is achieved through a process called “Dollar Cost Averaging.” That is a fancy term for investing each and every month, no matter what, until you are ready to stop working. What causes the rapid growth is called “compounding interest.” That simply means you will earn interest on your interest, as well as your regular monthly amount.
How do you do it? Follow these few basic steps:
- Find a Certified Financial Planner. Not a stock broker like e-Trade, or Schwab, but an individual with the “CFP” designation. A CFP only makes money when you do, and does not earn commission for buying and selling your portfolio. If you do not know a CFP, Google “Certified Financial Planner” with your city and state and you will come up with a list. Or ask your friends for a referral.
- Establish a family budget, and carve out at least 10% (more if you can afford it) of your income devoted to your financial plan. Never, ever spend it!
- Have this amount automatically withdrawn from your account so you never see it. Your CFP can help you set this up.
- Meet with your CFP yearly to update and adjust your plan.
- Put more in when you can afford it.
Your CFP can also help you set this up as a tax exempt or tax deferred plan (Keogh, IRA, 401k, etc.), and your employer might even help with contributions. Your CFP can also help you set up a similar tax exempt plan to save for your kid’s college education.
You can reach your goals. All you need is to make a plan and follow it. You CAN have a million bucks!
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