Compound Interest | How to Become a Millionaire for $300 per month
Becoming a millionaire in America is not complicated.
That’s not to say it’s easy, but it’s definitely not complicated.
Investment + Time = Wealth
You can add variables to each element.
How risky is the investment?
How much is invested at the start?
How consistently is money added to the investment?
How much time is allowed for the investment to grow?
How much money is your personal wealth target?
If your goal is the least amount of work with the least amount of risk, given enough time, a basic Individual Retirement Account (IRA) will be your most straight-forward way of accumulating $1,000,000 cash when you retire.
And it all happens because of the power of Compound Interest.
Click image to watch a video explanation of Compound Interest
What is Compound Interest?
Compound Interest is the ability to earn interest on your investment AND on your interest.
What is interest? Interest is the cost of borrowing money.
If you borrow money, you pay interest.
If someone borrows your money, you earn interest.
There are two kinds of interest: Compound Interest and Simple Interest.
Simple Interest means that if I invested $100 at 10%, every year I would earn $10 in interest. There is no snowball effect - just a simple, consistent return.
No one gets rich from Simple Interest.
That’s why smart investing focuses on Compound Interest.
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.” ― Albert Einstein.
Compound Interest is different from Simple Interest in that it allows the interest earned to be added to the investment.
If I invest $100 at 10% (compounded annually), I earn $10 in year one.
In year two, my starting balance is now $110, which means my 10% earns me $11.
In year three, my starting balance is $121, which means my 10% earns me $12.10.
Given enough time, that compounding effect is what turns hundreds of dollars into millions.
The two most important ingredients are TIME and CONSISTENCY.
Check out what happens when $300 is investment monthly for 20, 30, or 40 years.
$300/mo for 20 years
= $72,000 total lifetime contributions
Account Balance @ 10% annual return = $227,810
$300/mo for 30 years
= $108,000 total lifetime contributions
Account Balance @ 10% annual return = $678,246
$300/mo for 40 years
= $144,000 total lifetime contributions
Account Balance @ 10% annual return = $1,593,333
Note that while the personal life time contributions increase slowly, the results start growing exponentially.
Every person’s financial situation is unique, so feel free to play around with the numbers or yourself here:
https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
Understanding the fundamentals of personal finance are key to building the financial legacy you desire.
If you choose to do something else with your money, that’s okay.
However, failing to invest for retirement should NEVER happen because you don’t at least know your options.
If you have questions about how to get started, send me an email.
If you have a desire to buy or sell in the coming year, let’s chat.
Life has a way of keeping us all moving, and I’d love to be your real estate agent.
Contact me here to set up your free and confidential consultation.
Kevin
