Why this strategy is Affordable for ALL? Well, for calculation I've used only $161 of monthly investing.
I understand for some person this is nothing, and for another it is a lot. But you can calculate your own affordable investing amount per month and use it. Consistency is the key!
Another point why its affordable, its because you don't need to have a lot of money at the beginning. You can start from minimal deposit allowed by service/fund/bank (APY provider) where you allocating your funds.
Please, note, this is simple and affordable investing strategy. But still THIS IS NOT 100% SAFE STRATEGY... There are several risks of losing your money after all. Mostly this risks depends on APY provider, so I recommend to change your APY provider over a time, and to secure your funds use multiple providers.
Let's see how we get this numbers and first of all it is important to keep consistency during all your investment journey. Remember, this way can make you millionaire and can create a fortune for your kids.
To understand how this works, let's see what is Compound Interest:
Compound interest is the concept of adding accumulated interest back to the principal sum, so that interest is earned on top of interest from that moment on. The act of declaring interest to be principal is called compounding. Financials institutions vary in terms of their compounding rate frequency - daily, monthly, yearly, etc.
Your savings account may vary on this, so you may wish to check with your bank or financial institution to find out which frequency they compound your interest at. I used monthly compounding to calculate final value.
With savings accounts, interest can be compounded at either the start or the end of the compounding period (month or year).
Compound interest formula
Compound interest, or 'interest on interest', is calculated with the compound interest formula. Multiply the principal amount by one plus the annual interest rate to the power of the number of compound periods to get a combined figure for principal and compound interest.
This formula is base of all interest calculations. To get easier process of calculation, I have used online Compound Interest Calculator.
Best numbers we can get if we start investing early, but it happens we see right information too late, and we ask ourselves "Is it good time to start?" — I can say for sure, YES! Always good idea to start investing in your savings account. Trading is trading, but investing is a little different. You can invest in markets, or in savings accounts.
Now let's see "worst case" — you starting your investing journey at 40 years old.
How much you can earn on savings account until 60?
I have calculated it with calculator, and used only $161 investments/savings per month with APY of 8%.
You can see after 20 years of savings this amount of money (pretty much affordable for many people out there) you will get about $95,464 Final Value. Very impressive. Imagine if you can save more from your income each month... For example if you can save $1000 monthly, you will get $592,947 Final value after 20 years on your Savings Account.
Middle scenario — investing for 30 years on your savings account. Until 60 you can earn solid $241,547 Final value, investing only $161 per month!
Now if you can invest about $500 per month from your income you will get amazing $750,147 Final value.
And of course best scenario — start investing on savings account early from 20y.o. This way you can get $565,799 Final value by 60 y.o.
And if its possible to save more, let's say $250 monthly, you can get $878,570.30 Final value by 60 y.o.
So in order to get rich, you don't need to invest a lot of money. Just make you investments consistent, and improve your financial education.
Hope this article can inspire you to create your savings account and plan your future.