[VIDEO] Procrastination vs The Power of Compound Interest
Ah, procrastination….that fickle beast……..Procrastination is what I often refer to as the ultimate money killer. Let’s talk about it.
When it comes to investing for your future it’s easy to find reasons to delay saving and planning, but the one friend you have on your side is time – and the longer you procrastinate, the harder it is to make up for that lost time.
Procrastination is a long-term money killer. If you wait too long to invest you may find yourself having to take a more aggressive approach to investing than your comfortable with…in turn, assuming more risk in an effort to meet your future retirement objectives. Starting to invest as early as possible is highly recommended, and there’s never a bad time to start saving for your retirement.
When it comes to setting aside money for your future, don’t fall into the procrastination trap. Unless you absolutely need every penny you earn for current expenses, make it a point of setting aside some portion of every paycheck towards retirement savings. If you delay setting aside money for retirement, you make it so much harder to achieve your goals. During your peak earning years, it’s important to save as much as possible for the future.
Avoid coming up short and being forced to go back to work to make ends meet. There’s nothing wrong with working for as long as you like as long as you enjoy doing so, but, generally speaking, the younger we are the easier it is to work harder or learn new skills to earn more money – this is why it is so important to maximize your savings for retirement while you can. Make life easier for yourself in retirement by starting to save as much as possible, as early as possible.
Another great reason to start saving as early in life as you can is a force known as compound interest. While saving is a good idea at almost any age, the power of compound interest goes a long way, and the earlier you start saving the more promising your financial future should look.
Compound interest has been called the 8th wonder of the world – and deservedly so. By earning interest on interest as well as principal, your money grows much faster than it would otherwise, and this effect is most noticeable over longer periods of time.
Let’s take Warren Buffett as an example. Warren Buffett is currently worth about $73 billion dollars. Warren Buffett’s wealth comes from him not only being a brilliant man and great investor, but also the tremendous benefit of compound interest over time. Here are some notable Buffet milestones. At age 30, Warren topped $1 million and he hit his 1st billion dollar hurdle at 59…29 years later. By age 66 he was worth $17 billion, and at 72 his net worth hit a whopping $36 billion dollars. Let that sink in for a moment…it took Warren Buffet 59 years to make his first billion, and 13 years to go from $1 billion to $36 billion dollars.
Sure, Warren is considered the Oracle of Omaha and one of the smartest investors ever, but this is a true testament to the power of compound interest. Now let’s understand that compound interest isn’t guaranteed to make you a billionaire, but given a long enough runway, your money can certainly take off and grow.
Let me break this concept down to something more realistic for the rest of us. Imagine you have $100,000 in an investment account. You set this money aside as retirement savings hoping that it will grow over time. Let’s assume in this example you earn 7% per year compounded, on average, where all dividends are reinvested, over a 30-year period. That $100,000 you began with would have grown to about $770,000! That’s an increase of $660,000 on your original $100,000 investment account because of compound interest.
As you can see, time is the most powerful variable an investor has on their side. So what’s the bottom line? While the amount you can put away for your retirement per month is important, it pales in comparison to how much time you can invest in your plan. In other words, the sooner you start, the more money you can potentially build over the long haul. My recommendation…don’t hesitate…start putting money away today!