One of the advantages of being a bit older is you (hopefully) gain perspective.
All the Sturm und Drang in the stock market gives you a good opportunity to put that perspective to work by talking to your kids, younger siblings and friends about the importance of savings and investing. And the most intriguing way to begin the conversation might be to ask them, would you like to be a millionaire?
The fact is, everyone can become one.
Suppose youor your kidis 22. You put away $2,259 each yearthat works out to be $188.25 a month, or all of $6.18 a day, and if you earn 10% on that money, by the time you are 62 you have your $1 million. And if you earn 11% on that same amount, you would only have to put away $1,719, or less than $150 per month.
For a calculator that figures all of this out, and also takes into account federal and state tax rates and inflation go to: CNN Money. When you get there, you will see that the rate of return you earn is one key factor in determining how much youll end up with. That is why we suggest that when you are investing for the long term, you put this money in stocks.
But there are also others factors to keep in mind on your way to becoming a millionaire. Tell the people you are talking to remember these five things:
Start early. If you wait just five years to begin saving, the annual amount you have to save, assuming a 10% annual return, is $6,079 a year. This proves, once again, that when it comes to investing, time really is on your side. Get market rates of return. Most people dont come close over their lifetime because they are too conservative when it comes to investing for their long-term goals. Again, if you are thinking long term, stocks are the way to go.Rates of return really do matter. Dont be piggish. Long-term stocks have returned 11% a year. Figure on 10% to be safe. Control taxes. The returns we are talking about are pre-tax. Try to maximize the amount of money you can keep by using tax-favored vehicles like IRAs and retirement plans. Control costs. Mutual fund expenses, or brokerage fees and commissions, can easily eat up over 1.5% of your market returns if you are not careful. To see just how much expenses and fees are costing you go to Calculating Mutual Fund Fees and Expenses, which is part of the U.S. Securities and Exchange commission Web site. A visit there will probably convince you no-load index funds are the way to go.A plan that has your kids saving regularly and following these five steps wont necessarily get your kids on the show Who Wants to be a Millionaire.But it will make them one.
