Do you want to become rich? Do you have dreams of being able to afford the nicer things in life? If you answer yes to these questions there is one word that can help you achieve these goals, SAVE. Now in order to be able to save you must first not be living paycheck to paycheck and thereby giving you something to actually save. What is the key to becoming wealthy? That is saving early and often and let the money compound over time that will enable you to see the wonders of compound interest. If you are 21 years old and right out of college let’s say you put $5,000 in a ROTH IRA for the next 38 years until you are able to withdrawal the funds penalty free. That initial $5,000 if invested in something that returns an average of 6% a year which a good equity fund ETF should be able to do will grow to over $45,000 and if you left it there until you reached your full retirement age of 67 it would be over $72,000. Now if you opened a ROTH IRA with $5,000 at age 21 and ignored any adjustments by the IRS on contribution amounts and stayed with $5,000 a year at age 59 you would have over $725,000 and if you did the same until your retirement age you would have over $1,205,000. And that all relies on a very conservative 6% return. Now you can see the power of compound interest and how it works for you from a young age. Now if you waited until you were 30 to begin saving in a ROTH IRA with $5,000 a year until your retirement age you would only have about $679,000 in the same account. Those extra nine years made you almost double on the same investment.
Now that you are saving for retirement it also helps to control spending and make wise investment choices. Do you need a $500,000 house when one that costs $300,000 will work? That is an extra $200,000 you can invest and make work for you instead of having an extra room or two. As we learned in the Great Recession real estate can and will go down and in some instances in a large percentage as compared to its current value. While real estate has come back in most parts of the country it is not back to the levels that occurred prior to the Great Recession. Now if you had invested money in equities you not only would have gotten your losses back but you would have had some impressive gains. Now I am not saving to try and time markets or real estate but rather make wise and intelligent investments that are geared towards a long term nature. A solid steady return will outweigh a fast profit over the long haul.
The more you save and the better a return you can achieve on your savings will have a direct effect on you becoming wealthy. And as I showed you save early and save consistent and you will have a nice nest egg when it is time for you to retire later in life. Remember to always pay yourself first.