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Financial Tip of the Day - Start Early

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    Financial Tip of the Day - Start Early

    Some of this is a repeat or continuation from some tips previously posted, but today's tip focuses on the power of compound interest coupled with a consistent and persistent investment plan.

    For those of you who missed my original example surrounding Christopher Columbus and his $0.01 investment in 1492...... That $.01 invested for 525+ years at 8% would yield $4.4 Quadrillion. All from 1 penny.

    I know you don't have 500+ years to wait for that kind of growth, but we can all start making investments toward our financial future.

    What if you could scrounge up $100 each month and begin investing it in a total market index fund (easy button) for the next 5 years. How much would it be worth? Let's just assume 8% market return..

    5 yrs - $ 7,348
    10 yrs - $18,294
    15 yrs - $34,604
    20 yrs - $58,902

    That was only $100 per month. Most of us squander that much on fast food, coffee, cable TV/streaming subscriptions, snuff, beer (blasphemy?) and any other number of things that we could easily sacrifice.

    What if we got real intentional and put together $500 each month and began investing that amount in the same total market index funds?

    5 yrs - $ 36,738
    10 yrs - $ 91,473
    15 yrs - $173,019
    20 yrs - $294,510

    Now you are starting to see some REAL and IMPACTFUL dollar amounts in those investments accounts. $6,000 per year is not an inconsequential amount, but I suspect most of us could find a way to work a few extra shifts, split a few extra cords of wood, do without a new "something" for a little bit of time or scale back in some form or fashion.

    What if you took your next pay raise and dedicated 100% of it to savings? What if you just added 1% more to your 401K plan?

    Another critical component of this example is the behavior of consistently investing every month. It took us several years of trying to invest every month before we made it a whole year without finding an excuse to cancel that automatic investment one month. Now, after building our savings accounts, paying off debt and budgeting every month, it is going to take one hell of an emergency to cause us to cancel that automatic monthly investment.

    For those of you who might consider leaving a legacy. What if you wanted to leave a true legacy to your future family members and forever change your family tree? Could you take $10,000 and invest it today and forget about it for 100 years? How much $$ could that be? -------------------------------------------> $22 Million

    Start early and stick with it, the results will be phenominal.

    #2
    Excellent reminder! My wife has her 401k maxed out and I’m in a municipal retirement system, but we both recently started contributing to a managed growth index fund with our financial advisor...we have 20-25 years before we will touch it. I’m excited to see it grow!

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      #3
      I peek in at your post every now and then and it is good stuff. This one in particular though is excellent. When I first started my career I only put the 6% into 401K that my company matched. I thought I was doing all the good until I became a little more educated. When I bumped my contribution up to the max my 401K account started showing real growth, and there might be light at the end of the tunnel after all. I would be in MUCH better shape now had I did the max when I first started.

      For those starting out in a new career, just budget the $19K per year will be going to 401K. You will be glad you did later on in life. Also, you need to be contributing the max to a Roth IRA as well. I was late to that game too....

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        #4
        Originally posted by Hockley View Post
        I peek in at your post every now and then and it is good stuff. This one in particular though is excellent. When I first started my career I only put the 6% into 401K that my company matched. I thought I was doing all the good until I became a little more educated. When I bumped my contribution up to the max my 401K account started showing real growth, and there might be light at the end of the tunnel after all. I would be in MUCH better shape now had I did the max when I first started.

        For those starting out in a new career, just budget the $19K per year will be going to 401K. You will be glad you did later on in life. Also, you need to be contributing the max to a Roth IRA as well. I was late to that game too....
        Yea sir! Only thing about a Roth is that you are limited by income as far as participating...

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          #5
          Originally posted by TxMedic View Post
          Yea sir! Only thing about a Roth is that you are limited by income as far as participating...
          backdoor Roth.....open an after tax IRA and roll it to a Roth, no income limitation

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            #6
            Originally posted by tommy1005 View Post
            backdoor Roth.....open an after tax IRA and roll it to a Roth, no income limitation
            Will have to look into that. Not sure how to go about it.

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              #7
              Man I love your posts!! It reconfirms why I’m putting so much money monthly into additional retirement accounts. Hopefully making out this Roth that I started at 23 pays off down the road!

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                #8
                Originally posted by TxMedic View Post
                Will have to look into that. Not sure how to go about it.
                It's a really easy process. Not to hijack the OPs thread but here



                I wish I would have started earlier in life but at least my wife is responsible!

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                  #9
                  LOVE IT

                  Goes against the common American Way these days

                  Comment


                    #10
                    Great Information and very motivational! Thanks

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                      #11
                      Great post. The best thing I ever did was start to invest at an early age and make it automatic.

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                        #12
                        My 401k has gotten 50% return over the last 2 years, and 20% over the last one year.

                        Where will it be in 4 years..........hmmm. Hope it is still there

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                          #13
                          Originally posted by joey1656 View Post
                          My 401k has gotten 50% return over the last 2 years, and 20% over the last one year.

                          Where will it be in 4 years..........hmmm. Hope it is still there
                          Valid point!!!!! Volatility will no doubt be a component of the equities markets. However, unless you are retiring in the next 4 years, that volatility will have minimal impact assuming your retirement horizon is materially outside that 4 year window.

                          I plan to maximize investments, minimize taxes and squirrel it away until I need it in the somewhat distant future.

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                            #14
                            Great info and thank you! Something I am going to start doing for my son. I read your Roth ira post awhile back and have been planning on getting one set up for him

                            Comment


                              #15
                              Great post, OP!

                              Don't forget to fund HSAs if you have access. If used properly, the money isn't taxed on the way in OR the way out as long as it is used for medical-related expenses. After 65 it can be used for anything... If your HSA has investment options... That's about as close to a truly free lunch you'll ever get.

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