5 Cents a Day Contributes to Wealth

bank-kids-with-coinWhen I was a child, my grandfather used to tell me, “If you save one nickel a day, every day – by the time you are grown up – you will be rich!”  I did not take my grandfather seriously. But, what if I had? What would have been the result of saving one nickel a day?

If a nickel is saved every day from the day a child is born, can a person become wealthy?

Let’s experiment with this idea, and assume a person has saved a nickel a day for eighty years and used various investment strategies. To begin find an investment calculator, you might try one like http://www.calculator.net  or   http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx

  1. If a nickel was deposited every day for the first year of a child’s life in a piggy bank, at the end of the first year the total saved would be: .05 per day for 365 days = $18.25
  1. Assume the savings will continue in this manner for 20 years, but in a bank account. At the end of twenty years using a 6% monthly return the amount saved would be $753.47.

First investment strategy: $18.25 (year 1) with a subsequent annual contribution of $18.25 for twenty years = $753.47

  1. Saving a nickel a day for twenty years produced $753.47, not a truly significant amount. But, what if a person decided to take this money and develop another saving’s strategy?

Let’s assume the child, now a young adult, takes the lump sum of $753.47 (instead of buying clothes or video games) and decides to stick with the discipline of saving a minimum daily amount. Let’s say the person decides they can afford a dollar a day and they successfully contribute $30 a month for 20 years.

Second investment strategy: $753.47 with an additional monthly contribution of $30.00 and average 6% monthly return for 20 years = $16,355.37

  1. Let’s assume the person, who is now 40 years old, and has never withdrawn money from this fund, decides to double the monthly contribution and invest $60 per month.

Third investment strategy: $16,355.37 with an additional monthly contribution of $60.00 and an average 6% monthly return for 20 years = $81,862.07

  1. Now at age 60, this person may decide to invest the lump sum again, they may decide to go on a great vacation, they may decide to…who knows. But the point is those nickels….can pay off, even with a small monthly contribution as the years go by. Of course, more than nickels were invested once the person turned 20.
  1. Let’s see what could happen if this person decided to invest the $81,862.07 for another 20 years, but because they have decided to retire, they also decide to decrease the $60 monthly contribution back to $30.

Fourth investment strategy:  with a new$81,862.07 monthly contribution of $30 and an average 6% return for 20 years = $284,841.42

At age 80 this person still has options like, enjoying additional cash flow in the monthly budget or going on a great vacation.

Of course, I have made assumptions in these calculations and the scenario, but the point is clear.  Saving nickles on a daily basis -those small things – can contribute to one’s overall wealth.