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Saving for the future is something that you probably know that you need to do, but may not be sure how to go about or where to find the funds to invest. The good news is that I am going to show you exactly how you can save for a down payment on a home and fully fund a Roth IRA! It is as simple as finding and saving $29 a day!
One key thing to keep in mind is that every dollar has an opportunity cost.
An opportunity cost is the benefit that you miss out on when choosing one option over another.
Saving is the Core of Investing:
The government gives you incentives for reinvesting your money… because you have to sacrifice some of the things that you like today, in order to save so that you can have funds to invest with.
Saving money can be hard, but it can also be easy…
My personal goal is to achieve financial freedom. I’m not interested in a huge house with a lavish car.
That’s how you get stuck in the rat race.
If you are renting a large home, just remember that your rent payment is someone else’s investment cash flow and mortgage payment.
Remember, the more house you have, the more cleaning you have to do.
The larger the house, the more stuff can fit in it (and the more stuff you need to buy to furnish it).
The bigger the house, the bigger the mortgage. Which equates to fewer savings you can devote towards investing into an asset that actually provides you additional income.
My biggest recommendation for you is to live below your means.
If you earn $1 million and you spend $1 million, you’re still living month-to-month!
Interested in tax-advantaged wealth creation? Pre-enroll for the FREE Increase Your Financial IQ Mini-Course for more information on financial planning.
The Math: Why $29 Per Day?
In order to max out your Roth IRA, you need $5,500 to invest each year. If you break that down by 365 days a year, it comes out to $15 a day.
If you save $5,000 a year, over four years, you will have $20,000 for a down payment on a home.
$5,000 a day divided by 365 days is $13.50.
The average price of a home in the United States, as of this writing, is approximately $220,000 (photo provided by zillow.com).
You can get an FHA loan with 3.5% down.
$220,000 x 3.5%= $7,700
You will need closing costs, plus a cushion so that you aren’t sleeping on the floor of your new home. Thus, $20,000 is a safe number to have if you want to purchase a home.
You could get by with less, but I am a huge advocate of having a rainy day savings fund. We can’t predict the future and it is always good to have a cushion to fall back on.
So the moral of the story is, “if you can save $29 a day, every day, you can purchase a home and fund your retirement account.”
Starting as Soon as Possible and Consistently Saving:
The sooner you start the more time your account will have to grow. This is because you have compounded interest working on your side!
Compounded interest is the interest calculated on the initial principal and includes all of the accumulated interest of the previous periods.
The maximum amount that you can contribute to a Roth IRA account per year is $5,500, which is $458 per month.
If you start with $5,500 and contribute $5,500 each year for 40 years (with a 7% average market increase), your total contribution will be $220,000.
That $220,000 over 40 years will grow to 1,257,212!!!
And Bang! You have over $1,000,000 for retirement!
You can play with the numbers on any retirement account calculator (I used Bankrate.com, which is where I sourced the image above).
I am originally from the Los Angeles area, and homes in more expensive parts of the country will require you to save much more than $29 per day.
The good news is that if you live in an area where home prices are higher, then you are likely making more money.
The saving and re-investing principles in this email course and the Increase your Financial IQ Course still hold true.
The point is that you can save $5,000 each year by setting aside $13.50 every day.
Whether you use that money to pay off student debt, a credit card balance or accelerate paying off your mortgage is up to you.
The 10,000 Foot Over View:
There are many ways to go about finding $29 a day to accomplish this goal.
You can download a FREE Checklist (which will be sent to your email) on How to Fund Your Retirement Account by Going Green (below this article).
Just remember, every dollar has an opportunity cost.
Curious, throughout high school did you learn about how to navigate your personal finances? Or about the importance of living a sustainable lifestyle?
Did they teach you about FICO scores and how much to have in revolving debt? Or what goes into calculating your credit score?
Pre-enroll for the FREE Increase Your Financial IQ Mini-Course for more information on financial planning and wealth creation.
Articles that may interest you:
- Increase the Velocity at Which Your Money Grows: Ways to Save
- How to Increase Your Credit Score Right Now
- What is a 529 College Savings Plan?
- Real Estate Loans: FHA vs. Conventional Loans
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