Business

You Don't Need to Save That Much to Retire a Millionaire

The world of finance can be confusing, and for many twenty-somethings, retirement seems forever away. Well, it's not, and you should start saving money, like, yesterday.

Related Video: How a 401(k) Works

Take It Day by Day

If your current income is less than desirable, have no fear — financial advisor David Bach writes in his book "Smart Couples Finish Rich": "You don't need to have money to make money. You just need to make the right decisions — and act on them." To illustrate his savings model, he built a chart showing exactly how much you'd need to save daily, weekly, or monthly (depending on age) to retire with a comfortable savings of $1 million. Not every lifestyle requires $1 million, of course, but this retirement salary would allow you an approximate yearly salary of $40,000 over 30 years.

If the idea of setting up a 401(k) plan or an IRA is making you want to bury your head in the sand, here's some tangible encouragement: If you're 20 years old, you would only need to invest $2.00 a day into your 401(k) to reach $1 million by age 65. If you're 25, you'd need to save $3.57 a day (goodbye, daily latte). However, if you're a little late to the savings game, you'll need to save $20.55 a day at 40 years old, and $156.12 a day at 55 years old to meet a savings goal of $1 million. While Bach's calculations show the impact of building wealth over time, it's important to note that they rely on a 12 percent rate of return (fairly lofty), and he isn't taking the effects of taxes into account.

You Can Always Save Something

If these numbers are sounding unrealistic for your current financial situation, take a breath ... then contribute what you can. Kristen Robinson, senior vice president of women and young investors for Fidelity Investments, tells Mental Floss: "If you can't save 15 percent, save what you can right now." The point here is to start saving as early as you can and as much as you can — even if that's only 1 percent of your earnings. Robinson recommends automating your 401(k) contributions to increase 1 percent each month. That way, she explains, "you don't have to rely on your memory or your motivation to increase your savings." If you were to contribute 1 percent, that would only cost someone with a $40,000 salary $33 a month. Doable, right? Just ditch the Starbucks and start dreaming of tropical vacations with Jimmy Buffet's "Margaritaville" on loop.

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For more smart money tips, check out the book named a bestseller by the New York Times, Wall Street Journal, Bloomberg Businessweek, and USA Today: "Smart Couples Finish Rich: 9 Steps to Creating a Rich Future for You and Your Partner" by David Bach. We handpick reading recommendations we think you may like. If you choose to make a purchase, Curiosity will get a share of the sale.

Written by Joanie Faletto January 6, 2017

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