Hit your first $50,000 with steady saving and time
The first $50,000 is the hardest to save — but it is far more achievable than it feels. With modest contributions, compounding, and 7-percent average returns, here is how to get there.
1 Why the First $50,000 Is the Hardest
There’s an old saying that goes: “The first $1 million is the hardest to make.”
But I propose a slight adjustment: The first $50,000 is the most challenging to save. If you can do that by the time you’re in your 30s, though, the rest of the $1 million will largely take care of itself by the time you’re ready to retire (assuming you grow your balance about 10 percent per year between returns and contributions).
If you’re like most people in their 20s or 30s, you’ve probably held a half-dozen jobs or more, which means your 401(k)—if you have one at all—looks like a beat-up suitcase that’s been traveling around Europe. And you may have a hefty student loan payment to tend to, as well. So setting aside $50,000 by your early 30s may feel like an unrealistic goal.
But it’s not as difficult as it seems. There are plenty of ways to crunch the numbers and hit your target.
Save $5,000 in an IRA for 10 years, and you’ll have $50,000, right? (And that’s not even including any returns on your investments.) Or you can save $300 every month for 10 years, make an average stock market return of 7 percent, and you’ll have $50,000. That’s an easier way, assuming the market returns those averages (which it has historically, adjusted for inflation).
2 The Power of Starting Early
If you’re starting in your early to mid-20s, you’ve got a real advantage. Thanks to compounding, even tiny amounts saved in your 20s make an enormous difference later on. (Any family gifts you receive as college or grad school graduation approaches? Put half aside to start a retirement account.)
Believe it or not, assuming those 7-percent average annual returns, you’ll have six chances to double your money by age 65 if you start investing at 23. In other words, every $1 you save at 23 could be worth $64 at 65. Put grandpa’s $1,000 check into an IRA, and it could be worth $64,000 when you’re his age.
That said, it’s never too late to start setting money aside. Here are a few different routes to your first $50,000.
3 Scenario #1: Start From Scratch
Maybe you just landed your first job, you haven’t started saving and that $300 monthly contribution seems impossible. Or you’re just dealing with big student loan payments and other expenses — trimming those recurring costs with a few how to save money on bills tips frees up cash to invest. So we’ll start slow, with a $50 weekly contribution—or maybe you put in $30, and your company kicks in $20, if you’re lucky. For now, we’ll still assume 7-percent returns. (That’s not a great assumption for a short timeframe, but it’s fair when you stick with it over the long haul.)
After three years, that gives you a rather humble-sounding $8,626. Right now, you’re probably thinking, “That sure doesn’t sound like $50,000. Heck, it doesn’t even sound like a new car.”
But be patient. Let’s say you get a better job and up your contributions to $65 each week, while your employer puts in $35. That’s $433 a month (factoring in some five-week months) for four years, along with 7-percent returns. In seven years, you’d have around $35,000. Just two short years later, you’d have nearly $52,000.
4 Scenario #2: Build Your Balance Sooner
The power of time can’t be overstated in these calculations. If you can build even a modest balance early on, it’ll make a big difference.
Many people are lucky enough to have family members who want to help with student loans, and plenty of student borrowers want to cancel out their debt as quickly as possible. So they take whatever graduation gifts they receive and pay down their loans. While it seems sensible, sacrificing the gold mine of retirement savings in your 20s in order to pay off student debt can be a big mistake.
Say you have $3,000 from a combination of graduation gifts and summer job savings. Put that toward your retirement savings starting at 23, and by following the same plan above, you’ll just about reach your $50,000 target by age 31.
Another option: Amass $5,000—through thriftiness, part-time work, cajoling gifts from uncles and aunts, whatever—and start saving $400 a month right away, perhaps $300 of your own cash and $100 from your employer or any variation of that. Again, assuming 7-percent returns, you’ll have more than $50,000 in seven years.
Bottom line? Getting to $50,000 by your 30s can be done, and there are many different paths that can take you there. Just remember, these are just rough guidelines. If you haven’t hit $50,000 by 32 or even 33, it’s not the end of the world. Maybe 7-percent returns evade you for a few years, as the market ebbs and flows. History shows the returns eventually arrive. Maybe you start later. Put in a little more and you can help compensate for lost time.
