Self-made millionaire: A simple chart changed the way I think about money

By Kathleen Elkins

Before wealth manager and author David Bach made his first million, he was a brand new financial advisor in his early twenties, he tells CNBC Make It: “We had someone come and talk to our training class, and as he walked out the door, he handed us this chart.”

Ultimately, the chart “changed my life,” Bach says.

The chart shows two different scenarios:

  1. You start investing at 19 and contribute $2,000 to your account every year until you reach 27. From 27 to 65, you contribute $0.
  2. From 19 to 26, you don’t invest anything. You start investing at 27 and contribute $2,000 to your account every year until you turn 65.

In the first scenario, you’re only saving and investing for eight years; in the second, you’re saving and investing for 39 years. Still, the person who starts at age 19 would end up with more money in their portfolio in the long run.

Assuming a 10% rate of return, the first person would have $1.02 million by 65, while the second person would have $805,185, a difference of more than $200,000.

As the chart shows, the sooner you can start putting your money to work, the more you’ll benefit from compound interest and the less you’ll have to save to reach your retirement goals.

In terms of where to set aside your dollars, “You have to have this money invested for growth,” Bach says. “You cannot put this money in a money market account or a CD, where it grows at 1% or 2%. You’ll never build wealth.” Instead, Bach recommends putting your money to work in a tax-advantaged retirement account, such as a 401(k), Roth IRA or traditional IRA, where it will grow over time.

Retirement-specific accounts offer tax benefits, but there are other ways to invest your money: You can look into low-cost index funds, which Warren Buffett recommends, and online investment platforms, such as Ellevest or Betterment, known as robo-advisors.

No matter how you choose to invest, the most important step is to open at least one account and start contributing to it consistently.

“Start investing today,” says Bach. “Because the miracle of compound interest starts working the day you put it in place — but the key to compound interest is that it takes decades. It doesn’t get done in days. When you try to get rich quickly, you stay poor forever. This is about building wealth for your lifetime.”

This article first appeared on CNBC https://www.cnbc.com/2019/07/08/self-made-millionaire-david-bach-a-chart-changed-the-way-i-think-about-money.html and is republished with its permission.

Related Content

Rihanna: ‘I never thought I’d make this much money’—here’s what it means to her

Though she has made millions of dollars, Rihanna doesn’t plan on slowing down.

The smartest way to invest your first $1,000, according to a wealth manager

Investing is one of the most effective ways to build wealth. Some experts even say that the only way to “truly grow” your money is to put it to work.

The number of dollar millionaires living in South Africa revealed

According to the latest figures from Wealth In sight, 48, 800 millionaires reside in South Africa. This suggests that data showing that skilled and wealthy South Africans go abroad for greener pastures may not be true. Juerg Steffen, CEO of Henley & Partners joins CNBC Africa for more.

This chart shows you at what age you’ll become a millionaire

How close are you to becoming a millionaire? You might be on track to hit that milestone at a much earlier age.

Subscribe to our newsletter

Sign up for free newsletters and get more CNBC AFRICA delivered to your inbox

More from CNBC Africa

Clarification on COVID-19 “hotspots” as SA moves to level 3 lockdown

South African Health Minister Zweli Mkhize has clarified the government’s decision around the relaxation of lockdown restrictions and the classification of COVID-19 “hotspots”.

How COVID-19 impacts Nigeria’s non-oil exports

Year-on-year growth in Nigeria’s non-oil sector was slower by 0.93 percentage points in the first quarter of the year, that’s according to recent data from the National Bureau of Statistics. As the Covid-19 pandemic continues to stifle international trade, Akin Laoye, Executive Director at FTN Cocoa Processors joins CNBC Africa to discuss how this pandemic is affecting dynamics for Nigeria's non-oil exports.

Africa’s best brands, ranked

The Brand Africa 100, Africa’s best brands report celebrated its 10th year of its global launch and continues to shine a light on Africa’s brand value conscious. Over the past 10 years the report has shown that only 20 per cent of the brands that Africans value, are made in Africa, this is a challenge to African business people and entrepreneurs to create and aspire to fully embrace proudly African produce. Joining CNBC Africa for this discussion are Thebe Ikalafeng, Founder and Chairperson of Brand Africa, Geoffrey Odundo, CEO of the Nairobi Stock Exchange and Karin Du Chenne, Chief Growth Officer at Kantar.

COVID-19: How will employee salaries be impacted in the months to come?

The BankservAfrica Take-home Pay Index has shown that wage numbers were up in April as the majority of employees continued to receive their monthly incomes. However, casual and weekly workers were most impacted by the Covid-19 lockdown as the number of wages paid declined significantly. Joining CNBC Africa for more is Mike Schüssler, Chief Economist at economists.co.za.

Trending Now

Abel Sithole appointed as CEO of South Africa’s PIC

On Wednesday, South African Finance Minister Tito Mboweni announced the appointment of Abel Sithole as the Chief Executive Officer of the Public Investment Corporation (PIC) and Executive Director on the Board of Directors.

Kenyan government under fire over coronavirus quarantine centres

Kenya’s government is facing growing criticism over quarantine centres it set up to curb the spread of the coronavirus, with witnesses saying some are squalid and expose residents to the risk of catching COVID-19.

RDO’s Mugwaneza on the need to invest in post-harvest agriculture technology

Rwanda’s agriculture sector employs 80 per cent of the population and contributes 33 per cent to her GDP growth. Now, with Covid-19, many farmers have incurred losses due to difficulties in the market and agriculture players have reiterated the need for investing in post-harvest agriculture technologies. Diana Mugwaneza, Programs Officer at Rwanda Development Organization, joins CNBC Africa for more.

PMA: CBN to roll over T-bills worth N59.4bn

The Central Bank is expected to roll over maturing treasury bills worth 60 billion naira in today’s Primary Market Auction. Gbemisola Bello-Aromire, Fixed Income Dealer joins CNBC Africa to discuss sentiments in Nigeria’s fixed income and FX markets....
- Advertisement -