Who Wants to be a Millionaire?
I recently spoke to a class of GED students attending Portland Community College. It was inspiring to talk to young people who were focused on getting their high school degree and grabbing that first rung on the economic ladder.
My talk was geared around the power of networking and communication skills to advance your career. However, as I am wont to do, I couldn't resist leading the talk with a retirement focus. I said to the class (about 20 students who varied in age from 16 to 19) that it would be very simple for each and every one of them to eventually become millionaires. I then let the disbelief settle in a bit before I continued.
HERE's THE (SIMPLE) MATH
Let's say your annual salary is $30,000 - which is about $15/hour. And let's say you are able to invest 10% of your salary every year (so $3K per year) into a retirement plan like a 401(k) or a Roth. And let's be SUPER conservative and assume you never get a raise and there is no company match.
If we take that $3K annual investment and put it into a S&P 500 Index Fund, the fees are almost zero. The average annual return for the S&P is about 7%. Investing that $3K for 45 years (from age 22 to age 67) gets us to the $1M mark. And let's be real - your salary will increase over time and there may even be a company matching component to factor in. So you are more than likely to have FAR MORE than $1M in that retirement account.
And that's AFTER ADUSTING FOR INFLATION, as the stock dividends you'd receive would effectively cancel out the historical inflation rate.
If you want to play around with the numbers and adjust for things like the amounts invested, rates of return, and retirement age, there are a number of simple calculators you can find on the web.
VOILA!
So there you go - it's that simple to eventually becoming a millionaire. Why is that important? Not because of the money for money's sake. But because the money/wealth we've created allows us to care for ourselves and to eventually retire. Either we are able to support ourselves or we become dependent on somebody else/society to support and provide for us.
TEACH YOUR CHILDREN WELL
If you can provide your children with a single piece of financial knowledge, get them to understand and appreciate the power of time and compound returns. If they start young, they can all be millionaires!
