How I Started Investing

Pay off Debt or Begin Investing in my IRA

During my journey to pay back my debt, I realized how important it was to begin investing.  I still had one loan to my parents and the motivation to pay off this loan as quickly as possible so I could help them transition to an easier retirement.  Ultimately I had to ask myself should I pay off debt or begin investing in my IRA retirement account.

I made a choice to begin investing because for me I needed and desperately wanted to invest.  The amount didn’t make a difference, it was the motivation to watch my money grow over time.

I decided to take the minimum monthly payment that was formerly paying down my student loan totaling $199.85 and put it right in my Vanguard IRA account.  

Pay off Debt or Begin Investing in my IRA?

I asked myself why not invest money while I decided to put the final touches on my debt repayment.  It just felt right to invest and I have been doing so ever since.

My decision felt like I was taking all of the evil that had been building from each monthly payment and launching that into the good of investing and the opportunity to watch my money grow.  $199.85 is not a lot of money, but it made me feel like I’m going be a millionaire.  You know what it very well could. 

Think about that for a second, putting $200 per month into an account could make you a millionaire.  For me, this was fireworks going off on the 4th of July, standing next to the speakers at a Green Day concert, or the simple mind blown that is referenced today.

Of course, this could take some pretty hefty compounding interest, but it’s not inconceivable by any means.  If I took $200 each month for 30 years and received a 6% return, I would miss the mark on becoming a millionaire.  However, I’m not as far away as you might think. 

Since I’m a fairly conservative when it comes to projections and numbers, even the $200 monthly contribution and 6% return over 30 years will get close to $200,000. 

What Can $200,000 Buy

$200,000 is a lot of money.  To put that into perspective it’s almost 4x the annual income of the average American.  An entire home could be purchased, this purchase could have you living debt free in a life of financial freedom.

My college tuition rang up to close to $60,000 so I would be able to go to college 3 times and then even take my choice of the fall or spring semester to round it out.  Maybe a little out of perspective a Lamborgini, 125 Spike the beetle, the insect, original pieces of art, seven grilled cheese with the Virgin Mary pressed into the bread or at least that’s what I think happened.  You can even purchase a submarine designed like a killer whale, all found here.

Ok, this became fun.  You can also buy a reservation to fly to space with Virgin Galactic on the world’s first commercial passenger spaceship.  Live out your childhood fantasy of actually flying with a Jet Pack T 73 rocket-powered flying device.  Spend the next 10 years at Red Sox fantasy baseball camp (Chicago Cubs baseball camp cost information unavailable, I checked).  Rounding out the flight theme you could buy is your very own used helicopter, all found here.

Maybe that’s enough.

How Do I Get to a Million?

$200,000 is a very respectable number, especially when you consider the relatively small amount of $200 per month that is being contributed.

There are really two ways to get a larger number like 1 million dollars.

Increase the Amount Invested

The best option that is in your control is to increase the amount you invest.  If you are able to increase the amount you save from $200 to $1100 per month, an increase of $900, and not a small amount but the investment grows much faster.

By increasing the amount invested each month and allowing the power of compounding at the same 6% rate of return, the investment reaches over 1 million dollars in 30 years.

This makes sense, by increasing the amount you are contributing, your money will grow much larger.

Earn a Higher Rate of Return

The other option to get to 1 million dollars is to increase your rate of return.  This option is much less out of your control, but these numbers are not inconceivable.

If you invest $200 each month for the next 30 years at a 15% rate of return the money compounds to reach over 1 million dollars.

The rate of return ends up taking us on a magic carpet ride to 1 million dollars.  These results are uncommon but compounding interest is not.  That’s why it’s so important to begin investing early and allow your investment the time to grow.

The great story in all of these graphs is just by contributing to your investment account each year, it’s possible to grow your money and take that magic carpet ride known as compounding interest to a million dollars!  

These are all great numbers to talk and encourage others about investing.  This is a great opportunity to grow your money and increase your net worth.  Because let’s face it if you don’t have investment income growing, retiring early or even retiring at all becomes difficult.

I know what you want.  A big list of things you could buy with a million dollars.  I’m not going to do it, I mean do the math from the $200,000 items.  OK, I broke down, but these are not that as fun as what I imagine driving a Lamborghini or flying with a jet pack would be.

Everyone knows the hard work and discipline that it takes to earn $200,000 or one million dollars even with the magic carpet ride of investing, but it was fun while it lasted.

My Plan

My financial plan has deep roots in paying off debt, investing in stocks, and rental real estate.

It’s important to have a plan that puts you in a better financial position every step of the way.  I believe that following a plan that you will stick with is the ultimate way to have the best financial picture.

My plan to invest started a little bit earlier than I would recommend to my coaching clients.  In fact when faced with the question “Should I pay off my debt or begin investing in my IRA?”  I encourage my clients to pay off their debt in full before beginning any investments other than their 401K company match contribution.

Steven Donovan Even Steven Money with Warren Buffett and Charlie Munger Ducks

I work with my clients as Money Coach to create a plan to pay off debt faster, save money, all to live a better life today and retire comfortable tomorrow.

Am I a Hypocrite?

Personal finance is personal.

When I work with clients it’s all about putting together a plan that works for them.  If one of my clients decided that like me they wanted to invest rather than paying off a small debt, in some cases I would encourage this plan.

While most of my clients understand that paying off debt will only increase the investment amounts available, the plan they are willing to stick with and follow will always be the best choice.

My original plans included rental income as my main source of income in early retirement.  As my financial plan continues to evolve, those investments in real estate have shifted towards my brokerage account at Vanguard

This plan also allows my tax-deferred investments in my 401K and IRA to build up until the government approved retirement age. 

If you ask the federal government, this is anywhere from 59.5 to 67 years of age.  Either way that’s a long time for compounding interest to take place as I am currently in my 30’s.

My financial plan is all coming together brick by brick and I know because I track my plan, goals, and projections using a spreadsheet, but my progress including my investments and net worth are all tracked using Personal Capital.  Are you tracking your investments or net worth? If you sign up using these links I may earn a commission from Personal Capital, that’s my transparency guarantee.

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