Here's one for you... How much does it cost to go to the clubs these days? Let's say $20 bucks to get into the club. Let's say you go on Friday and Saturday and let's say you spend $20 when you get inside (that's probably low, but stay with me). That's $60 bucks for two nights in the club. How might you get rich off of those Club fees and inside "refreshments"? Let's say you only go one night, that's $30 you save. For sake of argument, let's say you save $50 bucks.
If you are 21 years old and you open a ROTH IRA (tax free growth, tax free withdrawals) and you put that saved $50 bucks a month (heck this is just one weekend, you could go both nights the rest of the month) into the ROTH IRA, that would be $600 a year you saved and "socked away".
Now let's say you discipline yourself to do this every month. $50 bucks to a ROTH account, invested with a good mix of assets (the asset allocation discussion will be for a different time). Let's say you only average 5% a year till you retire. Retire is defined at 60 years old (well 59 1/2 is when you can get to your ROTH money, but we'll stick with 60 for this discussion).
That's 39 years of putting $50 bucks away each month at a conservative return of 5% a year.
When you are 60, you would have $71,880! Now that is some serious Clubbin'! That's just for missing one Friday or Saturday during a month. Imagine if you put $100 per month. Looking at about $143,760. That's some real "Boom Boom Pow"!
Imagine you do this at 21 and your friend starts at the same time you do but they are 22 (not 21). How much would they have at 60? Missing that one year of putting in $600 ($50 x 12 months) would only net them $67,857. That shows you the power of time value of money. Remember, that's just making 5% a year. The market average since the 1920's (the dawn of time, right?) has been around 7% per year. Plug that into your 21 year old, $600 a year calculation and now you have about $119,181... $47,301 more on 2% better performance.
You can go to: http://www.mortgageloan.com/calculator/roth-ira-calculator and play around with the calculator.
Bottom line: The next time you head out to the Clubs and are about to hand Vinny your $20 bucks... think for a moment what the $20 could do for you down the road.
"But Coach, I don't go to the clubs." Ok... but there's something that you probably do spend extra cash towards that you might be able to do without (as often) so you can "sock" some of it away.
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