Learn Money Girl's 4 ways to build your wealth and grow rich—even on a budget.
Grow Rich Strategy #2: Start Investing Earlier Rather Than Later
They say the early bird gets the worm. That proverb is certainly true when it comes to building a fortune. Putting time on your side can explode your wealth due to one of the greatest gifts math has ever given us—compounding interest.
Here’s an example that says it all: Let’s say your goal is to retire at 65 with a cool one million dollars. If you begin early, like when you’re 25 years old, you’d only need to save a little over $400 per month, assuming an average annual return of 7%. Paying $400 per month over 40 years comes to a total investment of $192,000 ($400 x 12 payments x 40 years).
But if you wait until you’re 35 to start investing, you’ll need to cough up almost $900 per month, also assuming a 7% average annual return. You’d have to invest a total of $324,000 ($900 x 12 payments x 30 years) to accumulate a million dollars in 30 years. And if you’re a financial late-bloomer and don’t get started until you’re 45, you’ll have to shell out over $2,000 per month, assuming the same 7% return. My friends, procrastination is expensive! You’ll end up investing $480,000 ($2,000 x 12 payments x 20 years) to become a millionaire in 20 years.
Comparing these scenarios makes it clear, right? I don’t know anyone who’d rather invest $480,000 instead of $192,000 to reach their retirement goal. There’s simply no better way to accumulate a healthy nest egg than to start early. Even if you put aside $200 per month for 30 years at an average 7% return, you’d amass over a quarter of a million dollars.
Time is a critical factor that affects your ability to build wealth. So stop using excuses like, I don’t have enough to invest, the market is too high, or the market is too low. Remember that waiting to invest is hazardous to your fortune and future financial security.