It's Never Too Early to Think About Retirement - Compound Interest
Shoulda, Woulda, Coulda
I'm typically not the shoulda woulda coulda type of person, but when it comes to saving for retirement there are some things I would have done differently had I known better. Ignorance may be bliss until you realized that such bliss may have cost you hundreds, really more like thousands in potential earnings and growth. 😲 So what am I babbling on about? The value of time and the power of compound interest. 🤑
I'll Contribute More Now and Catch Up
There's a scenario that describes two different investors who begin investing, one starts in their 20's, the other in their 30's. Long story short (because the long story may bring actual tears to your eyes😢), the one who started at a younger age, contributed less, and saved for a shorter period ends up with more money at the age of retirement. See what I mean about shoulda woulda coulda? Yeah...it hurts! Why didn't anyone tell me? With that being said, It's usually best to start where you are and do your best without thoughts of what you could have done differently.
"Interest on Interest" - Compound Interest 🤑
Okay, enough of the pity party. I'm here to tell you about the power of compound interest. This is the interest you make on your investment on top of the interest you already earned over time. It should make sense that the longer your money has been invested, the greater the potential compounding. Think of it this way, "Time is money". The idea is that you invest some amount today that grows to a bigger amount. As mentioned before, the earlier you make the investment, the more time you have for it to grow.
The Good News
Even if you're a late starter, you still can take advantage of the power of compounding. Start saving and investing today to start that time clock on earning interest on top of interest, on top of interest. There is a popular quote attributed to Albert Einstein, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.” I don't know about you, but I'd like to be the one who earns the interest - please and thank you! 😉
If you haven't started saving for retirement yet, a good place to start is with your employer if they offer retirement saving options like a 401k. Once that's been exhausted check into Individual Retirement Accounts (IRAs).
Also, if you have youngsters in your life, those in their early 30s and younger, you can be the one that gets them started. Talk to the younger generations about saving and investing and getting started sooner than later. Sure, they may not be making a whole lot of money (some are👏); in this case, something is better than nothing.
To quote the late (and great) Maya Angelo,
Do the best you can until you know better. Then when you know better, do better.
Managing Money Like a Boss is about acquiring the financial knowledge that you need so that you can take advantage of opportunities available to you. Now that you know about compound interest, take full advantage and tell a friend. We know better and now, we'll do better👀!
Additional Resources:
Compound Interest: https://www.investor.gov/additional-resources/information/youth/teachers-classroom-resources/what-compound-interest
Compound Interest Calculator: https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
Compound Interest Video: https://www.khanacademy.org/economics-finance-domain/core-finance/interest-tutorial/compound-interest-tutorial/v/introduction-to-compound-interest
Individual Retirement Accounts: https://www.irs.gov/retirement-plans/individual-retirement-arrangements-iras