You can be a millionaire. Seriously. You don't need to win the lottery. You don't need a big salary. You don't need an inheritance. You don't need an employer contribution to a 401K plan. You can do it all by yourself. Here's how:
Save $86 a month at 10 percent interest (average stock return over the past 200 years), begin age 20. Retire at 66 with one million dollars.
Think that's too much to save every month?
How to save $86 a month:
1. Skip weekly dinner out one time a month.
Dinner out for two at average Fargo restaurant: $40. Dinner at home: $10. Savings: $30.
2. Skip weekly movie one time a month, rent DVD.
Movie out: two tickets, $15, two small boxes of popcorn, $6.50, two sodas, $5, gas to movie, $2, total: $28.50.
At home: DVD rental, $1, homemade popcorn and soda, $2.50, total $3.50.
Savings: $25.
3. Instead of daily latté and danish at the coffee cart, buy regular coffee and bring a banana from home.
Latté and danish: $4.
Coffee with cream and sugar, banana: $2.
Savings: $2 a day, 20 weekdays a month=$40.
In fact you now have saved $ 95 a month, almost painlessly. Invest that money in a no-load, low-fee index mutual fund (Vanguard, T. Rowe Price, TIAA-CREF are among good choices) by arranging with your bank to have it withdrawn automatically from your checking to a tax-deferred IRA account. The web sites will tell you how to set it up.
Can't manage to save $95 a month? Fine, Go to that weekly movie, then, and save $70 a month. You'll still be a millionaire at age 69.
Don't believe it? The key is to faithfully save a little every month, and to start early. To understand more about compounding, check out Choose to Save, choose the calculators link, and the Savings Calulator "What will it take to become a millionaire?"
Copyright 2005 by Ross F. Collins <www.ndsu.edu/communication/collins>