Due to compound interest over time, a dollar saved in your early twenties is worth $10 at retirement. Therefore, with consistent saving early in adulthood, it’s more than possible to become a millionaire when you retire, even if you make an average salary. Here’s a look at how to make it happen.
The sooner you start saving, the better
The best way to grow your money is by exploiting the phenomenon of compound interest, a process by which a sum of money grows exponentially based on interest earned on money saved, plus any accumulated interest you’ve already earned. The longer you can participate in this process, the more exaggerated the effect, which is why every dollar saved in your twenties is so valuable.
Of course, there are some obstacles to saving money in your twenties that can’t be taken lightly. You might spend a good chunk of the decade in school instead of working, and you likely won’t have a lot of job experience when you finish, which diminishes your earning power. Despite this, it’s still possible to begin funding your million dollar retirement after you graduate, so long as your student debt is manageable and you can find the extra cash to stock away each month.
How to save for a million dollars starting when you’re 22
If you were to start saving from scratch at 22, and we assume an average annual return of 7% — with inflation holding steady at 3% — you would have to save $282/month to earn $1 million by the time you are 67 years old. (You can play around with the maths using this retirement calculator).
Assuming that you make $33,280 per year — the median full-time salary for people between the ages of 18-24 in the US — you’d be putting aside 10% of your salary into savings to achieve this goal, which happens to be what most financial planners typically recommend.
Of course, that’s no easy feat in the early years of your career, and will likely involve sacrifices to reduce your expenses (like living at home for a while), but it’s definitely a goal within reach. The good news is that the U.S. median salary jumps to $US47,736 between the ages of 25-34 — a dramatic 30% increase. In that case, you could stay the course or bump up your contributions to reach your million dollar goal even sooner.