Turning $10 into $1 million.

Today, we're going to take that 10% savings and turn it into a 1 million fortune. It's not magic, but it does take discipline. First, you have to commit to saving 10% of your income. THat may mean that while your friends are going to the movies all the time, eating out, wearing the latest fashions, and driving nice new cars, you're renting videos, staying home, driving an older car, and wearing your clothes a bit longer. The payoff is that while your friends are working till they die, you'll be retired at a beachfront home!

Here's how to start out. First, calculate your yearly savings across the top of your spreadsheet. Calculate your yearly savings by multiplying your monthly saving by 12 months. So at the end of the first year, you have $3000 saved. Now, multiply that amount by 10, 20, 30, 40 and 50 years. You'll see that by the time you're in your 60s, you have about $150,000. While that's a nice sum of money you still can't retire on it.

The secret lies in investing wisely and compounding your saving. If you go to this Web site or any others, you'll find that the annualized return of the S&P 500 is between 6% and 7% over the lifetime of the market. That means, if you invest in the stock of the 500 largest companies in America, you would yield a return of about 6.5%.

We're going to assume that that interest gain in paid yearly and all of your gains are reinvested in the stock market and you don't pull any money out early. That's the tricky part. Can you stop yourself from taking out money to buy a new pair of Nikes.

Calculate the first years returns by multiplying $3000 times 6.5% to yield  a first year's savings of $3195. So, instead of making $3000 you actually have $3195. Next, you take that number and add the next $3000 to it to get to the beginning of year 2. Multiply that about times 6.5% and you end up with the next years ending balance of $6597. So at this point you've not just saved $6000, you have an extra $597 that you've earned. Congratulations!

https://docs.google.com/spreadsheets/d/1yB1St0hEtlDw9715uB1dnRpAbh1NRQrYAdT_261wTgE/pubhtml

Now, you just need to keep going. Do the same thing until you get to year 10. Now, compare what you've put back to what you actually have in the bank! Instead of $30,000, you have over $43,000. If you have the guts, you can keep saving and compounding your gains. By the time you're at year 50, you've made over $1 million. Enjoy your retirement!