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As you can see from the chart on top, had you chosen the Option #2, you would have received over TEN times as much money. Admittedly, this example is rather extreme but nevertheless, it proves a point. It is vitally important that you understand how valuable the combination of compound interest and time is. With savings and investments it is THE key to creating financial independence.
It's All Numbers: For example, if you are in no hurry, you can take that low-budget way to creating your million dollar fortune. Chances are you can do it on your present salary without ever even missing the money that you "sock away" to invest very month. But it will take some time. To accomplish your million dollar goal, all you have to do is save $210 a month (only $6.90 a day) for thirty-five years and get annual return of 11%. At the end of thirty-five years, you will have accumulated the tidy sum of $1,034,942.23 (only $88,200 is your investment, the rest is compound interest). Imagine this, if you just had a baby and started saving $6.90 a day for your little one, in thirty-five years he or she will be a millionaire. Perhaps you want to retire a millionaire in twenty years. To do so you'll need to save about $680 per month and get an annual return of 15%. After twenty years, the end result will be $1,018,122,84. Suppose you can't wait twenty or thirty five years. you are highly motivated and wish to retire in 10 years. To accomplish this, you'll have to save and invest approximately $1,920 monthly and obtain an annual return of at least 25%.
You may be asking yourself "what type of investments should I put my
money in?" and "How much can I make and what are the risks?" In an investment
world as in anything in life, there are no guarantees. The returns you will make can only be
based on historical return records of the past. History may repeat
itself, but not always in exactly the same way and not necessarily when you
expect it to. During the past two centuries, owning stocks and real estate
have returned around 11 percent per year, easily beating such investment as
bonds (around 5 percent) and savings accounts (around 3 percent). <<-- Back to Concept of investment return and Rule of 72
Next -->>
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