By Jen Smith, The Millionaire Mommy Next Door
Once upon a time, Goldilocks went for a walk. Pretty soon, she came upon her bank. She asked the bank teller for her retirement account balance and when she was shown the number, she wept.
Goldilocks returned home to assess her budget and see where she could come up with some extra money to make regular IRA contributions. She thought about quitting her latte habit. $3 saved per day could grow to $177,706 in thirty years.
“This idea is too soft!” she exclaimed.
So she returned to her budget and considered cutting her housing and utility expenses in half by downsizing to a much smaller home. $1200 saved per month could compound into $2,389,653 in thirty years.
“This idea is too hard,” she said.
So she returned to her budget and took aim on her transportation costs. If she sold her car and used her city’s excellent public transportation system instead, she could save $780 per month. In thirty years, her retirement fund could blossom into $1,553,275.
“Ahhh, this idea is just right,” she said happily. Goldilocks sold her car, walked back to her bank, and made a contribution to her retirement account.
Thirty years later, Goldilocks retired, and lived happily ever after.
For illustration purposes, results were calculated at 10.00% ROI compounded annually. The actual rate of return is largely dependent on the type of investments you choose. Over the most recent 30 year span, from January 1, 1980 to December 31, 2009, the compound annual growth rate (annualized return) for the S&P 500, including reinvestment of dividends, was 11.29% (source). Total savings are calculated in actual dollars (not inflation-adjusted). A common measure of inflation in the U.S. is the Consumer Price Index (CPI), which has a long-term average of 3.1% annually (from 1925 through 2008).