Want a foolproof way to turn $1 a day into $67,815? It doesn't take a lot of
money or time or personal sacrifice. There's no magic, no multilevel marketing
and no salesman will call at your door.
In fact, it's the simplest and most-proven way to get richer, and if you extend
this concept to other parts of your life, you could end up with an enviable
retirement nest egg.
To start, all you have to do is take
your pocket change at the end of the day and drop it in a jar. If you can do
that, and you put away about $1 a day, that's just $7 a week. At the end of the
month, you'll have about $30.
Since
this is money in your pocket, you've already paid taxes on it in the form of
withholding from your paycheck. (If you're self-employed, that's not true, but
we'll ignore that to keep things simple.) Every month, deposit your savings in a
Roth IRA account, where it can grow tax-free and -- more important -- be
withdrawn tax-free in the future.
What's a
paltry $30 a month going to do for you? Growing tax-free for 30 years, with a
10% annual return, your investment account will be worth $67,815. Not bad for
pocket change, but that's just the beginning.
Here are
some other ideas for saving a few bucks here and there that can add up to big
dollars over time.
Activity |
Monthly Savings |
Annual Savings |
Take-out vs. dining out once a month |
$45 |
$540 |
Manicure less often |
$15 |
$180 |
Fewer trips to car wash |
$12 |
$144 |
Video rental vs. movie monthly |
$11 |
$132 |
Regular coffee instead of cappuccino on weekdays |
$40 |
$480 |
Total |
$123 |
$1,476 |
If you can knock this $123 out of your
monthly budget, at 10% it will grow to $278,040 in 30 years. You've practically
financed your retirement with just a few small sacrifices.
If you
want to see for yourself how small savings can multiply over time, spend a
little time playing with MSN MoneyCentral's Savings
Calculator. You'll see that if you can add in some big-ticket
savings, it takes just $443 a month to make yourself a millionaire.
Here are a couple of ways to do it:
Debt
on wheels
Often,
the same people who bemoan the fact that they can't save are driving around in a
new car and making monthly payments on a 48-, 60- or 72-month loan. But you'll
be amazed by how much you can save by buying a used car.
Consider
the alternatives:
1.
You put $6,000 down to buy a new car worth $26,000. You finance $20,000 at 9%
interest for 60 months. Your monthly payments are $415.16. Total interest costs
are $4,910, making the total cost of the car nearly $31,000. 2. You pay
$6,000 cash for a good used car. (MSN
CarPoint lists used cars by price and mileage, with many in the lower
price ranges.) Invest that same $415.06 a month for the same 60 months with an
average 9% rate of return. At the end of 60 months you would have roughly
$29,000 in your investment account after paying taxes of about $6,300 on your
long-term capital gains. (The exact amount would vary depending on factors such
as whether your investments paid dividends.) Even if you subtract the cost of
whatever additional repair costs you may have for your older car, you still come
out way ahead.
Plastic
handcuffs
Buying on
credit is a convenient way to pay too much for everything you buy. Consider the
costs: Say you spent $1,000 on clothing, using a credit card charging 18%
interest, and you make the minimum monthly payment to pay off the balance. It
would take you almost six-and-a-half years to erase the debt, and your $1,000
wardrobe would actually cost you more than $1,650.
Or maybe
you'd rather buy some furniture. Buy $2,000 worth of furnishings with a credit
card charging 18.5% interest and consider the consequences if you pay off the
balance by making minimum monthly payments. It will take more than 11 years to
repay the debt. By the time the loan is paid off, you will have spent an extra
$1,934 in interest alone -- almost the actual cost of the furniture.
Unlike
most things in life, when it comes to saving money, it pays to sweat the small
stuff. And when you're done with that, go after the big stuff too!
Janet
Luhrs contributed to this story.
This article was transcribed from the internet utilizing Microsoft Word 2000.
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August 26, 2000
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