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Due to compound interest over time, saved a dollar In your early twenties, retirement is worth $ 10. Hence, with consistent savings in early adulthood, even if you make an average salary, it is more than possible to become a millionaire in retirement. Here’s a look at how you can implement it.
The sooner you start saving, the better
The best way to grow your money is to take advantage of the phenomenon compound interest, a process in which a sum of money increases exponentially based on the interest earned on the money saved plus any accrued interest you’ve already earned. The longer you can participate in this process, the more exaggerated the effect, which is why every dollar saved in your twenties is so valuable.
Of course, there are some barriers to saving money in your twenties that cannot be taken lightly. You may spend much of the decade in college instead of work, and you likely won’t have much work experience by the time you finish, which will decrease your profitability. That said, it’s still possible to start funding your millions of dollars in retirement after you graduate, as long as your student debt is manageable and you can find the extra cash to top up every month.
How to Save for a Million Dollars from 22
If you started from scratch at 22 and we expect an average annual return of. go out 7%– with constant inflation of 3% – one would have to save $ 282 / month to make $ 1 million until you are 67 years old. (You can play around with the math with this pension calculator).
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Let’s say you make $ 33,280 per year –the average full-time salary for people between the ages of 18 and 24– You would invest 10% of your salary in savings to achieve this goal, which is what most financial planners usually recommend.
Of course, this is not an easy task in the early years of your career and will likely make sacrifices to cut your expenses (such as living at home for a while), but it is definitely a goal within reach. The good news is that by ages 25 to 34, the average U.S. salary climbs to $ 47,736 – a dramatic 30% increase. If so, you could stay on track or increase your contributions to reach your million dollar goal even sooner.