Following the theme of the last few weeks, I will be continuing to talk about wealth and investing for the average citizen. I will start with a crazy fact that not many will realize. When people think they will be working a good paying job for 40 years, they think they don't need to do much else to be able to support a family and enjoy retirement. This is unfortunate, completely wrong.
If you make, on average, 150k a year, you are generating only 6 million in income for working for 40 years. A household income, with 2 working adults that bring in a combined 250k (these are two very good salaries combined) will only net the household - 10 million dollars. Let me reiterate, a single adult making 150k a year only has 6 million dollars to live on, retire on, vacation on - for their entire lifetime. A family with two adults making substantial wages can only live on 10 million dollars. Remember, this is pre tax income, so you will have to pay taxes. You will have to support 2 adults and possibly a family. Then this pool of money will eventually have to be able to sustain two adults in retirement. There is no question that even for a middle class American family making decent salaries, investing is a necessity to sustain two adults and children. Think about it this way-By investing you can increase your income by 50%! Remember the formula I presented in earlier articles? You need to invest a little over $3,500 a year. You don't have to make an extra 10 dollars a day, you can just find a way to save 10 dollars a day. For your initial investment, start with your stimulus check or cash that you have lying around. The more the better, but to be able to redeem the 3 million dollar reward in 40 years, try to start with at least $2,500. Finally, invest in the S&P consistency and without fear - it is probably the safest index that you can invest in with decent returns. Remember, the S&P 500 is composed of the United States top 500 companies.
Remember to use the compound interest calculator for your own personal situation, but here is another scenario: Invest $7,560 a year or a little over 20 dollars a day into a S&P index fund. Start with your initial investment of $2,500 and wait 40 years. The result: Over 6 million dollars. By doubling the amount that you put in, you are essentially doubling your return. In the first scenario you would have put in around $150k over the course of 40 years. Now, but putting in another $150k to bring the total to 300,000 - your returns are $3,000,000 dollars larger. If you can afford to double your savings to 20 bucks a day, you'll end up $3,000,000 dollars richer. This brings your total pre tax income from $6 million for one individual to $12 million. Your income - DOUBLED by just putting an extra $150,000 in. It was almost like there were two of you working, except the other person working for you was your own money. In the family situation - it brings their household pre tax income from 10 million to 16 million. Remember this should be pretty easy - I only asked the family to put in $300,000 over the course of 40 years when they make $250,000 - a year! Think how easy that would be. And then remember that when you double the amount that you put in, you double the amount that you take out.
This will probably be the last installment of the macro investing themed articles, but I think this is a good one to leave off on. By looking at investing and salaries in the broadest point of view, I believe that individuals will really see the power of investing. By saving just 20 bucks a day or putting away a little over $7,500 a year, a person making $150,000 can double their income over 40 years. By doing practically nothing, you can go from $150,000 a year to $300,000 a year. That's big money.
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