How to invest and save money early to retire a multimillionaire

My current investments
could grow to $2.2 million by retirement.
Alan Crowhurst/Getty Images for Ascot
Racecourse

• Sean, who goes by “The Money Wizard,” is a
  28-year-old blogger and financial analyst whose current net
  worth is $250,000.
• If he stopped saving money today, his worth could grow
  to $1.6 million to $2.2 million by retirement age, thanks to
  compound interest.
• He says his strategy isn’t complicated. Here’s how he
  did it. 

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I recently turned 28, and I’ve already
saved over a quarter of a million dollars.

By itself, that factoid had earned me a surprising amount of
publicity. But for all the immediate headline-grabbing power of
the statement, there’s a far more impressive implication lurking
underneath its surface. (The $250,000 is invested almost entirely
in boring, low-fee index funds, the favorite investing strategy
of billionaire Warren Buffett,
but we’ll get to those details later.)

By saving $250,000 so far in my 20s, even if I never invest
another cent for the rest of my life, I should retire with $1.6
million to $2.2 million — adjusted for inflation!

The power of starting early

Someone once told me that old people allow us to see the future.
The statement resonated with me, because it’s true.

No, Granny won’t be able to tell you the screen size of the next
iPhone. But we can see our future selves in the people who came
before us. Through our elders, we can see what happens when we
work too hard, play too much, neglect our health, or manage our
money in different ways.

And when I was young, I saw two options for how your financial
life can play out:

1. Most old people forgot to save for retirement. Whether they
   were misled by a failing Social Security system or just forgot
   they couldn’t work forever, sooner or later they approached
   retirement age, and their stress levels skyrocketed as they
   desperately began saving too little too late, like cramming the
   night before a big test. They were doomed.
2. Around the same time, I learned that my grandfather, who was
   one of the most frugal people I knew, was actually a millionaire.
   Despite earning a low, blue-collar wage and raising five
   children, he used
   basic stock market investing to retire with $1.2 million in
   the bank.

So the paths were clear:

• Path 1: I could put off investing completely.
  I could let the fear of losing money take over. Ironically,
  this ensures I lose tons of money from missed investment
  opportunities.
• Path 2: I could plan ahead. I could dedicate
  myself to learning how money works, and by making small changes
  to the things I buy now, I could take advantage of compound
  interest for decades.

I took the second path.

I started buying stocks as a teenager, and I kept investing any
spare change I could find. And once I started adulting, I
carefully designed my life to reduce all the wasteful spending
and maximizing my happiness.

I passed on the big house, the fancy car, the designer clothes,
and the latest electronics. But I wasn’t a miser. In fact, saving
so much money allowed me to spend more on things that mattered to
me, like experiences with friends and copious amounts of travel.
#TypicalMillennial…

Best of all? My happiness benefited from a complete lack of
money-related stress, thanks to the comfort only a rapidly
growing bank account can provide.

Before I knew it, I was a 25-year-old with $100,000 in the bank.
I started my blog, and I began tracking my net worth
every month.

Which brings us to today. Despite never earning six figures (and
actually spending most of my savings years at an entry-level,
$50,000-ish salary) my net worth just hit $250,000.

Roughly half of that $250,000 I’ve stashed away in 401(k) and
Roth IRA retirement accounts, and the other half is held in
post-tax brokerage accounts. And for all of that $250,000, I’ve
invested in the lowest-fee, most broadly diversified Vanguard
index funds I could find.

And that’s where things get interesting.

What if I stopped saving today?

A few weeks ago, I decided to run an experiment. I’m currently
saving like a madman, but what if I stopped saving completely?

Finance 101 says compound interest is one of the most powerful
forces in the universe. But just how powerful is it?

I fired up the financial calculator — which is oddly similar to a
normal calculator, just with a couple of extra compound-interest
buttons thrown in.

I assumed:

• I’d never save or invest another cent for the rest of my
  life.
• My money would return 6-7% per year, which is the stock
  market’s historical return after subtracting inflation.
• I’d let my portfolio compound until age 60 (the “normal” age
  of retirement, at least according to 401(k)/IRA withdrawal
  rules).

I typed in the numbers, hit enter, and about fell out of my
chair.

At 6% per year, the money I’ve already saved in my 20s should
compound into $1,582,525!

At 7%? That’d be $2,137,194!!!

Compound interest is one
of the most powerful forces in the universe.
Andy Kiersz/Business Insider

And because we’ve already adjusted for approximately 3% inflation
per year, those numbers would buy the exact same amount of stuff
as $1.6 million to $2.2 million today. (Put another way, if we
include inflation, my future portfolio should actually be worth
$5.3 million at age 60.)

So what now?

For decades, most people slave away at jobs they hate, hoping to
save enough money to eventually retire. Many never make it.

And yet, thanks to a few short years of “sacrifice” early, just
five years into my full-time career, I’m basically set for life.
I’ve already reached the goal that’s driving so much stress in
this world, and because of that, I’ve unlocked endless
opportunities.

With my retirement savings “finished,” I could realistically:

• Stop saving entirely and start spending every dollar I earn
  on a lavish life of luxury.
• Keep saving for years and build the portfolio to filthy-rich
  levels.
• Walk away from a stressful career in finance and chase a
  lower-paying dream job.
• Take a sabbatical from work, travel the world, or chase the
  entrepreneurial dream.
• Or I could keep saving like a maniac for a few more years and
  cut that retirement age from my 60s to my 30s.

The point is: I have options. And so can you.

Take action today to give yourself options

The amazing part of my story isn’t that I hit whatever milestone
so early on. The amazing part is that my strategy is so easily
replicated by anyone who’s dedicated.

I didn’t profit off an amazing investment strategy or some lucky
cryptocurrency bubble. Nor did I come into lottery winnings, sell
a business, or get promoted to a high-powered career.

Instead, I simply started investing as early as possible, and
then designed the lowest-cost lifestyle I was comfortable with.
From there, I invested as much as I could in index funds (aka the
most simple investment ever) and let compound interest run its
magic.

Even if you didn’t start investing as early as me, never
underestimate the power of compound interest over time. One of
the truest
quotes in all of finance:

“The greatest shortcoming of the human race is our inability to
understand the exponential function.” — Albert Bartlett,
physicist

As our financial calculator showed, I was shocked to see how much
I was underestimating compound interest in my portfolio. Chances
are, you are too.

So start investing today. Build yourself a strong base to
compound your way towards wealth. Before you know it, you’ll find
yourself loaded with options, which is exactly what this money
game is all about.