The maximum amount of money you can sock away in a Roth IRA is $5,000 each year if you are under the age of 50 years-old. If you saved the $5,000 contribution limits every year from the time you graduated college until you retired at the ripe old age of 65, you would be sitting on a nest egg of approximately $1.6 million assuming an 8% annual rate of return. But, for a lot of us, especially those just starting out, $5,000 per year seems a little daunting. So, I thought it might be fun to help you find the money. You already have it. You are already spending it. To break it down a little bit, $5,000 per year equals $415 per month. $415 is approximately $104 per week. Do you realize that $5,000 is $13.70 per day? You need to find $13.70 every day to arrive at the magic number of $5,000 per year to invest in a Roth IRA. It can be done. Here’s how…
Five Quick and Easy Ways To Find $13.70 Per Day
- Do Not Eat Out For Lunch – Even eating at McDonald’s costs an average of over $5 per meal, and if you go out to a finer establishment, the bill could be even higher. If you do that every day, the cost out of your pocket can really skyrocket. And, many junior enlisted members are already having money taken out of their paychecks because it is assumed by the government that they are eating in the dining facilities provided on the base for lunch. Eat there. Many of you have already “paid” for it.
- Curb The Partying – For many young Soldiers and members of the military, going out on the town is a way of life. But, if you are going out every Friday and Saturday night, the costs of getting into the clubs and drinks could quickly add up over the course of the month.
- Cut Back On The Energy Drinks – Military members work some crazy hours, and they love their energy drinks. But, energy drinks are almost as expensive as a fancy cappuccino and it only gets worse if you drink several over the course of a day.
- Reduce The Amount You Smoke – Assuming that a pack of smokes costs $4, a pack a day habit can cost you over $120 each month. The price is much higher in many parts of the country. Reducing the amount you smoke will save you hundreds per month, over a thousand per year, and thousands over your lifetime – not to mention the health benefits.
- Brew Your Own Coffee – This tip is every financial planner’s favorite since David Bach made it famous in his classic book, The Automatic Millionaire. But, the average cost of a cup of coffee in a fancy coffee house can run you about $5 now. If you buy one on the way to work every morning or during the middle of the day, you can spend over $25 per week. Brew your own at home for as little as $0.50 per pot.
You don’t even have to do all of these things at the same time. You just have to get to that magic number of $415 per month. Simply cutting back on a few of these things can get you to that magic number.
Why Is It So Important?
Time is the most important thing that you have on your side when you are young. $5,000 invested each year starting when you are 22 years-old until you retire from the military at age 42 would be worth over $228,000, assuming an 8% annual rate of return. If you continued to max out your Roth IRA after leaving the military service until you reached the retirement age of 65, your $5,000 per year could grow to $1.64 million thanks to the power of compounding interest. Can you really not find that extra $415 a month now if it would earn you $1.6 million? Is your daily pack of cigarettes or morning coffee really worth that?
Too many young people make excuses as to why they cannot invest money for their retirement. They do not see the immediate return, and so they forgo their financial future for instant gratification. I am not advocating living a recluse’s live holed up in your barracks eating ramen noodles. But, I do think that there are quite a few simple opportunities for young investors to control their spending in order to save $13.70 per day which translates into that magic $415 per month or $5,000 per year and use that money to start a Roth IRA. What would you do with $1.6 million dollars in retirement? Do you know that an immediate annuity of $1.6 million dollars could pay you almost $80,000 per year or more for the rest of your life?
