This is one of my favorite lessons I learned at an early age. Checkout the video on the power of Compounding Interest over time!
Are you living paycheck to paycheck? Does it stress you out every time you check your account balance? Are bills piling up? Do you find saving almost impossible and pointless? Maybe you feel like you don’t even earn enough to save for retirement?
Well I tell you what, you can’t afford not to save for your retirement. You don’t want to arrive at retirement with nothing in the bank and you have to continue working through your golden years or rely on the government or someone else to take care of you financially. Pay yourself first and commit to putting just a little bit aside each paycheck.
What that means is each payday you’re going to set aside a specific amount whether its 10 percent, 15 percent, or even more before you take care of your remaining expenses. The easiest way to do this is to automate it and then you’ll never forget it. You’ll adjust quickly to having just a little less spending money right now. And with the power of compound investing, you’ll see huge rewards on down the road. Let’s take a look at an Example of compounding interest and the exponential growth over time.
So in this scenario, Anna Starts investing at age 20 at a rate of $1200 year or just 100 a month for 10 years. So this means Anna invested a total of 12000 over the 10 years. Now her friend Brittney waited 10 years and began investing at age 30 that same $100 a month which is $1200 a year. Only she kept investing for 30 years instead, for a total of 36,000 invested. So Brittney invested three times the amount Anna invested.
Fast forward to retirement, Anna’s $12,000 investment would now be worth over $130,000 at 7% interest. Her money grew by $120K, That’s letting your money work for you. Brittney’s $36,000 investment would be worth over $121,000 at age 60 so her investment grew by over $85,000. Britney got a great return on her investment as well, but remember she invested three times the amount Anna did and still ended up with less because she waited 10 years to start!
So take action! Start investing today so your money can get to work for you. This is one of my favorite lessons that I learned when I was younger and provided me some motivation early on to get started. If you automate your investing you can set it on autopilot and let it work its magic.