Many people think they need to make many sacrifices to have a high standard of living in retirement, but they could not be more wrong. In fact, saving $500 a month could not only increase your pension, but it could allow you to retire earlier. 

While saving $500 every month is achievable by almost everyone, it is often underestimated. For many, it's hard to believe how great results they could achieve with patience and self-discipline.

In this article, we will analyze how much you could analyze by saving and investing $500 every month for 30 years.  

Due to regular monthly savings of $500,00 for 30 years , you could accumulate $750 147,16. Most of this amount ($570 147,16) comes from interest earned at an average APR of 8% and is significantly higher than the total sum of monthly payments ($180 000,00).

Notice that this result was achieved because of a long saving time of 30 years, which unleashed the full potential of compound interest, so the total value of savings could grow to $750 147,16.

How much $750 147,16 will be worth after 30 years ?

Although $750 147,16 it’s a lot of money, after 30 years , its purchasing power will be lower than today. The impact of inflation over such a long time could be significant.

Even a moderate inflation rate of 1 or 2 percent could decrease the real value of future savings. For example, due to a 2% inflation, the future value of the current $750 147,16, after 30 years , will be the equivalent of $411 483,48 today. It is still much more than the total sum of payments ($180 000,00) but considerably less than you might expect.

What’s more important, over a long period of time, you may expect periods of even higher inflation. The table below shows the future value of $750 147,16 after 30 years , depending on the average inflation level.

Tip. You can check any scenario using our inflation calculator »

How long will it take to reach $1 000 000,00 due to regular savings of $500,00 per month?

You probably wonder how long it will take to save $1 000 000,00 by saving $500,00 a month. For sure, it will take many years, but it is not as long as you may think.

Of course, if you save in a bank account with no interest rate, it is almost impossible because you gonna need $1 000 000,00/($500,00*12) = 167 years!

Luckily compound interest is your ally, and it could speed up the process of saving significantly. If you achieve an average APR of $8,00%, your savings balance will reach $1 000 000,00 after 33 years 4 months. The chart below shows how your capital will grow over time.

Key takeaways:

• It takes 30 years to reach $750 147,16 in savings.
• During the next 3 years 4 months, your capital will grow an additional $251 368,48
• Due to compound interest, your saving rate accelerates each month, and most of the value is earned during the last few years of saving $500,00 a month.

How to speed up the process of saving $750 147,16?

Saving $500,00 a month for 30 years requires a lot of persistence and self-discipline. What’s more, undergoing inflation is constantly decreasing the value of your capital. As we have shown before, after 30 years , $750 147,16 will be worth much less than now.

Fortunately, there are several ways of reaching $750 147,16 in savings a lot faster than in 30 years . Below we present four tips you could implement in order to reach $750 147,16 much faster.

1. Higher interest rate

By achieving an average interest rate higher than 8 you could reach your goal of $750 147,16 faster. Even a slightly higher APR could allow you to accumulate much higher results.

The table below shows how a higher interest rate will shorten the time needed to accumulate $750 147,16 in savings. The simulation assumes that you still save $500,00 per month, but the interest rate will be higher.

As you see, an even slightly higher APR could result in a significantly faster capital accumulation rate. If you invest your savings more efficiently, you could shorten the time needed to reach $750 147,16.

2. Initial down payment

This is the most underappreciated technique for improving savings rates. Although you need 30 years to save $750 147,16, you may be surprised how big an effect even a small initial sum would have had on your earnings.

The table below shows the impact of the initial down payment on the time needed to reach $750 147,16 in savings. All the simulations below consider the regular saving of $300 per month with 8% APR.

As you can see, even a small initial amount could accumulate into a large sum of money due to compound interest over a long period of time. This effect makes the saving process much easier, but it is most often underestimated. Everyone has some savings, and as we have shown above, even a small sum could shorten the time required to save $750 147,16 by several years.

3. Systematic increase in the amount monthly of savings

To be honest, the assumption that the regular saving amount will be just $500,00 per month is rather pessimistic. Over time your salary will grow. Especially if you are young and at the beginning of your career, you could expect multiple pay raises in the years ahead.

Such events will let you systematically increase the amount of monthly savings from $500,00 to much higher values. This will have a spectacular impact on your savings rate. The table below shows how small but systematic increases in monthly savings will shorten the time needed to save $750 147,16.

4. Higher monthly savings

Of course, the bigger the monthly savings, the faster you will reach your goal of saving $750 147,16 if you are convinced by now that regular saving is a good idea. You may start not with $500,00 a month but $600,00 or even $700,00.

The table below shows how such a move will impact the time needed to collect $750 147,16 in savings.

The cumulative impact of many changes

Now you probably wonder how big an effect implementing all those improvements would have. The table below shows how fast you will reach $750 147,16 in savings in three different scenarios with different variations of the tips presented above.

Key takeaways:

• Saving, accordingly to the initial plan, requires 30 years to reach the goal of $750 147,16.
• The cumulative effect of even small improvements to the savings strategy leads to a significantly faster saving rate. In the first case, we assume starting with $10 000,00 and saving just $600,00 per month with an annual increase of 2% at 9% APR. The time needed to save $750 147,16 is 23 years 3 months.
• In the most optimistic case, we assume starting with $20 000,00 and saving just $700,00 per month with an annual increase of 3% at 10% APR could have shortened the time needed to save $750 147,16 to 19 years 4 months.

Remember, you could analyze your own saving plan using our regular saving calculator.

Summary

In this report, you have seen that if you are able to be persistent and save 500 dollars a month, it will change your life. Maybe not immediately, since it will require years of self-discipline, but the results for sure are worth that commitment. 

If you feel that $500 is too much at the moment, read our report on how saving lower amounts, like 100 dollars per month, could let you accumulate a small fortune on your retirement. 

For those with larger pockets, we prepared a detailed analysis of how saving 700 dollars a month could lead to early retirement.