I’m starting to introduce some new writers to The Digerati Life to give you some fresh, maybe even different perspectives on finance. One of those writers is Debbie Dragon, a full time freelance writer and web designer who works on a variety of projects such as debradragon.com, and a co-writer of the Empowering Mom blog.
Here, Debbie discusses ensuring yourself a million dollars by retirement age if you invest early. Take note though, that due to inflation, the future value of today’s $1,000,000 is around $225,000 in 50 years’ time, so you’ll need to invest 4.5 times harder (assuming today’s benign inflation rates) to get to a “true” million by the age of 67.
I’ve been working since I was 16 years old. I didn’t know that I could have been creating my first million with my summer jobs! At 28, things are a little different for me since I have so many more expenses and responsibilities than I did at 16; but I’m thrilled to have learned this before my own children start working. I maybe didn’t do it right for myself, but I can certainly help steer them in the right direction.
Here’s how to start earning your first million at 16, as Scott Burns describes in his column, “Small Change Millionaire Cookbook”.
You need to have a summer job, and you’re goal is to earn $2,000 each summer for four years. This may sound like a lot at first; but I think that’s completely reasonable considering I earned more than that in a summer working in a fast food shop as a teenager. You have to put in a little sweat equity to get your $2,000 — but let me show you why it’s worth it.
At the end of each summer for four summers, you would put $2,000 into a Roth IRA. Money in these accounts grow tax-free; and you can take the money out after age 59 ½ completely tax-free. Invest the money in the equity market, which means you earn about 10.7% (the average compound annual rate).
At the end of four years of working summer jobs (each year you’ve deposited $2,000), your account will have grown to $9,378 and you’ll have aged to the ripe old age of 20. Keep your money where it is, and if you don’t contribute anything more to it, ever, this is what you’d be looking at:
$25,917 by the time you are 30
$71,625 by the time you are 40
$197,943 by the time you are 50
$547,037 by the time you are 60
And $1,114,423 by the time you are 67
So, it’s too late for me to contribute just $2,000 a year for four years to see those kind of results at the age of 67, but it’s definitely not too late for my kids, ages 5 and 2. I love this idea that Scott Burns promotes — that small change will add up significantly over time. The bad news may be that 10 extra calories a day causes a weight gain of 1 pound per year but the good news is that money grows faster than fat! You probably know how tough it is to lose weight but how easy it is to gain the pounds; well, it can be just as easy to grow your first million, a little at a time.
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