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WHY YOU MUST START SAVING NOW!

INVESTING SOLUTIONS (part 1)

Welcome to Investing Solutions Week at Barbara Friedberg Personal Finance. This week there are three educational and enjoyable investing articles here. Stick around  all week and become a smarter investor.

“Wealth is well known to be a great comforter.” Plato

For those who worry about money (and face it, who doesn’t at one point or another?), building a secure nest egg is a certain way to counteract that worry. 

MAIN TOPIC; Time, the Secret to Wealth Building

Face it, most of us are really busy and a bit avoidant. That can be a real problem when your money is concerned. If you don’t start saving early, IT IS VERY DIFFICULT TO ACCUMULATE WEALTH.

This article is designed to MOTIVATE and INSPIRE you to start saving now with a story of Sam and Audrey. You will learn why the earlier you start putting money away, the less you have to save overall to accumulate wealth.

Meet Smart Sam and Late Audrey

Sam saves $5,000 per year from age 25 to 40. At age 65 his savings are worth: $681,993 (assuming a 7% rate of return).

Audrey saves $5,000 per year, but doesn’t start saving until age 35. She saves from age 35 to 65 or 30 years. At age 65, her savings are worth $472,304 (assuming a 7% rate of return).

Sam saved a total of $75,000 and ended up with $681,930 at age 65.

Audrey saved a total of $150,000 and ended up with $472,304 at age 65. That’s right, she saved twice as much as Sam, but ended up at age 65 with $209,626 less than Sam.

 

PRACTICAL APPLICATION; How Does it Work?

It makes no sense to think that Sam saved less money than Audrey, and for a shorter time period, but ended up with more at retirement.

Here’s why, two factors determine your future wealth; time and rate of return. Even though we all love a high rate of return, the GREATEST CONTRIBUTOR to the growth of your money is TIME.

Compounding  is what makes your money grow. Think of it like interest on interest. When you have a bank account which earns interest, and you add the earlier interest to your principle amount and get more interest on the total amount. Each year you get more interest on the TOTOAL AMOUNT and over time, it grows to a much greater amount.

 So the more money you build up earlier, the longer you have for it to multiply!

Now here’s the catch, you know you’re not going to live forever. You want to have a nice large sum of cash for your later years. Well, it’s much cheaper and easier to start saving while you are young and let time do the work for you, than to wait until you’re older and feel the pressure of having to save a much larger amount, for a longer time, with less to show for your savings in the end.

Ask yourself this question, “Are you willing to sacrifice a bit now so that the majority of your life will be free of financial stress?”

ACTION STEP:

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.

  1. Take an hour or two to comb through your spending and find some money to invest now.
  2.  Invest as much as possible each month in a balanced allocation of stock and bond mutual funds.

If you like what you’re reading, pick up my RSS feed and follow me on twitter so you get the word immediately.  And, for more excellent and easy to read investment advice, go to the top right of this page and pick up my FREE eBook, 20 Minute Guide to Investing.  

SOME ADDITIONAL SAVINGS ARTICLES FOR WEALTH BUILDING

  • Life after Salary; Saving for Retirement at Consumerism Commentary
  • Save Money by Being Prepared at Everyday Tips and Thoughts
  • The One Dollar Rule at Sweating the Big Stuff
  • The Importance of Income Diversification at Yakezie.com
  • Saving Money for Retirement at Wealth Pilgrim

How old were you when you started investing for your long term goals? How did you do it?

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