What you absolutely can’t afford to do is let any more valuable saving time pass you by—regardless of how old you are. Ideally, you start in your 20s when you have as much time as possible to build your balance. But even if you’re already in your 30s with little or no retirement savings, it’s possible to catch up by working a few more years and adding a few more bucks to your account each month.
The most important thing you can do today is stay focused on the first turn on the racetrack: getting to $50,000. Once you’re there, your savings habits will be firmly in place, and you’ll be pleasantly surprised at how the rest of the $1 million takes care of itself.
Written by Bob Sullivan, originally posted on Acorns.
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Frequently Asked Questions
Why is the first $50,000 the hardest to save?
Early on you have the smallest balance, so compounding has had little time to work and most of your progress comes from contributions alone. The article reframes the old saying that the first $1 million is the hardest to make, arguing the first $50,000 is the real challenge. Once you reach it, the rest of the path toward $1 million largely takes care of itself by retirement.
How much do I need to save each month to reach $50,000?
One simple route is saving $300 a month for 10 years at an average 7-percent stock market return, which gets you to about $50,000. You could also save $5,000 in an IRA each year for 10 years. Smaller starts work too: $50 a week, then $65 a week with employer contributions, can reach nearly $52,000 in about nine years.
What return rate does the article assume?
The calculations assume a 7-percent average annual return, which the article notes the stock market has delivered historically when adjusted for inflation. It cautions that 7 percent is not a reliable assumption over short timeframes but is fair over the long haul. Returns may evade you for a few years as the market ebbs and flows, but history shows they eventually arrive.
Should I pay off student loans before saving for retirement?
The article warns that sacrificing retirement savings in your 20s just to pay off student debt can be a big mistake. Many borrowers use graduation gifts to pay down loans, but putting even a modest amount toward retirement early lets compounding work. For example, $3,000 invested starting at age 23 could reach the $50,000 target by about age 31.
What if I am already in my 30s with little saved?
It is never too late to start setting money aside. Even if you are in your 30s with little or no retirement savings, you can catch up by working a few more years and adding a few more dollars to your account each month. The key is to stop letting valuable saving time pass and stay focused on reaching that first $50,000.
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The first $50,000 is the hardest to save — but it is far more achievable than it feels.
There’s an old saying that goes: “The first $1 million is the hardest to make.”.
But I propose a slight adjustment: The first $50,000 is the most challenging to save.
If you’re like most people in their 20s or 30s.
But it’s not as difficult as it seems.
Save $5,000 in an IRA for 10 years, and you’ll have $50,000, right?.
If you’re starting in your early to mid-20s, you’ve got a real advantage.
Believe it or not, assuming those 7-percent average annual returns, you’ll have six chances to double your money by age 65 if you start investing at 23.
That said, it’s never too late to start setting money aside.
Maybe you just landed your first job, you haven’t started saving and that $300 monthly contribution seems impossible.
After three years, that gives you a rather humble-sounding $8,626.
But be patient.
The power of time can’t be overstated in these calculations.
Many people are lucky enough to have family members who want to help with student loans, and plenty of student borrowers want to cancel out their debt as quickly as possible.
Say you have $3,000 from a combination of graduation gifts and summer job savings.
Another option.
Bottom line?.
What you absolutely can’t afford to do is let any more valuable saving time pass you by—regardless of how old you are.
The most important thing you can do today is stay focused on the first turn on the racetrack: getting to $50,000.
Written by Bob Sullivan, originally posted on Acorns .
Early on you have the smallest balance, so compounding has had little time to work and most of your progress comes from contributions alone.
One simple route is saving $300 a month for 10 years at an average 7-percent stock market return, which gets you to about $50,000.
The calculations assume a 7-percent average annual return, which the article notes the stock market has delivered historically when adjusted for inflation.
The article warns that sacrificing retirement savings in your 20s just to pay off student debt can be a big mistake.
It is never too late to start setting money aside.
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1 Why the First $50,000 Is the Hardest.
2 The Power of Starting Early.
3 Scenario #1: Start From Scratch.
4 Scenario #2: Build Your Balance Sooner.
Frequently Asked Questions.
Why is the first $50,000 the hardest to save?.
How much do I need to save each month to reach $50,000?.
What return rate does the article assume?.
Should I pay off student loans before saving for retirement?.
What if I am already in my 30s with little saved?.
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