We’ve all heard about the miracle of compound growth. It’s not really a miracle; it’s just arithmetic and it was our topic at last week’s Third Thursday talk.
It’s not just about growth. You need to save, consistently. What you invest in is a separate decision, but be consistent about saving, no matter how markets may behave. The combination of adding to principal and compounding on the growing total can produce pretty amazing results. For example, starting with zero and saving $100 a month for thirty years at a 6.5% rate of return will result in a total of over $110,000. This does not include tax consequences, which is why it is so important to invest in an IRA or 401K. Which kind would be more beneficial is a discussion for your CPA.
If you save $300 a month, the end result triples. There are plenty of calculators on line enabling you to plug in your own contribution, interest rate and timeline assumptions. One can be seen here.
Whatever the result of your assumptions, it should be clear that long-term, consistent saving is the key to building wealth.
We talk about similar subjects of interest on the third Thursday of every month at the Bier Station at 120 East Gregory at 6:00pm. Come join us.