| Are You Rich Yet? | | Print | |
| Written by Ketan Mehta | |
| Sunday, 03 February 2008 | |
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Here’s another example which I found staggering when I first ran the numbers. Let’s say that you have a child and you want to get the ball rolling for him or her as soon as he/she is born. You decide to put away $10 a week for your child every week. Later, your child becomes independently wealthy and ends up not needing the money. He/she continues the tradition until they die at the ripe age of 87. They bequeath the money to their favorite charity. How much are they giving away? Assuming that same lackluster rate of 8%, That charity is scooping $5.25 Million! So, what is the point of these examples? There are two things that you were supposed to deduce from this article. One of these is the power of compound interest. As Einstein once purportedly said, “The most powerful force in the universe is compound interest.” The second major point that you were supposed to deduce is that each of these examples spans a very long period of time. As an investor, time is both your closest friend and your arch-enemy. If you start early and often, time will take care of the rest(along with a decent financial advisor.) If you wait too long, your goals will seem hopeless and the amount of money to make them happen will seem insurmountable. By now if all things are going as planned you’ve gotten up, walked over to the piggy bank and dropped in a ten-spot. But you’re asking yourself, I don’t know anything about investing, how will I start getting my 8% annual return on my ten dollars a week? I have two words for you my friend, index fund. Actually, you will also need to become familiar with something called an automated investment plan. However, that is another topic for another day. The one big problem with this whole plan to get rich is that it assumes that you live a fairly long time. You probably know what I’m going to say next….. You can start buying lottery tickets now and hope that you get wealthy overnight or you can get yourself some life insurance. I would recommend the latter. Check back by this column for more financial nuggets along your journey to wealth. |
I hope that I’ve caught your attention with my shameless, sensationalistic, title. Before we get to the meat of my question, let me run a few numbers by you. The IRS currently allows you to subtract $4000 from your taxable income every year to contribute to your retirement. If you make more than $50,000 (single) or $75000 as a married couple then you are limited in this endeavor, but you probably have other, better options for your retirement money. If you made the government suggested annual contribution to your retirement fund from the age of 21 until you retire at age 65, do you know how much money you’ll have accumulated? Let’s say you average a pretty lackluster 8% return. You’d be looking at a nice nest egg of $1.427 Million. If your nest egg is all that you have to pay your bills, you’d be getting $85,668 before Social Security on a 6% rate of return from your CD’s and bonds.