Saving money is a crucial step in building wealth, but it can be overwhelming to know where to start. The good news is that you don’t need to save a lot to make a significant impact on your finances. Even small, consistent savings can add up over time. For example, saving just $10 per day may not seem like much, but it translates to $3,650 per year.
Investing for Growth
Once you’ve built up your savings, it’s time to think about investing. Investing your money can help it grow over time, thanks to the power of compound interest. One popular investment option is the Vanguard S&P 500 ETF (VOO), which tracks the S&P 500 index. Historically, the S&P 500 has provided strong long-term returns, and for the purpose of this example, let’s assume VOO returns an average of 10% per year.
The Magic of Compound Interest
So, how can saving small amounts of money and investing in VOO at a 10% average return per year lead to a large net worth? The answer lies in the magic of compound interest. Compound interest is the process of earning interest on both your principal investment and any accrued interest. Over time, this can help your investment grow exponentially.
A Real-World Example
Let’s consider an example. Suppose you start saving $10 per day at age 25 and invest it in VOO. That is $3,650 per year. Assuming a 10% average annual return, here is how the investment could grow:
- By age 35, you’ll have invested $36,500 and it could be worth about $58,000.
- By age 45, you’ll have invested $73,000 and it could be worth about $209,000.
- By age 55, you’ll have invested $109,500 and it could be worth about $600,000.
- By age 65, you’ll have invested $146,000 and it could be worth about $1.6 million.
Notice how the growth accelerates. The first 10 years turn $36,500 into $58,000, a gain of about $21,500. The last 10 years turn roughly $1 million into $1.6 million, a gain of about $600,000. Compounding does most of its work late, which is why the early years matter most even though they look boring.
Starting Early Beats Saving More
Here is the part worth sitting with. Double the savings rate to $20 per day but start 10 years later, at age 35 instead of 25. After 30 years at 10%, that doubled effort grows to about $1.2 million. The person who started at 25 with half the daily amount ends up with about $1.6 million.
Starting early beat saving twice as much. Time is the one input you cannot make up later, and it is the only one that is free.
Start Small, Think Big
As you can see, saving small amounts of money and investing in VOO can lead to a significant net worth over time. The key is to start early, be consistent, and let compound interest work its magic. Even if you can only save a little each day, it’s worth starting now. Your future self will thank you.
Winchell House 
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