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Want to Turn Six Bucks Into A Million?

By Will from Holland

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Would you save six bucks every day if it could make you a million dollars or more at some point? Well, you can. Even while you sleep!

A little discipline and the magic of compound interest can turn 6 bucks a day into one million three hundred thousand dollars (that's $1,300,000!)—and get this; you only have to kick in $40,000 total to make that million three! It works like this:

  • Whatever it takes, you invest six bucks a day every day—about $2000 in a year.
  • Start investing by the time you turn 20 and stop when you are 40.
  • Then you do nothing! Forget that money is there. Leave it in an average investment. Let's say you keep that money in average stocks.

The day you turn 65, you'll have a big, fat pot of money—about one million three hundred thousand dollars (again, that's $1,300,000!), and maybe more. This example is based on an investment in common stocks with an average return of 10% on your investment. Common stocks have returned 10-13% on average for years.*

So, if this is a sure thing, why doesn't everyone do it? A lack of guts. The main reason young people in particular aren't turning single dollars into millions of dollars has to do with determination. We have so many short-term temptations that suck away our money, for example a night out with your friends or a new toy. Not many of us have the guts to give up a gadget today for greatness down the road.

Giving up a gadget today for a benefit later is called "opportunity cost". For instance, you decide to give up your free time on weekends and work a part-time job to have money to invest. You've given up the opportunity to play on the weekend for a bigger benefit down the road.

If you're young, you face "opportunity cost" decisions all the time that can be life-changing, though you may not see them as life-changing at all. Like this:

  • You need a car to get to your first big job. You can buy a new car or you can buy a used car. Both will get you to work every day. But you want that new car right now!
  • You finance $20,000 on a new car at 8% interest for four years. You pay $6400 in interest.
  • You could have financed $5000 on a perfectly good used car. You would pay $1600 in interest rather than $6400. Instead, you threw away $5000 (the difference in interest you paid). Without thinking about it, you sacrificed $5000 you could have invested... just for the thrill of driving a new car.

Do you get the point? You didn't even think about throwing away that $5000. All you wanted to do was get the new set of wheels. The $5000 you blew in unnecessary interest payments could have made you $50,000 in investments at some point down the road. (Plus whatever compound interest you could have gotten!)

Everyone knows it isn't fun or cool to think about "retirement" at our age. Even the word sounds creepy. But here's a fact: If you have the courage to stick with a savings and investment plan starting at the age of twenty, your investments will make you much more money than if you start investing at an older age. Twenty years from now you won't remember the hassles you faced when you were younger, trying to find enough money to invest, and I bet you'll no longer have that gadget either!

Well, that should get you thinking! You can literally make money while you sleep with an investing and savings plan. Sounds pretty good, ey?

Well, that's it for now. Good luck exploring this.

Cheers, Will

*Source: Corporate Finance Ronald F. Singer FINA 4330—Risk and Return Lecture 11 Fall 2010