Investing a small amount of money a day can pay dividends for your financial future.
When it comes to calculating the amount of money you need to save for retirement, it can be a very difficult and daunting task. You have to think about how much to put aside into your 401k per year, how much you can invest into your IRA, how you want to allocate your investments, etcetera. What you will learn, however, is how far compounding interest and investing a small amount of money a day, can get you to financial freedom.
What I am going to do is give you a few different scenarios which you can implement into your life today, to see how you will fare 35 years down the road. It will show that small amounts can pay huge dividends towards your financial future.
The first thing we are going to start off with, is setting aside just $5 a day. That is a $5 investment, every single day of the week for 35 years. For this example I am going to use the historical average yearly return for the S&P 500, which is 7%. So, if we make a constant, daily contribution into an investment fund that is returning 7% a year, by the end of the year, compounding will get you to $1,890. At $10 per day, this gets you $3,780. Because of compounding, this gets you a total return of 3.5%. Considering you were starting with nothing, this is a net gain of $65 at $5 per day.
Now, we are going to take this to the max. Let’s say you invested $5 per day for 35 years. By the time you are ready to retire, that investment will have grown to $276,035. That is investing only $5 per day, every day, for 35 years. Had you not invested that $5 per day, you would only have $63,875. This is a return of 432% on your investment. Not bad, right?
Now let’s see where we end up if we up our contribution per day to $10, $15, $20 and $25:
$552,071, $828,105, $1,104,141, and $1,380,176, respectively.
So, when you are getting down on yourself, wondering how you are going to be able to save for retirement, think about your daily spending habits, and if you are investing a small amount of money a day- $10, $15 or $20 every single day, you are well on your way to financial freedom.