Budgets are empowering, because they can help you identify waste and rein in excess spending. Once you create your first budget, you might find that you can recover $10 per day that you had been squandering without even realizing it.
While $10 might not sound like much, it adds up to $300 per month or roughly $3,600 per year. That’s a nice chunk of change, but it’s not enough to make you rich, right?
Well, it depends on what you do with it.
Thanks to the compounding power of interest and returns, $3,600 can expand into a much more impressive sum if you give it enough years to grow and ensure that your money makes money while you wait.
If you put your extra $10 per day in a safe, your annual $3,600 will never become anything more. But if it earns interest in a savings account — or better yet, gets the historical average stock market return — your cash will eventually outgrow your safe.
“Even small, consistent investments like $10 can lead to significant growth in the long run, thanks to the magic of compound interest,” said Baruch Silvermann, financial expert and CEO of The Smart Investor. “As your investments generate profits, those profits get reinvested, and in turn, they can make even more profits. This compounding effect can lead to a substantial amount of wealth piling up over several decades.”
Dr. Bob G. Wood, professor of finance at the University of South Alabama’s Mitchell College of Business, gave a hypothetical example of an investor who contributed $10 to an S&P 500 fund every day for 10 years.
“The S&P has averaged earnings slightly more than 10% per year for the last 50 years,” he said. Those returns are annualized over five decades, so Wood assumes 10% gains per year and ignores leap years to simplify the math.
“In 10 years, you will have deposited $36,500,” said Wood. “Your account value is roughly $62,700. Let’s assume you continue for 10 more years. You’ve now deposited $73,000 over the 20 years and the account grows to more than $233,000. Continuing the deposits over 30 years yields almost $700,000 and continuing for 40 years yields almost $2 million.
“If you continue to deposit $10 per day for 50 years, your deposits total $182,000 and the account value is just short of $5,375,000. Most people would consider themselves wealthy — or at least comfortable — with $5 million. It’s the magic of the time value of money.”
June Jia, a quantitative researcher at GF Securities and owner of Canny Trading, echoes Wood’s math that $10 per day with 10% returns for 10 years would yield “roughly $62,700” — $62,703.71, to be exact. But his analysis illustrates the importance of steady returns, which catalyze the magic of compounding.
“In contrast, if the same sum of money was not invested and yielded no returns, it would only total $36,500,” said Jia. “This stark comparison reveals the substantial difference and benefits of investing.”
In conclusion, contributing $10 a day to a low-yield savings account won’t make you rich, but mirroring the market’s historical returns will get you close.
“A disciplined approach of allocating $10 daily to investments can contribute significantly to wealth,” said Jia. “Committing to a daily investment of $10 may not amass an enormous fortune, but it can substantially expedite wealth accumulation.”
The 10% figure so often cited as the stock market’s historical rate of return doesn’t account for inflation, which gnaws away at your purchasing power and reduces returns on investments. But even with the dollar-diminishing force of inflation, $10 is still enough to make you rich — as long as you’re willing to wait.
“Assuming a 7% annual return — the average historical return of the stock market after accounting for inflation every year — it would take about 56 years for a daily investment of $10 to grow to $2.2 million,” said Matt Miczulski, a personal finance expert with Finder.com. “While that’s a long time, bump your contribution to just $20 and you could potentially hit that $2.2 million target a decade earlier. Investing is a long-term undertaking. The earlier you start investing, the better.”
But who says that’s the magic number?
“According to Charles Schwab’s 2023 Modern Wealth Survey, it takes a net worth of $2.2 million to be considered rich,” said Miczulski.
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