Reaching Freedom a lot before your Golden Years!

Last week we spoke about your first investment, that is, you.

Let us continue the conversation and talk about your second investment.

Where will the money come from?

Assuming that you have taken care of your consumer debt (credit card debts) and set up an emergency fund, you must start preparing for your retirement. Imagine a situation where you cannot work anymore (or don't wish to work); where will you get the money to live from? Not from your children, or relatives, or spouse for that matter. No, it must come from the money that you have already saved and invested.

Hence the sooner you can get started with your retirement savings, the better. Before putting money away for a home or car purchase, start putting money away towards your retirement.

How much to put away?

The good news is that you do not need to put away much money at all if you start early enough. $100/month at a 6% return over 30 years will grow to $100,000 (i.e. you would have put in, $36,000- the rest would be pure growth!).

And we have used a very conservative assumption of 6% growth (and we will reveal the reason in a future communication) - but even that has added an extraordinary amount to your total.

A million dollar total would then require approximately $1000/month to be socked away - which is very much in the realm of possibilities if your total income is in the range of $70K-80K/year (saving 15% of your gross income).

In other words, with a total family income of $70-$80K, you have absolutely no excuses to end up with less than a million dollars by the time you retire.

In reality, you should end up with considerably more - generally in the range of $1.5 million to $2 million.

For those earning in the range of $50K-$69K/year, you can easily break into the million dollar category by either developing an additional stream of income (adding $5-$15K/year relatively comfortably), saving a little more (in the 20% range) or working a little more actively on your investments (seeking a 7% return for example).

By any combination of the above, you will break the million dollar barrier fairly easily. And really, you do not have any excuse to not get there either.

If your family income is in the range of $30 - $49K, you should actively seek to find ways to bump up the income to the $50K+ range.

Seek out ways to gain positions of additional responsibility in your career, ways to generate more income from your business, develop additional streams of income - or in the absolute worst case situation, an additional job (we do not like this route at all - but it could be a short term fix till your additional stream of income is up and going).  

Making money work for you

Given that you are saving a substantial amount of your gross income (15-20%), you now have to make that money work for you. The simplest answer for most is to invest that money in the Wilshire 5000 Total Stock Market index. You can do this via the Vanguard Total Stock Market Index (VTSMX) or the Exchange Traded Fund streetTracks Total Market ETF (TMW). (Always take such actions after consultation with your financial advisor!)

And that is it! Over a period of 20-30 years, the total stock market will generally give you a 6-7% compounded return, and you will meet your million dollar target!

Of course our real target is a little higher. After all, a million dollars in 30 years won't quite pack the same punch as today. $2 million is where we want to really get to, and we don't wish to wait 30 years to get there - 10-15 years is more like it. And that requires work on all the 4 fronts of the 4 Pillars to a Wealthy Life:

• Career Income
• Extra Income
• Personal Finance
• Investments

We will talk more about optimizing these in the coming issues. In the meanwhile you always have immediate access to detailed articles with steps to realize your wealth targets in the membership section of our website http://www.characterandwealth.com.

We will take leave with the above thoughts and tip for this week and will be back next week, with more tips to help smooth your path to greater riches. As usual, we welcome feedback at feedback@characterandwealth.com.