There are many reasons why you should start investing early in life.
It builds positive financial habits, it teaches you to be a saver,
Let’s create a scenario where we compare two totally fictitious sisters that began investing at different times in their lives. Their names are Melissa and Stephanie.
(The fact that’s my sisters name is Melissa is a total coincidence.
So let’s compare these two hypothetical sisters. They have a long standing sibling rivalry. Luckily for Stephanie, she is two years younger than Melissa and has countless other attributes going for her. These details don’t matter at all for this financial example of course. I just wanted to make sure readers know the whole background.
Why you should start investing early:
Stephanie is smart, and loves reading financial books. She decides to start investing $1000 a month at age 25 (I wish real Stephanie had been so wise). Melissa took longer and doesn’t start investing $1000 a month until she is 35.
How much of a difference can 10 years really make?
A MASSIVE difference.
If Stephanie started tucking $1000 aside at age 25, and continued to do so until she was 50, she would retire with $787,469*.
How did Melissa’s retirement turn out?
Not nearly as good.
Since Melissa did not start investing until she was 35, she had less years to put money aside and let compound interest work it’s magic.
Melissa only retires with $312, 864.
By starting ten years earlier, Stephanie ends up with more than DOUBLE the money Melissa has.
In fact, if Melissa starts investing at 35 and wants to end up with the same amount of Steph she would have to put $2517 aside monthly! All because she started 10 years later.
Should we make this scenario even more painful for Melissa? (Of course!)
Let’s assume that Stephanie still started investing at 25 years old, and Melissa started at 35.
In this scenario Stephanie hates doing anything similarly to Melissa (this is also true in real life). So, as soon as Melissa starts investing Stephanie stops just to spite her.
Therefore, Stephanie put $1000 aside monthly for 10 years, then stopped adding anything to it. The money just sat there growing until she was 50 years old. Not another penny was added.
Melissa starts at 35, and continues to put $1000 aside for 15 years until she also retires at 50.
Who ends up with more money? Would you assume Melissa since she put money aside for 5 years more than Steph did?
Nope. Stephanie still wins!
As we learned previously, Melissa ends up with $312,864.
How much does Stephanie have?
That’s right…. she ends up with over $160,000 more than Melissa even though she contributed $60,000 less!!
This is the insane power of compound interest! It’s as close to a financial magic trick as you will find.
Add some money to your investments while you’re young and then let time do the majority of the work for you. In the second scenario, Stephanie only put $120,000 of her own money aside ($1000 monthly for 10 years) then left it to grow for 15 more years. The result: she ended up with over $474,000! Patience pays off.
Be as smart as hypothetical Stephanie; start investing as early as possible.
Time is your friend; Impulse is your enemy-John C. Bogle
*All calculations were done with this retirement calculator (and assumed an achievable 7% interest rate compounded yearly). If you want to see how much better you can do than your siblings (hypothetically, of course…) check out the free calculator!
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