What Every Millennial Needs to Know About Saving
If you are between the ages of 18 and 30 or know somebody who is, how would you like to know how to double your money in 10 years? This article can help anyone with a long-term savings timeline accumulate thousands of dollars in the next 10, 20 and 30 years by applying three simple time-tested rules that put the power of compound interest to work for you.
Baby Boomers | Gen X-ers | Millennials
Generations are divided according to their birth years.
- Boomers: Born between 1946 and 1964.
- Gen X-ers: Born between 1965 and 1977.
- Millennials (or generation Y): Born between 1978 and 1988.
Out of all the generations, Millennials are in danger of having the biggest income gap at retirement due to many factors outside of your control such as 911, the wars in Iraq and Afghanistan, the Great Recession, and the end of the traditional worker pension.
Don’t despair, however, because you have access to the most valuable ingredient necessary to the accumulation of wealth: TIME. You have the most time, which means NOW is when you want to start putting the power of compound interest to work for you.
- the first rule gives you the inspiration
- the second rule gives you habit
- the third rule reveals the magic formula
All these rules need is a little elbow grease from you.
The Power of Compound Interest
Investing Rule #1: Rule of 72
The rule of 72 has sometimes been called the 8th wonder of the world and this is a true gift that you have as a millennial. To use this rule, simply divide the rate of return by 72, and bingo – that’s the number of years it will take you to double that money.
Let’s say at the age of 20 you inherit a little money or manage to save $10,000 in one year. Put that money in an investment averaging 8 percent, do nothing more, and in 9 years, you will have $20,000. If you leave it there, never take it out and never save anything again, when you retire at the age of 65, that $10,000 could grow to be worth $320,000.
Investing Rule #2: Pay Yourself First
Don’t sit there waiting to save until you make enough money. Start now with whatever amount you have. Saving isn’t what you do when you are rich; it’s what you do to get rich. Saving is a habit. Pay yourself first every month or every paycheck by setting aside a percentage amount you can afford. Don’t worry if the amount is small, pitiful or nearly ridiculous. The person who saves $10 a week for one year will have $520 by this time next year, whereas the person who does nothing will have nothing.
Investing Rule #3: Live Below your Means
Imagine if instead of spending 110 percent of your paycheck, you put some percent away into that same account with your $10,000. Even if you can only save $100.00 a month, that money will just keep growing for you. There is a simple formula anyone can apply that when used can take you a long way toward the acceleration of your RichLife.
Come up with a formula that you can live with using these 3 components:
- An amount you can live off – 80%
- An amount to save – 10%
- An amount to give – 10%
If you need every penny, the breakdown can be 98%, 1%, 1%. Remember, it will never add up to anything unless you get started. Do it now with whatever amount of time and money you have and watch the power of compound interest go to work for you.
Remember, you have options when it comes to creating financial wealth for you and your family. The sooner you start saving, the less you will have to contribute from your earnings.
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