by Spencer Ray
In order to demonstrate how vitally important it is to constantly save money and to obtain your financial dreams, we will first discuss the Time Value of Money.

Time Value of Money simply means that a dollar today is worth more than a dollar tomorrow.

What would you rather have; a million dollars right now, or a million dollars in 10 years? The reason you should want it right now, is because you can invest the 1 million dollars and have MUCH more money in 10 years.

One example that many others have used to demonstrate the time value of money is the purchase of Manhattan island. In 1629, Peter Minuit purchased Manhattan island from the Native Americans for about $24 in gold medallions and some trinkets. Obviously the real estate and everything on Manhattan island is worth MUCH more; some estimate that today its worth about $70 billion. What a steal! Right?

Well, lets see if Peter Minuit really made a good deal. If he had invested that $24 for the past 378 years at a very conservative rate of 8%, the value today might astound you. This $24 invested until today would be worth $103,370,000,000,000! That’s over $103 Trillion; much more than the $60 billion that its worth today. Mr. Minuit made a bad investment!

Hopefully, this example helps you see the power behind the Time Value of Money. The longer you are able to save and invest (and leave it alone), the faster it will grow. Here’s another example that you might be able to relate with even better than the one above.

Let’s say that you have $10,000 that you have in the bank. In addition, by using your budget and constant improvement you are able to save $400 each month for the next 30 years. The total amount that you would have accumulated is $154,000 in 30 years ($10,000 + ($400 x 360)). Not bad.

However, let’s say that you understand the power of investing and the Time Value of Money. Immediately you put your $10,000 in an account that is earning 12%, and you add the $400 each month for 30 years. How much do you think it would be worth?

The answer: $1,757,482.07

Now that’s a much better nest egg that a measly $153,000! This is very achievable; in fact, the 12% that I used, I used for a reason. The average S&P 500 market return over the past 30 years is 12%. So, not only is this achievable; its realistic as it is only the average: some will gain even more.

So, if your goal is to have $1 million, and you have NOTHING in the bank right now; you need to save $286.13 each month for the next 30 years, and invest it at a 12% return. That’s it! All of the sudden, it doesn’t seem so hard to become a millionaire after all.

So, remember if you are whether or not to save $100 a month, you are not just talking about $100. You are really talking about what that $100 each month can become in 30 years or $349,496.41! So, for every 1 meager dollar you save in your monthly budget, you are really socking away about $3,500 towards your retirement.

If you can find a way to eliminate $286 of spending each month; congratulations, you just become a millionaire! This theme of the Time Value of Money is SO important to always keep in the forefront of your mind. As you think about these so-called “little” tactics to save money; remember, you are really thinking about BIG money.

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Spencer has a BA in Finance, an MBA, and is currently a Commercial Banker advising Business owners on Business and Personal financial issues.

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