Building a time machine to your financial future through responsible input/output
Most things we deal with can be broken down to simple input/output. Your financial future is no exception. By understanding this principle and applying it to your finances, you can build a metaphorical time machine that transports you to your desired financial future.
Act simply, think largely, invest responsibly.
Not sure where to start? You're not alone. Every financial journey begins with a single, intentional step.
Building Your Financial Time Machine
In personal finance terms, simply put, your income is your input while expenses are your outputs. The beauty of this system lies in its simplicity: consistent, responsible control over your inputs and outputs will lead to significant and predictable financial growth.
- Set your destination before you start your journey. You need to know where you're going. Do you want to retire at 50? Buy a house in 5 years? Have $1 million in investments by 45? Be specific and realistic.
- Calculate your route. It's time to map out how to get there. Again, BE SPECIFIC. Use math to complete a top-down approach to this plan. We can start from the goal and back into exactly what it means for our day to day budget and required weekly/monthly savings.
Calculate your route
The Investant Savings Calculator is designed to transform your financial goals from abstract dreams to concrete plans. Let's walk through how to use it:
Let's build out a goal for a 25 year old to reach $1 million invested by age 45.
- Initial Deposit: How much can you invest right now? This is your launch pad. Let's start with $5,000.
- Monthly Contribution: Commit to a consistent monthly investment. For our $1 million goal, let's aim to invest $1,850 monthly (Come back and change this value to see how it impacts your end result!).
- Time Period: We recommend setting this in years. For our example, that's 20 years (from age 25 to 45).
- Annual Interest Rate (%): Currently, high-yield savings accounts are offering between 4% and 4.25%. Check out our detailed guide on The High Yield Savings Account in 2024 to maximize your returns. The average retirement account makes between 5% and 8% annually. Let's use 7.5% as though we are depositing these savings to an aggressive (stock heavy) retirement account.
Starting at 25 vs 30 can mean a difference of HUNDREDS OF THOUSANDS of dollars! See how adding 5 years can make a dent on the Investant Savings Calculator!
With a $5,000 initial deposit and $1,850 monthly contributions across 20 years at 7.5% annual interest rate, we will have a Total Investment of $1,015,218.58 at the age of 45!
If you're just getting started, you may be thinking that $1,850 invested per month is not doable right now. But, we can make a plan to get there. Your next steps to meet this goal should be to take a total look at your income and expenses today, and use this new understanding of what monthly savings are needed to decide where your income and expenses need to be. To comfortably put away $1,850 per month while living a middle class lifestyle in America today (average monthly expenses of $6,081), you would need to make $7,931 per month or $95,172 per year.
A $95,000 salary is in the 74th percentile of American Workers based on full-year 2023 and a completely achievable wage which can be surpassed through hard work, dedication, and discipline.
Pro tip: This isn't just a number. This is your potential. Whether you're a recent grad, a new professional, or someone looking for the next promotion, this goal is within reach.
Periodic Calibration
Your financial time machine isn't a set-it-and-forget-it device. Schedule quarterly or semi-annual reviews to:
- Assess your progress
- Adjust monthly contributions
- Rebalance investments
- Account for life changes
Start small, but start now. These periodic reviews are a great chance to have a conversation with yourself and/or your partner about where you financially stand and the actions you're going to take going forwards. If you don't like what you're seeing, have the tough conversation then and there.
Your financial future is not about timing the market, but time in the market.
