Waiting to Invest - A Costly Mistake
Waiting for the perfect moment to invest?
Can’t afford to invest, just yet? Are you waiting on that salary increase or the cost of life to slow down?
You may think you can’t afford to invest, the truth of the matter is, you can’t afford not to invest. Despite bills and the cost of living, investing should be a top priority in your life if you ever want to: 1.) Become financially free 2.) Grow your net worth. 3.) Retire and live a decent standard of life in your old age.
Compound Interest
Time is your closest ally when it comes to investing. The earlier you begin to invest, the more you can take advantage of Compound Interest. Compound interest is simply earning interest on top of the interest you’ve already earned (Also referred to as interest on interest). We like to look at Compound Interest as letting your money make more money for you. Compound interest allows your dollars to do all the hard work for you. Time is king with investing because it is the incubator of compounding.
Truth in Numbers
Let’s say you had $10,000 to invest and earned 10% per year. You’d earn $1,000 in interest during year one. Taking advantage of Compound Interest, that $1,000 would be reinvested the following year, giving you $11,000 to invest instead of $10,000 in year two.
Year two, your beginning investment is $11,000. Let’s say you earn 10% interest again and at the end of the year you end up with $12,100. That process is repeated year after year. Using only Compound Interest and no additional contributions, by year five your initial investment has reached over $16,000. Year ten it’s almost $26,000
Notice how Compound Interest works like magic over time.
A Tale of Two Stories
Ben started investing $500 a month at the age of 25 receiving 7% interest. He does this for 10 years or until age 35 and stops. He never invests again but lets what’s invested grow until it’s time to retire at age 65.
Brandon doesn’t begin investing until age 35. However, he also invests $500 a month at 7% interest. He invests the same amount until age 65.
At retirement Ben has approximately $675,000 invested while Brandon has $607,000. Ben only put in $60,000 while Brandon put in $180,000. Because Ben had more TIME for his investment to compound, he was able to have more growth than Brandon with a third of the contribution.
That’s compounding for you!
As you can see the earlier you start investing, the better! Even if you only invested $100 per month across 40 years you’d still have over $200,000 which is more than the average American.
Don’t Wait - Waiting to invest costs your future you