Begin Investing Early
One of the most important ways to accumulating wealth through investing is to begin investing as early as possible. A dollar today is worth more and more the longer it stays invested, so it is extremely important to start investing as soon as you can.
Even if you can’t afford to invest a lot of money, the money you invest today will double every 6 – 10 years, and could be worth 50 times today’s amount by the time you retire. Furthermore, the earlier you invest, the more likely you will be to stay disciplined and continue to invest. There is a snowball effect to investing that continues to gain momentum: The more you invest, the more you earn and the more you are willing to invest. The more money you have saved the further you are from being in debt and the more motivated you are to save more money. It’s kind of like getting in shape. Once you start it is easier to continue.
To illustrate the importance of getting started early, we’ve created a table that shows the value of $100 per month, invested at different rates of return and for different periods of time. For example, if you invest $100 per month for 10 years and earn a return of 11%, you can follow go to the table, find 10 years and then follow it over to 11%. The table shows that the $100 investments would then be worth $21,700. Now, let’s put this into a real life example.
Suppose that Investor A has a good job, makes quite a bit of money, but is a big spender and not a good saver. In fact, Investor A just turned 40 years old and doesn’t have anything saved for retirement. Having this revelation, Investor A starts saving $100 per month and continues to do so until he is 65. On the other hand, we have Investor B. Investor B is 25 years old, works hard in a factory and barely gets by. However, Investor B is determined to save $100 per month, and does so at great expense until he is 65 years old and ready to retire.
Now, lets look at how the two investors compare. When Investor A reaches 65 he will have saved for 25 years and, assuming an 11% return on his investments, he will have $157,000. Clearly not enough to retire. Now, let’s look at Investor B. Investor B will have saved for 40 years, and assuming the same return as Investor A, would have about $860,000. Because his lifestyle is much more humble and his spending is under control, Investor B would be in a great position to retire.
We hope our illustration and table have helped you quantify and visualize the difference between getting started with your investments and savings early versus late. We can’t stress enough how important it is to start early. If you haven’t started yet, now is the time to get started. It may be hard to find the money to save, but there are lots of ways to save money, balance your budget, and change your lifestyle to achieve long term benefits.
