Saving money shouldn’t be difficult, but it is. Trying to find a few extra nickels to save at the end of each month is a challenge, but is it possible for you to find an extra $500?
Professionals often recommend strategies to help you reduce your expenses. Some of the more popular suggestions include taking your lunch to work, clipping coupons, or drinking less coffee. These are good ideas, but I believe you can have your latte and drink it too.
One way to start saving more money is to automate your contribution and treat it like a monthly expense similar to your car or mortgage payment. You can link your bank account to your investment account and once it’s established, your savings will start to pile up.
A mutual fund is the best investment for your monthly contribution. A stock mutual fund will give you the greatest opportunity to create wealth, but it will be volatile. If you don’t like volatility, a bond fund is a conservative option. A balanced fund is a combination of the two, giving you the best of both worlds.
If you start saving $500 per month today and earn 7% on your investment, you will have $86,542 after 10 years.
If you had invested $500 per month in the Vanguard S&P 500 index fund, here is what your account would have been worth at the end of 10, 20, 30, and 40 years.[1]
The value of your account after 10 years was worth $129,457.
The value of your account after 20 years was worth $325,530.
The value of your account after 30 years was worth $968,374.
The value of your account after 40 years was worth $3.7 million.
Why is it important for you to save money monthly? In a recent report by Northwestern Mutual, they found 50% of Americans have less than $75,000 saved for retirement.[2] I don’t want you to be part of this group.
What if you can’t save $500 per month? If you can’t, save whatever you can afford. After all, saving something is better than saving nothing.
After I graduated from college, I set up an automatic investment plan with a Franklin Mutual Fund. I started saving $25 per month and after my first year I had accumulated more than $300! I was on my way to financial freedom. I have not stopped saving money monthly and it has allowed me to build a nest egg, buy a home, pay for my daughter’s education, and so on. The key to my financial success has been the monthly contributions.
Can you invest $500 per month? I believe you can.
The creation of a thousand forests is in one small acorn. ~ Ralph Waldo Emerson
9/3/2018
Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.
Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.
[1] Morningstar Office Hypothetical, period ending 8/31/2018.
[2] https://www.cnbc.com/2018/05/15/how-much-americans-have-saved-for-retirement.html, Emmie Martin, 5/16/2018.