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What if I told you that if you saved $5 a day, every day for the next 48 years, you could become a millionaire? That means if you start saving at 22, by the time you reach 70, you should have $1 million.
FIVE FLIPPING DOLLARS per day!
That’s it.
You may have thought your daily habit of Starbucks coffee was expensive. But, it may actually be preventing you from being a millionaire.
Related: How Many Americans Are Millionaires?
The Numbers
The math is shockingly easy. Check out this millionaire calculator from CNN.
$5 savings per day equates to $150 per month and $1,800 a year. If you invest in a broad-based index fund like the S&P 500, with a historically return of 8%, you could return $1,000,000 over 48 years.
Related: The Benefits of the S&P 500
Let’s say that you decide to double your savings and invest $10 per day. That translates to $300 per month, or $3,600 per year.
That should get you to millionaire status in half the time, right? Unfortunately, wrong. It would only shave off 9 years, or roughly a decade.
This is due to the way compounding interest works.
Related: How Increasing Your Savings By 1% Annually Affects Your Retirement
The Effect of $5 Per Day
Here’s a graph that shows the progression to millionaire in 48 years. Compounding interest is a beautiful thing. Do you see the tremendous gains over time? The line almost ends up being vertical!
While it appears that the “real” money is made in the latter years, in my opinion, the real money is actually made in the beginning. If you don’t start early, you won’t receive the full benefits of compound interest.
Albert Einstein famously said,
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it. Compound interest is the most powerful force in the universe.”
Self-Discipline
While some may think that making $1 million is hard, the hardest part is actually having the discipline to save $5 a day. It may seem easy in theory, but it’s another thing to actually execute.
If you’re like me, you may sometimes lack the discipline with your finances and spend whatever is available in my account. Automation has been a great way to keep me accountable and on the right track.
After reading the book, The Automatic Millionaire, I became an automation convert. I began trying to automate as much of my financial life as possible. This frees me from constantly juggling bills. More importantly, a portion of my money is automatically moved into savings before I am even tempted to spend it.
Related: 20 Ways To Simplify Your Finances
Set Your Eyes on the Prize
I can’t tell you the number of times that I’ve starting something at full speed but then gradually lose motivation. It’s easy to become discouraged if you don’t see impressive results quickly. This is why commitment is key. During that first year investing $5 per day, you may only see a small increase and doubt that you’ll truly reach $1 million.
At the end of the day though, you need to focus on the long-term goal and realize that 48 years is not a short period of time.
This quote is about working out, but it is totally relatable to finances as well:
“The results you see will highly depend on your discipline in life. Consistency is the key to success.”
If you don’t know where to begin when it comes to investing, Wealthfront is a great robo-advising service that does the work all for you. You can read my review below.
Related: Betterment vs. Wealthfront: Which is Better
Yes, and do it in a 401k with a company match plus tax deferral and it can be done even faster. Tom
Tom @ Dividends Diversify recently posted…Are You The “Maaster” of Your Money?
Hahaha….that is very true 🙂 The more you save the quicker you get there!!!
Great idea for an article and thanks for sharing link to the Calculator. I recall reading David bach’s book many years ago when it was first released (in hardback, gosh that’s been a long time as I’m a Kindle reader!). The guy went on a tour of the talk shows and introduced the “Lat’e factor.” He explained that by passing on that lat’e per day and invest that money you’ll become a millionaire. Look, WE in this wonderful FIRE community have this figured out. What’s amazing is that the “average Joe Lunch Bucket” hasn’t a clue and this is an amazing phenomenon to them once you explain it.
Here’s a good one for you; I’m a Sales Rainer in the automotive industry. I have been since 2002. I train car salesmen & car finance managers not only how to sell but also how to use “logic traps” to get their point across and overcome customer objections. Here’s one I constantly use: $30/mo = $7/week. If a customer can afford one trip thru the drive-thru at a fast food restaurant they can afford the extra $30 per mo. Over their budget, necessary to purchase the car “of their dreams.”
I use chick filet in my example. “I bet you’re a lot like me, you live chick filet. Have you ever driven thru the drive thru and chick filet and spent less than $7.00? Never! For the cost of one trip thru the chick filet Drive-thru you can protect your vehicle with the vehicle service contract for the next 7 years & 120k miles.”
That’s my logic trap. The exact same logic used when explaining the “lat’e factor.” The same logic that saving $5.00/day will convert to millionaire status.
I’ve actually never heard of logic traps but they make a ton of sense. Take a ‘complex’ topic break it down into simple turns that makes sense to people. Brilliant!!! I can see why you’re trainees are probably so successful. Love it!!!
Great info. Now i just need to stay healthy and live long enough to enjoy it.
CJ recently posted…5 Ways To Never Get Fired From Your Job
hahahah…that is the truth 🙂
Wow I really like how you frame the argument and make it so simple and specific: $5/day. Boom!
I understand that $5 is still a lot for those who don’t make a lot. But for many of us, $5 is just another coffee, bubble tea or a clothing item on sale that we can easily save every day to be a millionaire in the future 🙂
Ms. Frugal Asian Finance recently posted…How To Be Lazy, Frugal & Happy
I totally agree with you. Five dollars is nothing in the grand scheme of things, especially if you can afford it 🙂
It’s all about persistence, any given day is easy. I ride the automation train as well for the same reasons. If the money isn’t in your account in the first place it’s hard to miss it.
FullTimeFinance recently posted…Memorial Day Roundup
You are absolutely right. Persistence is the most important part of the equation. If only I could be more persistent with my gym going as I am with my finances 🙂
I’m glad to say that I’m beyond this when calculating out my retirement contribution on a per day basis. I love graphs like these because numbers don’t lie. Thanks to putting it together! 🙂
Simple Money Man recently posted…The Importance of Monitoring Your Credit Score
Thanks for stopping by SMM!!! I’m like you when you see it visually written down it makes it that much easier to attain 🙂
It sounds so easy in theory to go out and save $5 a day like you said but sometimes it can be difficult to do because of the tempted to spend that money and thus you lose that opportunity. But if you focus on the end game most of the time and be discipline, anyone can do it.
Kris recently posted…My Podcast Playlist
I’m totally with you Kris!!! Having the discipline to do something is often way harder due to the here and now 🙂