I was excited to hear recently, that with my modest savings of $65,000, that I’ll have 1 million dollars in 36 years (without saving anything else). Thank you compound interest and the rule of 72!
For those needing a refresher on the rule of 72 (or if you’ve never heard of it), it goes like this. Take the interest rate you are getting on your savings (investment) and divide it into 72. The result is the number of years it takes for your money to double in size.
In my case I estimate 8% (I estimate low for my interest rate - probably it will be between 8%-12%). So this gives me 72/8=9. So, my money doulbes every 9 years, untouched.
Year Amount 2007 $65,000 2016 $130,000 2025 $260,000 2034 $520,000 2043 $1,040,000
36 years to get a million, just through compount interest. Of course, if the interest rate is more like 10%, then it would be 31.2 years. If its 12% interest, I hit 1 million in 24 years!
Of course, I won’t stop saving, so this goal should be attainablewhile I’m still young enough to enjoy it. And, this also assumes I don’t take anything out of it.
One other thing to consider here is what is the future value of that money. In other words, in the year 2043, I won’t be able to get the same things I can get now for 1 million. My 1 million will be worth less in 2043, due to inflation, so if my goal is to get 1 million dollars in todays dollars, I’ll need to calculate how much that will be worth in 2043, assuming a constant rate of inflation. Thankfully there’s a calculator to figure this out –> here. As it turns out, my 1 million is only worth just over $355,000 in todays dollars, so I better keep saving :).
At any rate, the value of saving as early as possible is evident. put money away now and let time do its magic!
