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I am sure you have probably read about the power of compound interest. And how if you invested $10,000 at 10% return and let it compound for 50 years you would have a little over 1 million dollars.
Now that’s all well and good, but who wants to wait around for 50 years before they can enjoy the fruits of their labor.
A quick tweak of the spreadsheet tells us that if you could increase your returns to just 15% per year, we would be looking at a million dollar balance in around 35 years, which would also be bringing you in around $150,000 more each year after that.
25% return per year will turn your $10,000 into 1 million in around 22 years, producing another $250,000 per year in additional cash flow.
This brings us to an important point. How much is enough?
How much money do you need to live your life?
Well, its all relative to the lifestyle you wish to lead. A good way to work out how much is enough, is to consider how much money you live off now. Work out how much money you would need to earn to replace your current income with your investment income.
If you earn $50,000 per year, then it will only take you around 15 years from the example above at 25% return to replace your income from your investments.
Work out how much money you need to live the lifestyle you want, and then take that figure and work out how much money you need invested to produce an equal income.
You might just be pleasantly surprised at how much you really need, and that it is not that far out of your reach.
Are these returns really possible?
The figures we talked about above are really just to give you an idea of what’s possible. Again everything is relative to how much work, time, money and commitment you are prepared to make in order to secure these returns.
A good managed fund will give you around a 10% return per year, but if you want to take things to the next level, then the only way to do this is to learn how to invest your own money. Returns of 25% and higher are certainly possible, people make returns like this all the time. You just need to learn the strategies, and apply them. Sure there will be some bumps in the road ahead, but consider the alternatives.
Your job for this week, is to set some time aside and figure out how much money you will need in order to replace your income. Work out all your living expenses and any other costs you need to consider, and make that your first goal.
