Yes, Mr. T and I are on the road to financial awesomeness. But our road is different and complicated because we’re already down a path. So we have to chip our path over to the one of financial awesomeness. We already got a job, bought a house, and started living on nearly all the income we made. Those things don’t allow for a simple path. But what about you? I hear you are about to get your first job out of college! Congrats! That’s an exciting adjustment! I bet you’re looking forward to actually making real money! And guess what? I have great news for you! Your path to financial awesomeness is completely simple! Let me tell you about the magic number:$23,500. Let me suggest that you take whatever offer you are given for your next job and subtract $23,500. Just pretend it isn’t part of the package. Wait, wait, WAIT! Hear me out before you walk away. I’m only asking for FIVE YEARS. I know, that may be nearly half of your offer. But how much money were you making in college? Isn’t that still an improvement? Before you decide, let me show you just what $23,500 can do in five years and why that number is so magic.
Do you have student debt?
Say you have $100,000 of student debt at 6% interest. Divide $23,500 into monthly payments of $1958.33. Do you know how long it will take you pay off ALL of your student loans? Exactly five years.
Are you debt free but have no savings?
$23,500 is also a magic number for you. That’s the exact amount you’ll need to max out your Roth-IRA at $5,500 each year as well as your before-tax 401k at $18,000/year. Why should you do this? Consider it a 5-year experiment. Let’s see where your savings goes in five years, considering that same monthly payment into savings of $1958.33, a 7% return, and no other savings.
- Year 1: $24,268.77
- Year 2: $50,291.93
- Year 3: $78,196.31
- Year 4: $108,117.90
- Year 5: $140,202.52
Over $140,000 in savings without any help from an employer match or saving anywhere else? Not bad!
What happens after five years?
If you had debt (up to $100,000), you are now debt free! And you can jump in on the second option of saving that money.
If you decide you want to keep it up since you’ve gotten raises and you’re actually bringing home good money now, that $23,500 continues to be magic. Guess what happens when our list of annual savings listed above hits year 20! $1,020,146.30! Yup. You just became a millionaire in 20 years without changing anything. (Again, if you have an employer match, you’ll get there sooner!)
If you decide you hate saving that much money, but you stuck it out those five years, don’t worry, there’s magic for you too! If you let that $140,202.52 in year 5 sit in that account, assuming a 7% return, you still hit millionaire status in year 34 without saving for 29 years of that!
If you decide that you hate your job and after five years, you decide you want out, remember that if you DO NOTHING ELSE, you’ll get to $1,000,000 in another 15 years. If you save more or have an employer match, you can get there way sooner!
So please, for just five years, commit to $23,500 toward your financial awesomeness. “I regret being debt free and a millionaire.” Said no one. Ever.