Best time to start investing
Starting to save money early, even if the monthly contribution is small, is a wise financial decision. This strategy takes advantage of a principle called 'compound interest,' which we just discussed in the previous section. The power of compound interest means that even small contributions can add up over time, particularly when you start early.
Let's consider two friends, Alice and Bob. Alice starts saving $100 per month from age 16 in a retirement account that earns an average of 7% annually. Bob, on the other hand, waits until he's 35 to start saving, but he manages to save $200 per month with the same annual return.
When they both reach the age of 65, Alice would have contributed $58,800 while Bob would have contributed $72,000. However, because Alice started almost two decades earlier, her money had more time to compound. Despite contributing less money overall, Alice ends up with around $344,000 while Bob has approximately $243,000.
This example shows why starting to save early is beneficial, even if the initial amount you can contribute is small. The longer your money has to compound, the more potential it has to increase in value. It's not just about the amount you save, but also about the time you allow your money to grow. Like planting seeds, the key is to start early and consistently, allowing each contribution the maximum time to grow and yield results.
Remember, it's not just about the amount you save, but also the time you allow that money to grow. As with planting seeds, the key is to start early and consistently, giving each contribution the maximum time to grow and yield results.