What would you do if you could retire with $1 million? Would you donate a good portion of it to your church, or support a cause that’s near and dear to your heart? What would your life look like? Would you be traveling all around the world, visiting and supporting different missionaries? How would you feel? A bit more secure, knowing that you’d have the means to take care of the majority of your expenses?
Yes, it’s important to remember that money doesn’t solve all our problems. And the love of money is the root of all kinds of evil. However, money does play a part in each of our daily lives. And money can be used for good.
In this post, I’ll show you a simple way to invest so that you’ll accumulate $1 million dollars by the time you retire.
Becoming a Millionaire: Just The Numbers
Most people enter the workforce after college and work until they retire. For our purposes, let’s say you enter the workforce at age 25, and that you work until you retire at age 65. That’s 40 years. But to be conservative, since some people may start working later and decide to retire sooner, we’ll give ourselves 25 years to accumulate $1 million. So now we have a 15-year cushion, just in case we need it.
To accumulate $1 million in 25 years, at 8% interest, you’ll need to save just under $14,000 ($13,678.78 for you math junkies) every year. This works out to saving just under $40 (again, $37.48 for you math junkies) every day.
Now you may be wondering, “Where can I find an investment that’ll earn 8% interest for me?” Well, there are many investments out there claiming that they have the ability to do this. Some are outright scams, and some may be legit.
But I’m going to bring to your attention the conventional way most people in the personal finance community suggest for investing.
Index funds are a basket of investments that track a specific index. If that statement just confused you, don’t worry. The great thing about these funds is that you DO NOT need to be an expert stock picker. And you DO NOT need to watch the stock market on a daily basis. That should bring you some comfort!
The most common index fund people invest in today is the S & P 500 index fund. According to its history, over the past 40 years the S & P 500 has returned over 8% interest (closer to 9%).
So the S & P 500 index fund is a great place to start investing to achieve 8% returns. All of the major investment companies, including Vanguard and Fidelity, offer this fund. After getting started, if you want to diversify your investments to reduce risk, check out this post on asset allocation.
Finding the Money
Another question you may have is, “Where can I find $14,000 to invest every year, or $40 to invest every day?” Well, Tim has a few resources on his blog, including howto coupon. He also shared his list of 33 side job ideas, as well as how to start making money with your passion. These are all great places to start.
Yes, this doesn’t take into account things such as taxes and inflation. And there are no guarantees with the stock market. But one thing’s for sure: You’ll be a lot closer to reaching $1 million by investing than you’ll be if you just sit on the sidelines.
The Million Dollar Question…
Again, money can’t solve all of our problems, and money shouldn’t be the ultimate focus of our lives. But money can be used to accomplish some noble goals. I hope that through this post you’re inspired to save for the future.
There you have it. Forty dollars a day. Fourteen thousand dollars a year. Twenty five years. Eight percent interest. With simple and steady investing, you too can be a millionaire. Are you up for the challenge?
Think about the possibilities of what you can do.
Darren loves to read and help people learn business skills that they can use to better their lives. Check out his blog at Gain Business Skills. If you would like to be a guest contributor, see our write page.