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How Short Term Goals Make Long Term Results

September 17th, 2006 at 06:11 pm

I know investing for a retirement plan might not sound like the most exciting thing in the world when you are in your twenties and early thirties. Even though this site is designed for long term planning and growth, short term goals are the foundation for great long term results. One of the richest people in the world once said that time is a wonderful thing. Every 20 year old has the opportunity to be much richer than s/he is, because of that wonderful thing called time. Remember “Save while you’re Broke. Spend when you’re Rich”? Well, I am going to add some new content and an example on why saving now is so important.

Too many people want to see immediate results, or they don’t want to set aside 15% of their income to long term retirement plans. “I want to spend the money that I am getting. I don’t want to be 50 or 60 and finally get to start using the money that I have saved up my whole entire life. I want stuff now!” That is the reoccurring statement that I receive almost every single time when talking to younger people about retirement. This example will show you how just saving for twelve years (from 18 to 30 years old) can build such a big nest egg that when you are 30 you can start spending most of your future salary on things that you want, like a boat or a new car.

Example: Use this calculator to input date
18 year old puts a $1000.00 into a Roth IRA.
He/she adds $2650.00 a year to the IRA (~$220.00 a month)
After 12 years of growth at a 16% compound interest rate
Ending balance will be over $100,000.00

Now let’s say you never add another penny to your retirement. You spend all your hard earned money on new cars, expensive houses, boats, etc. You leave your retirement nest egg alone and don’t touch it ‘til you are 55 (when you want to think about retiring). Again, keep in mind that you have all your expensive cars, a beautiful house; you’ve been on a ton of nice vacations, etc. At 55 years old you would have generated almost 4.2 million dollars!

After hearing you have all this money, you decide to retire at 55 years old (way younger than the national average). You will have $111,314.00 of yearly after tax spending money (assuming there is no more interest adding up)! Now if this example doesn’t show you why saving now pays off, then clearly you need to read over this post again. So for all those people that want to spend while you’re young and still retire rich, this is the way to do it. Even though I do not recommend just relying on one source of income for retirement, one is still better than nothing!

Recommended reading list for this article

Bull's Eye Investing

Rule #1

The Intelligent Investor

*Next post will be about how to get rich using real estate*

5 Responses to “How Short Term Goals Make Long Term Results”

  1. yummy64 Says:

    Compound interest is your friend Smile

    I hope you are doing it and not just talking about it. Studying and getting it is great. Doing it is the ultimate.

  2. JRBeaudry Says:

    I've been doing it since I was twelve. Compound interest has been a friend of mine for over a decade.

  3. david Says:

    While I think the 16% interest is a bit optimistic, compound interest can do amazing things over long periods of time. Every little bit helps.

  4. david Says:

    I just reread and see what the point was -disregard my comment

  5. Broken Arrow Says:

    This reminds me of another website:

    www.iwillteachyoutoberich.com

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