Two of the most frequent questions we get from clients are about how to become a millionaire & how to retire rich. So how do YOU save for just 10 years & become a millionaire? And how is it that if you start later, you could end up saving 3x as much as the person that started earlier & still risk NOT becoming a millionaire?

How do you stay for just 10 years and become a millionaire the answer is simple compound interest by the end of this video you’ll be the compound interest master you’ll know how it can make you rich and why albert einstein once described it as the eighth wonder of the world now if you’re already somewhat of a compound interest nerd like us feel free to skip

Ahead we’ll also be revealing the age you should start saving from if you want to stop saving after 10 years and still retire a millionaire and will tell you the ideal place to keep your hard earned savings from maximum growth and minimum taxes so that you can get to millionaire status as soon as possible plus we’ll talk about what to do if you start too late

Sounds cliche but where there’s a will there’s a way so let’s find out what that way is time stamps are below this video for loyal subscribers and viewers welcome back we love you guys and for those of you new to diamond estate welcome to the number one place to learn about money insurance and retirement i’m jennifer first generation american and i’ve spent

Most of my life in finance started working at banks like jp morgan and goldman sachs at the age of 17 and graduated top of my class from nyu and harvard business school and now i work on all things personal finance with young professionals and employees at places like bloomberg wework and marsha mclennan so compound interest in a nutshell compound interest is

When you earn interest on interest here’s an example say that you open an account on january 1st with a thousand dollars and put your money invested essentially into something that pays you an annual return of seven percent as the table shows because we love tables in year one you would earn seventy dollars interest on that initial thousand dollar investment and

At the end of year one you’d have one thousand and seventy dollars now if you leave this one thousand and seventy dollars in the account in year two you’d earn 75 interest that’s five dollars more in interest earned than in year one and at the end of year two you’d have one thousand one hundred and forty five dollars run this out to year five and in year five

You’d earn 92 dollars in interest with a year five ending balance of one thousand four hundred and three dollars see how the amount of earned interest grows a bit more every year because your money is earning interest on interest that’s compound interest the eighth wonder of the world in action and if you’re wondering what are the other seven wonders of the world

They have nothing to do with compound interest but if your money ever compounds a large enough amount they’re definitely worth a visit i digress imagine now if you put in five thousand dollars in year one by year five you’d have over seven thousand and thirteen dollars put in ten thousand dollars in year one and you’d have a whopping 14 026 dollars in year five

All things being equal the more money you put in the more money you invest initially and the longer you keep that money invested with a long-term mindset the more in compound interest you’ll get and the higher your ending portfolio balance and that’s how compound interest can make you rich unlike its not so rich sibling simple interest if we use the same example

As before putting a thousand dollars on january 1st into something that pays you seven percent annually but on a simple interest basis here’s what your interest earned would look like in years one through five with simple interest your interest earned every year will always be a percentage of your principal balance in year one in this case seven percent times

Your initial investment of a thousand dollars even if you were to keep the money in there for say 30 years that’s right with simple interest your interest earned stays the same at 70 every year instead of growing like under the compound interest scenario and after five years your total interest earned with simple interest would only be 350 whereas with compound

Interest your total interest earned over a five year period would be 403 dollars that’s more than 15 percent more money in your pocket guys if you’re enjoying this video and beginning to see the beauty of compound interest we’d love it thumbs up and to subscribe so we know what kind of videos to keep pushing out for you now how do you save for just 10 years and

Become a millionaire here’s how step 1 start at age 20. step 2 max out your roth ira contribution every year for 10 years and then stop saving all together if you want stop your contributions step three you invest all that roth money from the get-go with a long-term mindset think market index funds and etfs not day trading or crypto speculation you let that money

Compound remember that eighth wonder of the world we talked about earlier and step four you don’t touch that money until you turn 65. by the time you turn 65 you’d be a millionaire you heard that right you save up everything from that summer or part-time job in college starting from age 20 contribute the maximum amount allowed by the irs at the moment into your

Roth ira every year for just 10 years so that’s this 500 right here at the end of 10 years you would have contributed 60 000 into your roth ira but your money would have compounded nicely to over 86 000 but here’s where it gets really nice leave that eighty-six thousand dollars in there let it keep compounding annually at seven percent as in the previous examples

You don’t put in another penny or time ever see no new contributions or withdrawals at all it’s still the same eighty six thousand dollars here and to the left there’s your one million dollar balance and for those of you are super precise yes it’s four thousand dollars shy of a million but just keep in mind that we’ve used reasonably conservative down-to-earth

Assumptions such as assuming that the roth ira contribution limits will stay the same at the current level of six thousand dollars per year which is unlikely with the current rise in prices the irs will likely start adjusting this contribution limit upwards from 2023 so you’d be able to put in more than the 500 per month at some point we’ve also assumed a practical

Average inflation-adjusted market rate of return of seven percent based on historical market returns and we’ve assumed you don’t pull any money out until you’re 65. so that one million dollar number is real and did i mention that one million dollar number is completely tax-free when you pull the money out because with a roth ira you’re putting in money that

You’ve already paid taxes on so the money in your roth will grow tax-free and when you withdraw it it’ll also be tax-free you only pay taxes once when you put the money in which is why the roth ira will give you the most bang for the buck for those of you earlier in your career or who feel that your tax rate will go up in your later years do make a note though

There are certain income limits when it comes to contributing to a roth check out our playlist here for more on roth ira limits withdrawal rules and all things retirement now if i haven’t convinced you yet of the power of compound interest this will let’s say your 20s have passed you a long time ago say you start doing this five years later at age 25 you still

Max out your roth ira for 10 years so put in that same 500 every month for 10 years as in the previous example and you still stop saving and contributing altogether after 10 years and you still do the same long-term investing bit from the get-go let your money compound and only start withdrawing in retirement you still have over seven hundred thousand dollars not

Quite a millionaire but also not bad you’re still seeing compound interest at work here’s the kicker though if you wait until you’re age 35 to start saving and putting money into your roth and you contribute the same 500 every month for 30 years not 10 but 30 years so you put a hundred and eighty thousand dollars of after tax dollars into the roth instead of the

Sixty thousand dollars in the earlier example that’s three times as much you would still have less money at age 65 than the guy or girl that started at age 25 and stop contributing to the roth after 10 years start 10 years later and you’d have about six hundred and ten thousand dollars so approximately ninety thousand dollars less despite putting in more money

For a longer period of time and that my friend shows again the incredible power of compound interest having said that if you’re 35 or over and watching this and you haven’t started your retirement journey yet don’t fret i am a strong believer of where there’s a will there’s a way and that way is to start right after you’re done watching this video don’t wait until

Tomorrow or next week or next month six hundred thousand dollars in a roth ira is still a nice chunk of retirement change and remember as the rules stand now from age 50 and over you can contribute an extra thousand dollars per year to your roth as a catch-up contribution so there is a silver lining in all of this you might hit that million dollar mark after all

Everyone’s financial journey is different so if this has left you with a spinning head or if you’re just looking for someone that can give your financial or retirement journey the push it needs drop us note at jennifer diamond.com and also remember that thumbs up and subscribe if you like what you’ve seen thanks for watching and see you next week with another money

Saving wealth building video you

Transcribed from video