I was flipping through channels one day until I came to the PBS channel and Suze Orman was educating people about early retirement planning.
Question One for early retirement planning: How much do I need to retire?
If you think about, many people will make over a million dollars in
their lifetime! If you were to earn an average income of $3,000 a
month ($36,000 a year) over 40 years (age 25-65), then you would
have a total of $1.44 million ($36,000 x 40 years) flow through
your hands.
The power of compound interest
If you were like most people who spend all they earn, you will end
up after 40 years with almost nothing. But what if you were to just
save 10% of that income every month and invest it in stocks and
mutual funds that earn you a 15% return a year and let your money
compound? How much would you have after 40 years? I am sure you heard of how powerful compound interest is. Now let's do the calculations for your early retirement planning.
Using a financial calculator, you can easily compute that you would
have accumulated $6.914 million! What? Is that right? Is there
something wrong with my calculator? No! Through the power of
compounding, saving just $300 a month accumulates to over $6
million in 40 years! If you want to consider early retirement planning, definitely use the power of compound investing. That is the power of consistent saving and
investing.
Most people feel that they do not have enough income to invest so
they procrastinate by saying, 'I will start when I earn more!'
Trust me, this is impossible. If you cannot save ten cents out of a
dollar, you will not save $100,000 out of a million. If you cannot
start with a small income, forget it when you have a bigger income.
Remember that if you do not start the habit of saving and
investing, you will end up with a lot more expenses when you earn
more.
If you were to save $300 a month for 25 years at a 15% annual
return, you will have $826,968 in the end
If you were to start just one year later and save $300 a month for
24 years at the same 15% return, you will end up with $715,723.
That's $111,245 less! In other words, waiting one year will cost
you $111,245 in future dollars. This is equivalent to losing
$304.78 ($111,245 divided by 365 days) of future wealth every
single day you procrastinate!
Above is the early retirement planning the traditional way. By traditional I mean that it is still correct, however, with the value of the dollar dropping and the bank interest rates are not as before. People today need to have cash flow and have retirement money faster than ever.
Have you read the Rich Dad Poor Dad book, Cash Flow Quadrant? Being rich is a decision and so is being poor. You may think "I don't wish to be poor", but what I learned from Kiyosaki is that being financial illiteracy. Thus you must know this investment strategy too.
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