When you’re young, full of vim and vigor, just out of school, investing often seems like an idea not necessary to pay attention to for a while. Surely you could wait until your 30’s to get serious about it. Yep, you could but investing young makes a lot more sense. If you stubbornly think you’re going to live forever and waiting ten years to build wealth is no big deal, you would be wrong. It is a big deal. A big, fat financial deal.
Let’s run the numbers to get your attention.
The decade of your 20s is a critical time frame within which to take advantage of compounding interest. Drop the IRA maximum of $3,000 a year into your account during this ten year span ONLY, earn a middling 7% average annualized return, and you’ll have $442,000 waiting for you at age 65. Keep in mind, this considers that you never invest another cent in your IRA past the age of 30.
For the second scenario, let’s say you wait until the age of 30 to start. Put $3,000 into your account every year UNTIL your 65, assume the same rate of return, and you’ll only have $238,000 when you get there. Keep in mind this time that you keep putting $3,000 yearly into your account for the entire 35 years between 30 and 65.
Compare those numbers and you’ll hopefully come to realize that saving and investing young, especially in the decade of your 20’s is a big freakin’ deal when it comes to wealth later in life. If you put your nose to the grindstone and save $3,500 a year during that all important decade and retire with a cool million in the bank at age 65.
How ’bout dem apples?
The Young Wealth Team
Flickr / Enkhtuvshin’s 40D