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Building Wealth One Step At A Time

February 25, 2014

GETTING RICH QUICK is a misnomer. It can be done but usually involves placing huge bets and taking big risks. More often than not, these big bets don’t pan out as expected and wealth is destroyed overnight.steps-to-success

Building wealth over the long term doesn’t need to be difficult, complex or scary. Sometimes the financial industry makes it seem that way. We are bombarded with tips, strategies and products all designed to help us grow our money. Financial information can be a double edged sword. It’s great if it’s manageable but too much of it can lead to indecision or paralysis. Choose a simple investing strategy, stick with it and the benefits will come.

Lindsay is a 22 year old college graduate just starting her first job as an assistant graphics designer. She’s lucky to have no student debt. Rather than move in with her girlfriends (which she’d love to do), Lindsay has decided to live at home so she can get serious about saving. It’s her first real job after school and she doesn’t earn much. With experience and hard work, her boss has told her that there is potential for promotions and salary increases.

The simple graph below illustrates most of what Lindsay needs to know to begin saving and investing NOW! Here’s what happens if she invests $100/month starting today for the next 40 years until she is 62. In blue are her total deposits ($48,000), in yellow is the growth she earns on those deposits at 6% per year (>$143,000). Lindsay is excited by the results- “$100/month is more than doable!” she says. In fact, she’s even more motivated to start because, at least while she’s living at home, she plans to save $500/month. If she could keep that amount going for the same forty years, she would have close to $1 million (multiply the y axis numbers by 5)!

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Here’s what you should understand from this graph:

1) It takes time to grow your money– It takes a long time before you begin to see the benefits of investing. It’s especially hard in the early years when the amount of growth is barely noticeable. Continue to stick with it. A simple strategy combined with patience, persistence and commitment is critical to investing success. In the example above, by the time Lindsay is 44 years old, the amount of growth she has earned is greater than her total deposits!

2) The more money you have, the faster it grows– Take a look at the slope of the curve. As time goes on and the balance gets larger, the curve gets steeper. That’s when you really start to notice the growth adding up. Forty years out, the growth is approx. 3 times greater the amount of your total deposits. Money makes more money- it’s the key to financial security.

3) Even small amounts saved make a big difference over the long run– The sooner you start, the better. Don’t make excuses or use a low salary as a reason to delay saving for your future. Imagine what can happen as your salary gets bigger and your savings capacity increases.

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