Start Early and Every Little Bit Helps
There's a little magic idea in finance named "compounding". It basically means: as your money grows, you also experience growth on "the growth". Picture a tree branch growing and then growing smaller branches.
- The longer you invest for, the more your money grows;
- The higher the rate that you invest at, the more your money grows
So, consider this:
You have $100 in your bank account, you deposit another $100 each year, you keep doing this for 40 years and you earn 5% on your investments every year (so if you start with $100, you would add $5 in the first year). How much do you have in the end?
Did you guess $12,874? CORRECT
Now, your family says to do this for 50yrs instead and finds a way for you earn 8% on your investments every year (so if you start with $100, you would add $8). How much do you have in the end?
Did you guess $62,067? CORRECT: That is almost a five times increase from the answer above. Going from 5% to 8% and 40 years to 50 years makes a HUGE difference!
CLICK the link below for a chart with several different outcomes