Who wants to be a millionaire?
For most people, money is a topic that everyone wants to understand but few do.
People seem to believe that to be good with money you have to be clever, good at maths and come from a wealthy background. This could not be further from the truth.
I would say the biggest factor that stops people from understanding money is their own lack of motivation to broach the subject. Money is easy if you break it down, take the topic step-by-step and remain optimistic. If you go around thinking “I’ll never have enough money to buy a house” you probably never will.
On the other hand, if you set yourself a goal of building a £10,000 savings pot within five years, just by having that target in place you are more likely to reach your aim.
Becoming a millionaire is easy….if you know how
To demonstrate how easy it is to build wealth if you take a few minutes to understand some simple concepts, I want to highlight one study. Even though I believe I understand the concept of compounding and compound interest well, the first time I read this study even I was surprised at how easy it is to build a fortune when you have a target in mind and a set plan.
The study in question comes from David Bach’s book, Smart Couples Finish Rich. Even though the book is now nearly 15 years old, it’s wisdom is timeless as the principles remain the same.
Within the book, Bach shows the different rates of saving required to build a fortune of $1 million by the age of 65.
These figures are the same for both pounds and US dollars.
The bottom line of the study is that to hit this life changing sum you only need to save as little as $61 a month or $730 a year if you start at age 20.
The calculation is based on achieving an annual return on savings of 12% — a high rate but not totally unachievable.
Time is money
These numbers illustrate how critical time and a rigourous savings plan are when investing for the future. Bach’s book also considers the level of savings required if you start to put money away later in your career.
Delaying your savings goals can have a severe impact on your financial position. Specifically, Bach’s figures show that if you start saving at age 40, you would need to put aside $625 a month or $7,500 year to reach $1 million by age 65 — that’s ten times more to put away every month than if you started saving two decades earlier.
If you start saving at age 50, you would need to put aside a staggering $26,800 a year to reach the $1 million target by 65.
If you start early and take a long-term view, saving for the future isn’t really that complicated.
If you’re looking for more tips, tricks and advice on saving, investing and growing your wealth, download the Money Is Boring ebook today. Just click here to download for free.