Personal finance expert and New York Times bestselling author Suze Orman recently said that young people could retire as millionaires — that is, if they do one specific thing.
See: 10 Things Boomers Should Consider Selling in Retirement
Find: Pocket an Extra $400 a Month With This Simple Hack
In a Jan. 1 Wall Street Journal article, Orman was asked where young people tend to go wrong about their finances. According to her, this boils down to one thing that could end up costing younger Americans deeply.
“They don’t understand the value of compounding and that the key to their financial independence is their age,” Orman told The Wall Street Journal.
Also: The 6 Investments Everyone Should Make During an Economic Downturn
Sponsored: Get Paid To Scroll. Start Now
Young Americans Must Invest Earlier
In turn, she emphasized the importance of starting retirement planning as early as possible and taking advantage of the biggest thing younger generations have on their side — time.
She further noted that you could become a millionaire if you’re 25 and you put $100 a month into a Standard & Poor’s 500 index fund — through a Roth IRA — every single month for 12 months, every year, until you are 65.
“It’s very probable that you will average a 12% annual rate of return over 40 years. At the end of those years, you have a million dollars,” she said. “You wait 10 years until you’re 35? At the age of 65, you’ll have $300,000. [Young people] don’t get that. They would rather dress cool, go on their TikToks.”
Orman has often talked about the power of compounding. For instance, in a 2019 CNBC article, she said that you should be investing more in your 20s than you do in your 30s (if you can).
And in a 2023 LinkedIn post, she said that you can’t make up for lost compounding.
“Every dollar you don’t save in your 30s, 40s and 50s is a dollar that can’t compound. A $10,000 investment made at age 45 will be worth around $32,000 at age 65, assuming a 6% annualized return. Invest the same $10,000 at age 55 and it will be worth less than $18,000,” she wrote at the time.
In addition, Orman also said that she “hates budgets,” as by restricting yourself “all of a sudden you explode and you go out and you buy everything at once.”
You should ask yourself when do you buy what you can afford versus what you need, when you can afford more than what you need.
She added that she and her wife always ask themselves: “Is this a want or a need? Do that every time for the next three months. Just try it.”
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Suze Orman: Young People Could Retire Millionaires By Doing This One Thing
Credit: Source link
