On January 7, 2001, I made a two-part resolution: (1) to make more money than I had made in 2000 and (2) to invest a higher percentage of my gross income than I had previously. If you were with me on January 7, you were asked to do the same. It’s always good to be reminded of the incredible power of compound returns over time. Consider this: If you could sock away $200 every month for 20 years at 10 percent interest, you’d accumulate a retirement nest egg of more than $150,000. That same investment at 15 percent would give you almost $300,000. And $200 a month at 15 percent over 30 years would become approximately $1.4 million. If you could save $500 a month at 10 percent over 20 years, you’d have about $380,000.

At 15 percent, the number would be almost $750,000. And at 15 percent over 30 years, it would grow to about $3.5 million. Saving $200 a month is not too much for most people. If your combined family income is $50,000, it represents only about 5 percent of your gross income. Saving $500 a month is not hard either — provided you are ambitious and frugal and willing to follow my advice. In fact, I am completely confident that you can save a good deal more than that — even if you haven’t broken through the $100,000-a-year barrier.

You can do that by following the program laid out below:

* Step 1: Boost your income and invest most of it. Calculate the total family income you earned last year. Then make a commitment to bring in an additional 10 percent. You can do that by talking your boss into a raise, setting up and achieving some kind of bonus plan, switching jobs, finding part-time work on weekends, or starting a second, home-based business. It doesn’t matter so much what you do — at least at first. The important thing is to bump yourself up to that next level of income and then direct at least half of that extra income to savings, not spending. Of course, the government will take its slice. But even if you don’t earn much — say less than $35,000 a year — you should still be able to tuck away close to $200 a month by following this program.

* Step 2: Spend less and invest more of your existing income. Figure out what percentage of last year’s income you saved. If it was less than 10 percent, resolve to bring it up by 5 percentage points. If it was more than 10 percent, you might want to be more conservative — increasing it by 2 percentage points, for example.

* Step 3: Reward yourself for making and saving more. You could save all your extra income, but I wouldn’t advise it. When you improve your wealth-building behavior, you should reinforce that by some kind of reward. My best recommendation is to take some reasonable percentage of your extra income (say, 10 percent to 25 percent of it) and spend it on something you’ll really enjoy. There’s no point in getting wealthy for its own sake. One can lead a perfectly good life without financial prosperity. If you make the extra effort to get wealthy, do the right thing and enjoy it. It’s good for you (the last thing you want to become is a rich Scrooge), it’s good for the people you buy things from, and it’s good for the economy in general. So spend, but not too much.

[Ed. Note.  Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]

Mark Morgan Ford

Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Wealth Builders Club. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.