Getting To $1,000,000 (Love Those Zeroes)

My soon-to-be sister-in-law (is that a hyphen record?) asked what this blog is about; saving or investing.

In response, I would like to perform everyone's favorite task. We're going to do some math.

As stated, I make $13.00 per hour. If I work 40 hours per week, after one year, I will make $27,040. In order to earn $1,000,000 working, it would take 37 years. This would be pre-tax and I wouldn't be allowed to spend any money on frivolous stuff like food.

So, after saving $1,000,000, I would be 67 years-old, wanted by the IRS and awful cranky from not having eaten in four decades.

That plain fact is, in order to truly get anywhere financially, you must invest. Saving has it's place, to be certain, but only if you have a purpose for those savings. If you are planning a major purchase, you must save for that, but if you are seeking financial freedom, those savings will only give you the satisfaction of a pretty bank statement.

Let's say you have $50,000 sitting in the bank and assume it is in a high interest bearing account. Right now, you'd probably be receiving a yield of 1.5%, or $750 after one year. Not bad, but that wouldn't even pay one month's rent. It's even worse if you have a basic savings account, maybe as little as a couple hundred per year.

Now assume that same $50,000 is invested in a dividend paying blue chip stock like Pepsico. You would have 885 shares yielding 3.2% and paying you $1,593 after one year. But here is the primary difference. Pepsico raises their dividend every year, typically in the area of 12%.

Take this same example and jump 6 years into the future. Based on what we know, we can assume that Pepsico will be yielding nearly $3,200 each year. Your bank account? Probably still getting less that a grand.

So, save for major purchases, but invest to truly find financial freedom.