The earlier you start investing, the greater the accumulated return on your original investment. This is due to the effects of compounding yield.
The Power of Compound Interest and Why It Pays To Start Saving Now
Have you ever wished that you could have more money, without all the effort? Or are you concerned you won’t have enough saved for retirement or your child’s education? Luckily, there’s actually a simple way to accomplish those things if you’re willing to learn how to put your money to work for you. It’s called compound interest, and it can help you grow your wealth.
"Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it" - Albert Einstein
WHAT IS COMPOUND INTEREST?
Compound interest can be defined as interest calculated on the initial principal and also on the accumulated interest of previous periods. Think of it as the cycle of earning “interest on interest” which can cause wealth to rapidly snowball.
Not only are you getting interest on your initial investment, but you are getting interest on top of interest! It’s because of this that your wealth can grow exponentially through compound interest, and why the idea of compounding returns is like putting your money to work for you.
It is important to start early and be consistent. If you consistently save and invest, you’ll have a nice nest egg by the time you retire. The key is to start now and contribute what you can! It may seem like it’s not worth it, but even small contributions of $25-$100 per month add up over time.
Invest Early: Make Time Your Best Friend
Start financial planning in the 20s and 30s.
As one goes through the different stages of life, your financial needs will evolve. Hence, it goes without saying that strategic planning ahead of each stage, in addition to starting to invest early in life, can help ensure a smooth ride up to the retirement years. To ensure that you reach your financial goals, it is important that you start early and follow a realistic financial plan.
By starting to save and invest early in the 20s and 30s, you put time on your side and hence you are able to accumulate larger nest eggs with relatively little effort; as long as you invest regularly.
On the other hand, if you procrastinate and start in your 40s or 50s, it will give you less time to reach your goals and you will need to invest a bigger sum of money, as shown in the illustration. Therefore, it is advisable to start investing as early as possible because the later you start, the steeper your climb will be.