Cashtoons

Humans, time and free money

May 07, 2021

What can compounding mean for us humans? We don’t have two hundred years to forget about our investment!

question

Meet 18-year-old James.

18 year old

He wants to have at least a million dollars by the time he retires at 65 years old. If he invests $177 every month, he will get there, having used $99,828 of his money.

James money per month

Melissa has the same goal. She’s 25 years old.

25 year old

If she invests $309 per month, she’ll make it to a million, with an investment of $148,320 of her hard-earned cash.

Melissa money per month

Pat also hopes to cross the million-dollar mark by age 65, but she’s 35 years old.

35 year old Pat

$706 per month will get her there, with her final contribution being $245,160 (over $100,000 more than Melissa had to invest).

Pat money per month

The point? Even a few more years on the end of an investment can make a big difference, especially if you start investing young.

Comparing investing

Compound interest is sneaky. It doesn’t seem to make much of a difference during the first 5 or 10 years, but your profits will skyrocket during the last five years of the investment, if it stays there long enough.

So, what if you don’t have $177 per month, let alone $706? Thankfully, your choice is not $177 or $0. Set up an investment account, and have some amount, even $5 or $10 to start, automatically taken out of your bank account, monthly, and put directly into an index fund.

Sources:

sources

A special thank you goes to Don Rugg, CPA, CFP for his presentation at the 2019 Financial Literacy Conference put on by Financial Beginnings. He furnished much of the information in this post, and had some really life-changing words of wisdom for those willing to act on his advice.

https://www.360financialliteracy.org/Calculators/Savings-Calculator

https://www.moneygeek.com/compound-interest-calculator/

https://www.nerdwallet.com/banking/calculator/compound-interest-calculator

https://www.investopedia.com/terms/i/interest.asp

https://www.investopedia.com/terms/p/principal.asp#:~:text=Responsible%20Parties-,What%20Is%20Principal%3F,face%20value%20of%20a%20bond.

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books, Big Profits)

The Richest Man in Babylon (Condensed Classics): Discover the Essentials of the Legendary Guide to Wealth! (Condensed Classics Library)


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