Think you need a fortune to build wealth? Think again. With the right strategy and a healthy dose of patience, even small monthly investments can grow into substantial wealth over time. GOBankingRates spoke with financial experts to uncover some practical ways to build wealth by investing as little as $100 a month.
Find Out: In 5 Years, These 2 Stocks Will Be More Valuable Than Apple
Trending Now: 7 Reasons You Must Speak To a Financial Advisor Before Spending $50,000 or More
Brandon Galici, CFP and founder at Galici Financial, is all about consistent investing. “As a financial advisor, I often emphasize that there’s no one-size-fits-all ‘magic number’ for monthly investments,” he said. “Instead, I encourage you to focus on your savings rate — the percentage of your gross income you set aside for savings and investments.”
With that in mind, here are five ways to become wealthy by investing just $100 a month.
Earning passive income doesn’t need to be difficult. You can start this week.
Start Early and Be Consistent
Time is your greatest ally when it comes to building wealth. Aaron Cirksena, founder and CEO at MDRN Capital, illustrated this point powerfully by saying, “If at age 25, you just invested $100 a month until you were 65, it could turn into over one million dollars.”
This kind of growth can only come thanks to compound interest over time. The earlier you start, the faster you’ll be on the path to great wealth.
Read Next: I’m an Investor: I’m Making These Money Moves Immediately If Trump Wins
Focus on Your Savings Rate
Rather than fixating on a specific dollar amount, Galici said it’s all about your savings rate. “A healthy savings rate typically falls between 10% and 20% of your income,” he shared.
To put this into perspective, Galici provided an example: “Let’s consider a household income of $75,000 per year (which is approximately the median household income in the U.S.). At a 10% savings rate, you’d be setting aside $625 per month. Increasing that to 15% would mean $938 per month, while a 20% savings rate would equate to $1,250 monthly.”
If you can swing between 10% and 20% of your income, you’ll most likely be sitting pretty when it comes to retiring.
Leverage Tax-Advantaged Accounts
Anthony DeLuca, an expert contributor for RetireGuide.com, pointed out the power of maxing out tax-advantaged accounts like IRAs. “If you max out the IRA each year (assuming the maximum stays at $7,000), for 40 years with an annual return of 7.0% (roughly the S&P average over the last 25 years after inflation) you will have an ending value of $1.3 million,” he shared.
This strategy not only helps you build wealth, but also provides tax benefits that can boost your overall returns.
Gradually Increase Your Investments
If investing a large percentage of your income feels overwheming, Galici thinks you should start small and gradually increase your contributions over time. “Start by aiming to increase your savings rate by just 1%,” he said. “On a $75,000 annual income, this 1% increase amounts to $750 per year, or about $63 per month. Once you’ve adjusted to this change, challenge yourself to increase by another 1%, and so on until your savings rate is healthy.”
This slow-but-steady approach allows you to build wealth without changing your entire life overnight..
Automate Your Investments
One of the simplest ways to ensure consistent investing is to automate the process. Galici advised, “Automating these savings can make the process even easier.”
By setting up automatic transfers from your checking account to your investment account each month, you won’t be tempted to spend that money elsewhere. The end result will be that you’re working toward your savings goal in a sustainable way.
The Power of Long-Term Investing
Here is where it breaks down into some fascinating numbers. According to Galici, if you’re 35 yeras old and invest the following amounts monthly, assuming an 8% annual return, you could potentially accumulate:
-
$930,000 at $625/month
-
$1.4 million at $938/month
-
$1.85 million at $1,250/month
Consistent investing, even in relatively modest amounts, can (and most likely will) lead to significant savings over time.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: 5 Ways To Become Wealthy by Investing Just $100 a Month