I tried out a new stylist this week. I was long overdue and my regular stylist was booked up. We started with the normal salon chit chat, where you live, what you do, and in our small town who you know.
She asked about being retired. I try to let people know I did it by saving a lot.
She said her Dad had recently been to a class about personal finance. I’m hoping it was a legit. one at the community college and not a sales seminar. But anyway, he was telling her everything he learned that he wished he knew when he was her age.
He told her if she invested $100 a month she could have a million dollars. Super, seriously, impactful to hear that in your mid-twenties. Not completely accurate (more about this later) but impactful. He wished he knew this stuff when he was her age so he was doing his best to pass it to her.
I started gushing about how cool it was that she was having these conversations with her Dad. How important this was. What an amazing legacy he was creating for her. I wanted to nominate him for Dad of the Year–is there such a thing???
And then I came home and checked the math.
If she just invested $100 a month at 7%, she would need to do it for over 58 years to reach $1,000,000. This gal’s family has a legacy of working their whole lives, but that still seems like too long.
But if she increased that $100 by 3% inflation each year, she would have $1,000,000 in a bit over 53 years. Hmmm starting in her late 20’s, this still seems too long.
I went through about 10 more scenarios but landed on this one:
$10 a day gets her there in 39 years.
If she increases it by inflation each year and invests it to earn 7% each year, she’ll have $1,000,000 in just under 39 years.
Now keep in mind, that $1,000,000 in 39 years doesn’t buy what $1,000,000 buys us today. But it would be worth almost $400,000 in today’s dollars.
That’s serious money. Using the 4% rule, that $400,000 can generate $16,000 of income, in today’s dollars, for life. Add Social Security and you should have a decent life.
So each day, she needs to set aside $10. $310 in January, $280 in February . . .
She can find that $10 by reducing her spending or by increasing her earnings.
If she averages just four clients each day, a rate increase of $5 should get her that $10 after expenses and taxes.
Or she can set aside the first $10 of her tips each day–maybe the first $15 so she can take a day off now and then.
$10 might seem like chump change–throwaway money–buy a sandwich or a couple latte’s and it’s gone.
But that $10 can become the foundation that creates the future she has dreamed of. It can truly be life changing.