You've just graduated college and you'd like to be wealthy someday. Problem is, you have no clue how to make it happen. First, you're broke and may be drowning in student loans. Second, no matter what the experts might say, it feels like there are tons of fellow grads fighting over a handful of jobs. Third, though you don't mind hard work, you don't want wealth to come at the expense of a social life, a family and the chance to do some good in the world. Should you give up the dream and content yourself with an average life?
Not at all. It's completely possible to become a multimillionaire before you retire. Right now you have an advantage you never will again: youth.
Many young people have no concept of how simple it is to build wealth. Not easy, because hard work and self-discipline are required, but simple. Any intelligent person with an ordinary career trajectory can do it. But now is the time to get started. With every year that passes, your window of opportunity closes a little more. Sounds good, right?
Understanding the Astonishing Power of Compound Interest
If you take a penny and double it every day for a month, how much would you end up with? A hundred dollars? A thousand dollars? How about a million dollars? Not even close. Starting with a single penny, if you double it every day for 31 days, you end up with $21,474,836.48. That's compound interest. That's how you get rich. And that's why, when it comes to wealth building, your age gives you a major advantage.
Starting with your first job out of college, you can try investing 15% off the top. By the time you retire, you'll be a multimillionaire. Yes, you've heard the "pay yourself first" principle before. But you probably don't realize just how wealthy it can make you. Let's say you start making an average graduate's starting income (which, according to The National Association of Colleges and Employers, is $52,569 a year, as of 2016). Assuming you are good at your job and get consistent annual raises of 4%, you'd be making $77,815 a year 10 years from now, and $252,385 in 40 years. Not only will you be making more money, but you will also be able to save more money. If you consistently (and that means every year) deposit 15% of your income into investments, compound interest will begin to accumulate like you wouldn't believe. Assuming a return of 10% a year, you'd be worth more than $5.4 million when you are ready to retire. (Assuming, of course, that you put this money aside and aren't spending it on things you shouldn't be.)