Here’s How Much You Could Save If You Saved $5 Every Day
Harnessing the power of compound interest is one of the keys to building wealth over time. Simply put, compound interest means that the interest on an investment grows exponentially over time rather than linearly. For a retirement account like a 401(k) or Roth IRA, this means every little amount you contribute makes a big difference, especially compared to a traditional savings account. Even small, ongoing contributions can grow significantly due to increased income.
Why you should save some money every day
They all assume a modest 6% annual return on retirement fund investments (which is roughly what many ROI calculators will automatically set to). I use the Investor.gov calculator. For these calculations, I add an initial investment of zero dollars, an annual compounding frequency, and round to 30 days per month. Here’s a look at how your savings will grow if you save $1, $5, $10, or $20 a day and invest it for the long term.
Save $1 per day
If you put $1 a day (or about $30 a month) into an investment that earns 6% annually, here’s how it will grow:
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After 10 years: $4,745.
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After 20 years: $13,242.
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After 30 years: $28,460.
Save $5 per day
By saving just $5 a day (or about $150 a month) and investing it at a 6% rate of return, your savings will grow to:
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After 10 years: $23,725.
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After 20 years: $66,214.
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After 30 years: $142,304.
Save $10 per day
Increasing your daily savings to $10 per day (or about $300 per month) would result in the following projected growth:
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After 10 years: $47,450.
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After 20 years: $132,428.
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After 30 years: $284,609.
Save $20 per day
And saving $20 every day (or about $600 per month) would be:
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After 10 years: $94,901.
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After 20 years: $264,856.
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After 30 years: $569,218.
It’s important to note that with compound interest, how early you start saving usually outweighs how much you contribute. Even investments left untouched for decades can continue to grow. However, it’s never too late to start saving, and consistency definitely pays dividends. To crunch the numbers yourself, use Investor.gov’s calculator , which allows you to test out different savings scenarios that suit your financial situation. If necessary, start small, but develop a daily habit. Using compound interest is a powerful way to build wealth over time through regular savings.