Growth from coins
Written by Kay Ng at The Motley Fool Canada
When it comes to building wealth, follow these simple rules. First, spend less than you make. Be smart about using loans and use your credit cards wisely. Second, save regularly. Third, invest your savings.
Wealth creation originally comes from a high savings rate. If you only save $100 a month, you’ll only manage to save $36,000 over 30 years. A high savings rate is even more critical early on in your wealth-building journey when you’re investing your money for the long haul. The savings of $36,000 over the three decades would jump to $100,562 when returning 6% per year.
30 years! That’s taking too long to reach $100,000. To achieve the $100,000 milestone sooner, one straightforward action you can take is to save more.
What if you’re able to boost your savings to $500 a month? On savings alone, you’ll reach $100,000 in 12 years and $180,000 in 30 years. If you get a 6% return annually, you’ll achieve about $502,810 at the end of the period. These scenarios assume that all returns from your investments are reinvested for the same 6% rate of return.
It follows that the more you save and invest early on, the bigger the snowball rolls down the hill thanks to the compounding interest effect. Your savings will pull more weight in growing your wealth in the early stages, but as the years go by, the returns from your investments will stand out much more.