The Fastest Way To Save $1 Million

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Read one article about personal finance and you know that compound interest is one of the most important reasons to start saving and investing early. Well, in theory. You’ve heard that if you start investing in your 20s, you’ll have a bajillion dollars more than you will if you start in your 30s. Or something like that.

It is true that starting early helps build more money. Take this simplified example:

Let’s say you’re 25 and you start putting $3000 annually into an account for the next 40 years, with a seven per cent annual return. You’d contribute a total of $120,000 by the time you’re 65—but your account will have ballooned to almost $700,000.

Now let’s say you wait until you’re 35. Even if you contributed $5500 per year, rather than $3000, until you’re 65 with seven per cent annual returns, you’d end with just under $600,000.

Start early, put away less each year, and you end up with $100,000 more. Not bad.

OK, that’s all well and good, but what does that actually look like? The video below will help you visualise the difference. We’ve laid out the steps for the best ways to save and benefit from compound interest so that by the time you retire, you could be a millionaire. It’s not a bajillion dollars, but it’s not half bad.


Comments

    Step 1: Have your wealthy father give you $1 million.

    Point me in the direction of a bank with 7% annual return please :)!

    Start early, save often. Short summary, It's compound interest at work. Which is where time works for you, so the more time you have working for you the better off you are at the end. You want to put as much as you can in as early as you can. Its more important at the start than at the end.

    Say a fund goes up 10% each year. If you put $2000 into it each year, at the start its only going up $200. But after 30 years, theres so much in there that its going up $30,000 even if you're still only putting $2000 in.

    That's the whole point here. Starting early gives more time for the interest to do its job, and for you to get paid off at the end.

    To put it a different way, the earlier you start, the earlier you can retire.

    With such low interest rates, compound interest doesn't have as much effect, which makes this story rather pointless.

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