## Rabu, 25 November 2009

### Saving and investing your way to RM1 million

When it comes to saving enough each year to retire as a millionaire, time is money. Everything else being equal, the earlier you start saving, the easier it is to hit that million-ringgit mark. This is due to the power of compounding interest.

Assuming that you plan you retire at 55 and your investments can yield a constant 10% annual rate of return. For the amount that you should be saving each month, see table below.

The key to successful saving, say the financial planners, is to pay yourself first. Do so by determining the amount that you can comfortably set aside for your future. Some of the planners recommend starting with a smaller sum instead of an ambitious figure that latter has to be reduced.

However, once your income grows or your expenses decrease, increase your savings. Then, pay yourself either by writing a cheque to yourself and deposing it in your saving account (to be accessed for investments solely for retirement purposes) or apply for an automatic bank transfer to take effect each time your income is credited to your account. A comprehensive saving strategy also avoids incurring credit-card debts and impulsive high-value purchases.

One way to instil spending discipline is to use cash whenever possible and set up separate “expenditure” accounts to save for high-value items.

To check your financial position at any point in time, take a look at your net wealth. This gives you an indication of whether you are well on your way to becoming a millionaire. Your net worth is the difference between all your assets and your debts (such as mortgages, credit card debts, educational loans or personal loans). A positive net worth occurs when you have more assets than liabilities.

For a general ideal of what your net worth should be like, multiply your age by your assets and annual income (from all sources) and then divide the sum by 10, says Thomas J Stanley in his book, The Millionaire Next Door. For example, if you are 30 and earning RM50, 000 a year, you should have a net worth of RM150, 000. Note that these figures are estimates and do not take into account your personal situations.

To retire a millionaire

At age 25 35 45

How much you need to save monthly RM443 RM1,317 RM4,882

Total deposits RM159, 480 RM316, 080 RM585,840

Total interest earned RM841,916 RM684, 009 RM414, 213

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