$4,000 to $1.8 million


On 12/31/2012, like many millions of you, I made my new year’s resolution:

  • Financial fitness – Part 1
  • Body fitness – Part 2
  • Better cooking skills – Part 3

Today is May 25th, 2013 and it’s the Memorial Day Weekend and I have started on the above. So how much progress, here you go:

  • Financial fitness – Day 14
  • Body fitness – Day 0 — Yup ZERO!
  • Better cooking skills – Five months!

Read on. But they say it’s never too late to start. It’s late than NEVER! Never say never (Justin Beiber). My goal is to write about my experience in each of the above resolutions here.

PART 1: FINANCIAL FITNESS – Day 14 on 5/25

On the financial fitness end, making sure that I have setup certain things in motion so that in Ron Popeil’s words: “Set it and Forget it”. Like many of you out there, though I had been participating in my company’s sponsored 401K plan, I wanted to apply the same discipline to managing on my own. So I found excellent articles and books and one thing that resonated with me well was David Bach’s Automatic Millionaire book. Simple recipe (yes I have more cooking skills now) is as follows:

  • $10 per day or $300 per month or $3,600 per year. What is $10 per day? 2 cups of coffee and a muffin at your favorite coffee shop! If you don’t drink coffee, you still have your $10 “coffee”. For example, cigarettes, 10 o’clock snack break with co-workers, on and on and on! Trust me you have your $10 to spare for this program.
  • The simplicity is to setup a retirement account like a Traditional IRA or a Roth IRA account with a company like Fidelity or Etrade or like, fund it and then set your checking account to feed an “Automatic Investment” into an S&P 500 Index fund.
  • Two that I found were Fidelity Spartan 500 Index Fund and Vanguard Index 500 Fund. Both mimic S&P 500. Why S&P 500? S&P 500 has returned 10% on average for the past 50 years.
  • I set it up and its on its way to work!

What does $10 per day do? Let’s say you are 25 years (you could be 40 years old) and you follow this recipe, mathematically speaking, the results are as follows considering an average 10% return from a S&P 500 Index Fund over certain time periods:

  • $4,015 in 1 years
  • $8,431 in 2 years
  • $13,289 in 3 years
  • $18,633 in 4 years
  • $24,511 in 5 years
  • $63,988 in 10 years
  • $127,566 in 15 years
  • $229,959 in 20 years
  • $660,443 in 30 years
  • $1,777,009 in 40 years!!!

So your 2 coffees and muffin is costing you almost $2M in 40 years! I liked David Bach’s approach to no-nonsense and the simplicity of executing his recipes. This is one of the recipes in his book. Others are as simple as this one. If you are new parents, this makes also a lot of sense for your young kids to set them up. This is not meant to be a 529 college plan or similar, its a good start for them to take on when they become responsible. Do talk to your certified financial planner, accountant and tax people to see what works for you. I liked his approach and I am subscribing to it to see how it turns out! I’ll keep you posted! Personally, I get my books on audio (www.audible.com) while I drive from home to work.

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