David Bach, the author of The Automatic Millionaire and The Automatic Millionaire Homeowner (the latter of which I reviewed earlier this year), also writes a column on Yahoo Finance. Recently he presented five tips for college graduates just beginning their path to financial security. This follows Part 1 and Part 2.
Here is the fourth tip Bach is providing to recent graduates:
Become a young “Automatic Millionaire.” This ties into Bach’s book with the same name. How do you beome a young Automatic Millionaire? It’s a simple procedure, according to Bach:
Once you get your first job, pay yourself first. If you start by saving just $10 a day, or about one hour a day of an entry-level job’s income, you’ll have $678,146 in savings 30 years from now, assuming a 10% annual rate of return. In 40 years, you’d have $1,897,244.
Yes, these are some crazy assumptions. First of all, the 10% annual rate of return assumptions is an aggressive estimate for the performance of the stock market. Maybe that will work out in the next 30 or 40 years, but maybe not.
Secondly, you cannot invest that $10 each day. The fees you would be paying to do so would be astronomical. Transferring the $10 to savings and investing what has accumulated once a month would be a better approach, but you’d be losing out for a short period of time with each investment.
Perhaps I will start an experiment to determine whether I can save $10 each day. I’m already investing more than 10% of my income, but I could always use a boost.