Do you have any vices?
We all do, right? Maybe it’s Mountain
Dew, Starbucks, your favorite burrito place, you name it. Let’s say you spend $5 a day on whatever your
vice is. Some days you spend a little
more than $5, some days a little less. Maybe
you started this around the time you got your first job as a teenager and
actually had a little spending money, let’s say at age 16. It’s only $5 a day. No big deal, right?
$5 x 365 = $1825 per year
Ok, that added up a little bit.
Hmm… Ok. $1825 per year. Whatever.
I’m 34, so let’s say I spent $5 a day from age 16 to
34.
$1825 x 18 years = $32,850.
Wow! That’s a lot of
money. I could use an extra 32,000
bucks! Hmm… Maybe that vice isn’t worth it, so I stop
spending that $5 every day. Whatever
that vice is, by giving it up we’ll probably be healthier and have more money
to boot. Win-win!
WHAT IF…? What if,
when I was 16 and I got my first job, rather than spending $5 per day, I saved
$5 per day? So, instead of spending
$1825 per year, I save it. And let’s say
rather than just throwing it into the old Savings account that basically earns
me no interest at the bank, I open a Roth IRA and invest that $1825. If you don’t know much about a Roth IRA,
that’s ok. Google it. Research it. Ask me about it. For the purposes of this exercise, all you
need to know is that a Roth IRA grows tax-free.
If I invested $5 every day from age 16 to 34, I would have
invested a total of $32,850. Let’s say
that Roth IRA averaged an 8% return over that 18 years. At age 34, my Roth IRA would have $73,814.
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That’s pretty awesome.
If I could use an extra $32,000 I definitely like the sounds of it
growing to almost $74,000. But, at age
34, I grow tired of saving $5 every day.
And so, I quit. If I never
contribute another dollar and just let that money sit in the Roth IRA grow
until age 65, how much do you think I would have?
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Current Principal:
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$
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Annual Addition:
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$
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Years to grow:
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Interest Rate:
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%
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Compound interest time(s)
annually
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Make additions at start end
of each compounding period
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Future Value:
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$
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$800,000! Tax
free. Chances are if you were able to
save $5 per day from age 16 to 34, you probably wouldn’t quit. Assuming you kept saving $5 each day, you
would have well over $1,000,000 by retirement age.
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Current Principal:
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$
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Annual Addition:
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$
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Years to grow:
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Interest Rate:
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%
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Compound interest time(s)
annually
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Make additions at start end
of each compounding period
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Future Value:
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$
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Do yourself a favor and don’t waste $5. Every financial decision you make, no matter
how small, is potentially a HUGE decision on your future.
Shea - ICAN Hiawatha Office
