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Addicted to Saving

September 28, 2012

America is a country that is addicted to addiction.  From Oprah to Dr. Phil, everywhere we turn there is fascination with the negativity surrounding alcoholism, overeating, overspending, etc.  What you don’t hear a lot about are addictions that can have a positive impact on your life.  In today’s show, we focus on a positive addiction to get you excited about being addicted to saving!

First, let’s take a look at who becomes wealthy, according to The Millionaire Next Door:

  • They live well below their means
  • They allocate their time, energy, and money efficiently, in ways conducive to building wealth
  • They believe that financial independence is more important than displaying high social status
  • Their parents did not provide economic outpatient care
  • Their adult children are economically self-sufficient
  • They are proficient in targeting market opportunities
  • They chose the right occupation

If your goal is to be a millionaire, it is possible (and relatively easy) to accumulate $1,000,000 by age 65.  Assuming a 10% interest rate, here is your required monthly savings broken down by age:

Current Age:  1
Required Monthly Savings:  $14

Current Age:  10
Required Monthly Savings:  $35

Current Age:  20
Required Monthly Savings:  $95

Current Age:  30
Required Monthly Savings:  $263

Current Age:  35
Required Monthly Savings:  $442

Current Age:  40
Required Monthly Savings:  $754

Current Age:  45
Required Monthly Savings:  $1317

Current Age:  50
Required Monthly Savings:  $2413

Current Age:  55
Required Monthly Savings:  $4882

Current Age:  60
Required Monthly Savings:  $12914

Current Age:  64
Required Monthly Savings:  $79583

As you can see, the earlier you start the easier it is to reach your goal.  And for those of you who think a 10% return is unfathomable at this time, look at the total annualized return for previous decades below.  For the period of 1950-2009 there was an average of 11%.

  • 1950s:  19.3%
  • 1960s:  7.8%
  • 1970s:  5.8%
  • 1980s:  17.3%
  • 1990s:  18.1%
  • 2000s:  -1%

While some decades performed worse than others, this is further proof that investing consistently for the long-term will yield better results.  Furthermore, the image below shows what can happen if you start early, stay consistent, and increase your savings as your income increases during your lifetime.

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 Hopefully this show motivates you to pick up a new addiction (or maybe “disciplined habit” is a better way to put it).  None of us can control what is going on in the stock market, so we encourage you to focus on what you can control – your saving habits, portfolio allocation, tax structure, and lowering fees.  If you can do those four things, you are going to be successful.  Please leave us your questions and comments below or on the Facebook page!

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