Getting Rich Too Late

The key to getting rich is no secret.  It takes disciplined saving and investing over a long period of time.  I frequently give examples such as if you invested $10,000 at age 25 at an assumed rate of 8% and added $500 every subsequent month you would have $2,177,959.01 by age 65 when you retire.  A lot of people use these kinds of examples, but the key phrase here is “by age 65 when you retire.”  What if you get rich too late in life to enjoy it? 

There are very few articles suggesting people should spend money and save at the same time.  In fact, spending and saving seem to be mentioned as an either/or topic each exclusive from the other.  There are no get rich by age 35 articles because quite frankly that is very hard for the average person to do and frequently requires good luck as well. 

Getting rich too late in life is a big problem, and a lot of people neglect investing money because they live by the belief that one cannot take their money with them when they die.  This may be true but that does not necessarily mean you should not invest.  There are ways to both enjoy your money while you are young and invest at the same time.  In the aforementioned example of a 25-year-old saving $10,000 at 8% plus $500 contributions every month thereafter, the person would have about $116,000 at age 35.  At this point he or she could stop contributing money to the account.  This would be an extra $6,000 a year for the person that would have otherwise gone into savings. 

Also, they could start spending the 4% of the return from dividends.  This would be about $4,640.  Put together this person would have about $10,640 a year to spend on whatever he or she wants, while the principal still grows.  This money could be spent on new clothes, furniture, vacation to Hawaii or Spain, or even a shopping trip every month just for fun. 

Using the same calculations as above for a 45-year-old person who saved 20 years instead of 10, they would have roughly $20,300 extra a year to spend.  The longer you wait to spend, the more you have to spend is the key here.  It is worth noting that neither of the two individuals in the examples ever touched their principal.  They could spend it all and build a new house, pay for their kid’s college tuition, or buy a fancy new car if they wanted to. 

The hardest thing to do is decide when to start spending.  Most people set goals in the form of “I want this much extra to spend each year.”  Then work backwards from there.  If you want an extra $50,000 a year to spend by age 40 and you have ‘X’ amount to start off saving with, then you can calculate how much you need to save every month to reach that goal.  A great calculator to use is the simple savings calculator at bankrate. 

Those who keep up with the blog will know that I want to retire by age 55.  That isn’t to say I won’t spend money in the meantime.  I have calculated how much I need to save each month to reach that goal, and everything else I am free to spend if I want.  It is more than possible to create a balance between spending and saving, so you can spend your money yet also watch it grow.  You can enjoy it all while you are still young enough to do so if you create and abide by a good budget.  Do not let the “getting rich too late in life” idea keep you from starting an investment account or saving a regular amount every month. 

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