A million dollars seems to be the number that most of us shoot for when trying to come up with an amount of money that is sufficient to retire; to be rich; or for some other reason. There is obviously debate as to whether that will be enough now to fulfill some of those dreams. One one hand, if you can acquire that much money, you are doing well. However, I would say you still cannot live carefree as you can easily spend it all and end up back where you started. With that being said, let’s look at a few ways compound interest can help you build your net worth to $1 million.

## Lump Sum Doubling

At 12%, using the rule of 72, your money will double every 6 years.

Without getting into the detailed calculations, if you start with $4,031.25, this is what will happen with your money.

In 6 years at a 12% annual return you will have $8,062.50

In 12 years at a 12% annual return you will have $16,125

In 18 years at a 12% annual return you will have $32,250

In 24 years at a 12% annual return you will have $62,500

In 30 years at a 12% annual return you will have $125,000

In 36 years at a 12% annual return you will have $250,000

In 42 years at a 12% annual return you will have $500,000

In 48 years at a 12% annual return you will have $1,000,0000

If you can save up $4,000 and invest if for your 12 year old son, he will wake up at the age of 60 with a million dollars. This is without contributing a dime to the original amount.

## Steady Contribution

Compound interest is your friend when it is working with you. Get out of debt and use a disciplined approach to saving and investing over time. Compound interest will then become a wave pushing you from behind rather than knocking you down. Pick an amount that you can contribute on a regular basis over a long period of time and you will turn yourself into a millionaire. Consider these savings goals:

Save $100 monthly at 12% interest for 40 years and you will have $1,030,970.87

Save $500 monthly at 10% interest for 30 years and you will have $1,085,660.55

Save $1,000 monthly at 8% interest for 25 years and you will have $1,107,887.72

As you get raises, consider increasing your monthly contribution and you can reach your millionaire savings goal that much quicker.

Be a responsible parent and make sure your teens know this math. It could be worth a million dollars!

## Get Ahead of the Game

For those us us who are still young, consider getting ahead of the game early so you can let compound interest do most of the work. Most of us have heard about the Ben vs Arthur scenario. Ben is the guy who contributed $2,000 per year from age 19 through age 26 and then stopped saving for the rest of his working career. Arthur is the procrastinator who waited until he was 27 to start saving and then became very involved by contributing $2,00o per year until he retired at the age of 65. Who ended up with a larger retirement fund? Many are surprised to find out that Ben had a nest egg of $2,288,996 versus hard working Arthur’s $1,532,166. Wouldn’t you rather be Ben? Arthur worked so hard but did not outwork how smart Ben was by getting going early.

My advice: Be Ben and Arthur and retire at 55 or 60!

As they say, the best time to start saving is when you are young. The second best time is today! Maybe you are 40 and have not yet paid much attention to your savings. No problem, start saving! You may have to save a little bit more per year and for more years, but you are better off starting now than waiting until you are 50 to put together a plan.

## Conclusion

Compound interest is very powerful! Is is so powerful that is can make you a slave for life if you get on the wrong side of it. Is is also so powerful that is can turn a meager salary with a savings plan into a millionaire in 30 years or less.

**Do you have a compound interest story? How has it worked for or against you? Do you see yourself becoming a millionaire because of the power of compound interest?**

Ugh, our biggest interest “story” right now is the amount we’re PAYING every month due to our debt load. Can’t wait to turn that around into money we’re earning instead.

Laurie @thefrugalfarmer recently posted…Hidden Tips for Saving Money on Groceries

Yes, once that compound interest is behind you, rather than in front of you, it will give you a lot of momentum and motivation. Keep moving ahead!

Albert Einstein called it the eighth wonder of the world!

The earlier you and with some discipline, the faster your nest egg should become adjusting for inflation. I certainly believe one can become a millionaire this way.

Simon @ Modest Money recently posted…Motif Investing Review

It sure does make things easier. Like you said, the earlier you turn this in your favor, the better.

I still need to find a decent bank/system to provide me with such wonderful interest numbers. We have some VERY crappy banks in my country and in many cases the interest is not even covering all their commissions, so you might actually lose money at the end of the year

dojo recently posted…Blogging: Should you pay for comments?

Yeah, interest rates are not the best right now. However, the interest you would pay on debt is good, so if you can eliminate debt it is just like saving that amount of interest.

Stay away from the banks and find a good credit union. BCU has some of the best checking/savings rates I’ve found. 2% checking and 2.5% on Rainy Day Savings. There are a bunch of restrictions, but Rainy Day is 1.25% for the first year and 2.5% from that point on as long as you maintain a monthly deposit. The just dropped the rate from 3% to 2.5%. Darn!! Still the one of the best around!

Compound interest is an amazing thing! I have seen my retirement accounts grow because I started relatively young. This is a good reminder why saving and paying off debt is your best bet.

kelly @stayingonbudget recently posted…Choosing Paint Color in an Open Concept Home

Absolutely Kelly! Compound Interest plus Young Saving equals A Large Pile of Money down the road.

I agree with another commenter that the interest rates at this time aren’t so hot, however, it’s the long view that matters. If you choose mutual funds with a long, positive track record, then the swings average out. It only becomes a problem when you need to start withdrawing when the market is down.

Once you reach a certain age, mandatory distributions can put you at risk. That’s an argument for not putting all you savings into retirement vehicles!

Ree Klein recently posted…3 Compelling Reasons to Install a Storage Shed in Your Yard

These are some very persuasive calculations and I think it would do a lot of good for teachers to tell high school students about the importance of savings. Everyone knows about loans – many students take them out thinking there isn’t a way around it – but very few start saving at such a young age. I think this calculation can convince them.

Fehmeen @ Loans and Lifestyle recently posted…3 Examples of Formal Balance in Interior Design

Interest rates for savings accounts are certainly horrible right now, not even keeping up with inflation. But it is possible to achieve the rates in your examples by investing in the stock market. Low-cost index funds should do it.

Green Money Stream recently posted…Why I’m Saving For My Kid’s College Tuition

It is a very powerful force – compounding and it is good to have it on your side. Unfortunately they don’t teach this in schools so so many kids find out a lot later when they are forced to start saving a lot more to catch up. I am in that catch up race too. Hopefully I will be able to turn the wheel my way soon.

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