Motivation and Money Tip #3: Think Small

Photo Credit: BRAYDAWG
Sometimes the thought of saving a gazillion dollars for retirement is just plain overwhelming. And paying off a mountain of credit card debt seems impossible. It's at these times that we need to think small. We need to realize that big, impossible, light-years away goals are achieved one step at a time. Remember the Chinese proverb:

"The journey of a thousands miles begins with one step."

And a ten, or twenty or forty year journey toward financial independence begins with one step, too. To illustrate this point, I'd like to share one of my own experiences with investing. About 10 years ago, I began making small monthly investments in Legg Mason Value Trust (LMVTX), a large cap diversified mutual fund. My monthly contributions were small, starting out at $100 per month. Over time my contributions increased as my salary increased. Although I've since moved my investments out of LMVTX, these non-retirement, taxable investments have grown to the low six figures, and I've even withdrawn from the account to buy a car and pay down some debt. Here are a few other examples:

Invest just $100 a month for 20 years at 10% results in a balance of $76,000
Invest $500 a month in a 401(k) for 20 years at 10% results in a balance of $380,000
Pay an extra $100 per month on a $200,000, 30-year fixed rate loan at 7% and you would shorten the loan by almost six years and save more than $63,000 in interest. By the way, you can check out a great mortgage calculator here.

So remember, thinking small every month will eventually net big results.

Check out Tip #4: Create Milestones

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Tagged as: 401(k), dollar cost averaging, financial independence, Retirement