MM013: The Power of Small Dollars for Personal Finance

There's this misperception out there that you need to have a bunch of money socked away before you can invest in either a retirement account or taxable account. Some of this advice comes from popular pundits who promote a debt-free-first lifestyle, some of it comes from the legacy model of investment advisors that only work with clients with a minimum threshold of investable funds. The fact is, the sooner you start investing, no matter how small that number is, the more exponential the growth of your nest egg. The math is crazy! IN THIS WEEK'S EPISODE * How real life impacts average folks you and me and The Modest Millions Show * Misperceptions around what you need to get started with investing * How debt-free-first philosophies, like Dave Ramsey's method, can be detrimental to your nest egg * How to dip your toe into investing without needing a huge stack of Benjamins * A time-value of money example to illustrate the power of small dollars * Budget tips to find those extra small dollars TRANSCRIPT The Power of Small Dollars for Personal Finance There's this misperception out there that you need to have a bunch of discretionary spending before getting started with saving or investment. We thought that too. It held us up from getting started as early as we'd have liked. We thought we needed to have all of the Is dotted and Ts crossed. Similarly, there are some popular philosophies out there (cough, cough, Dave Ramsey) that strongly suggest you need to have all your debt taken care of before your start investing. The simple fact is that when it comes to personal finance, something as small as it may be, is almost always better than nothing. It's almost always better to start now then wait one or two years (or longer), or wait until you have all your debt paid off. Today, i just wanted to illustrate some examples to see how small numbers can really add up when you start now. It's not the size of the savings as much as it's the motion in the savings and investment ocean. For all you perverts out there, I'm talking about the time-value of money. Get your minds out of the gutter. If you start saving today, even if it's a small amount, you're going to be miles ahead of someone who waits a few years. We'll take a quick break and come back to look at an example of starting now rather than later. TOOLS What I love about small-dollar investing is that you don't need to pay an investment advisor a hefty 1-1.5% fee to manage your hard-earned dollars for you. It also means you don't have to have $10K available to plop into a hedge fund because that's the minimum amount. Instead, you can go to a place like Betterment and drop a few bucks into one of their ETFs and start earning your returns without paying a bunch in fees. To grab your own FREE account and start investing your small dollars, visit modestmillions.com/betterment. Time-Value of Money Example Welcome back. Let's run a quick scenario with the Three Stooges. Let's say Larry, Moe and Curly are 25 years old. All three are diligent savers and they all carve out $1,000 out of their budgets every month to invest in something simple that earns a conservative 7% real rate of return (remember this accounts for inflation so it keeps the value of the dollars constant). All three invest for only 10 years and then stop saving and investing. The only variable is when the start investing. Larry starts investing right away at 25 and continues until he's 35 and stops. Moe waits a little longer and starts investing from 35 to 45 and Curly waits even longer and invests from age 45 to 55.

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Welcome to The Modest Millions Show. We’ll discuss personal finance strategies for average folks like you and me so we can better understand and control our own financial destinies. We’ll cover everything from how to setup (and run) a budget, which is the most critical building block of any personal finance plan, to how to figure out what your “ideal retirement” looks like, to the exploration of supplemental and/or passive income streams that can help fuel your personal finance goals. If you listen to money podcasts like The Dave Ramsey Show, Dough Roller Money Podcast, Radical Personal Finance, Afford Anything with Paula Pant, Smart Passive Income with Pat Flynn, BiggerPockets, Investing in Real Estate with Clayton Morris and Listen Money Matters, you'll definitely find value in The Modest Millions Show. Subscribe today so you don't miss an episode!