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Investing more is the capstone of my three pillars that pulls all the work completed from the other two pillars together. To recap, the first two pillars are:
- Saving more
- Earning more
How Did I Get Here?
When I was younger, I did not think of these things. I was smart, if I do say so myself, but ignorant. This is precisely why I believe books like Tony Robbins’ Money: Master the Game should be required reading in every college curriculum. Had I known then the information I know now, I would be retired already. But that’s okay. I am very happy with my journey and my life, and maybe I wouldn’t be the person I am today if I had it any other way. So no complaints here.
As I traveled along my journey of learning about personal finances and investments, and got older, the truth started to stare me in the face.
If I didn’t start to grow my money, I’d be working “forever”.
Maybe not forever, but you get the point. If you don’t focus on growing your money, you could look at something like the following scenario. This is just a simplified example and not a real-life scenario. You may need much more or much less than the following to retire.
The Illustration
Let’s say you save $10,000 every year. That sounds pretty good. Now let’s also say you will need $1 million dollars to effectively retire and never run out of money. If you do not grow those savings, how many years will it take you, at $10,000 per year, to reach $1 million dollars?
One hundred years.
So that’s not a good plan. Let’s try a different plan. What if you saved that $10,000 every year and invested it at an average return of five percent per year. How long would it take then?
35 years.
Okay, now we’re getting somewhere. If we are good at investing and can get a 10 percent return per year, how long would it take then?
24 years.
That is quite a ways off from 100 years to reach one million dollars and become an actual millionaire. Now, many of you may have a 401k or a government/company pension and that is great. I also currently contribute to a retirement plan, but I don’t want to have to wait to retire. I have very lofty expectations and want to find ways to reach them. So, I’ve set out to start my own retirement fund outside of the contributions pulled from my paycheck.
Why I Use the Pillars
The greater the distance between what I am spending and what I am earning, the more money I can put to work for me. The more money I can put to work for me, the lower that number of years to “retirement” gets and I speed that up by focusing on pillars one and two. I want to be doing my own thing when I am younger and older, not only when I am older.
So, I save more (without restricting), work to earn more (in ways that work for me) and finally, learn to invest the difference wisely and safely and let it compound over time (in a way that works for me – find out what works for you). Then I let that money really work for me and let it send me money when I retire. Soon, rather than in 100 years.
See the other parts of this series:
Pillar #1: Saving More
Pillar #2: Earning More
What are your thoughts? Let me know in the comments below.
*As always, this article is not meant to give financial advice. Past results are not a guarantee of future returns. Everyone must do their own due diligence and determine the money managing and wealth building strategies that work best for them. Information provided here is meant to provoke thoughts, not provide recommendations. This is not personal legal or investment advice and may not be appropriate for all readers. If personal advice is needed, readers should seek the services of a qualified legal, investment or tax professional.
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