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 Quite a few of us think that we'll start saving tomorrow or next year. But we never stop to look at the consequences.
Did you know that 7 years of savings right now will compound to an amount greater than 28 years of savings later?
For example, suppose two people decide to begin a long-term savings program. Person #1 starts immediately and saves $2,000 for the next 7 years AND THEN STOPS SAVING COMPLETELY FOR THE NEXT 28 YEARS!
Person #2, WAITS FOR 7 YEARS, and then saves $2,000 for the next 28 years that Person #1 has stopped saving altogether.
Obviously, Person #2 has more money saved right?
Not necessarily.
Although the total amounts contributed to the savings plans are $14,000 for Person #1 compared to $56,000 for Person #2, we need to account for compounding interest over the years of the savings plan.
If both accounts earn 10% annually on the amount saved, Person #1 actually has more money saved for their retirement than Person #2 after 35 years of compounding interest. Even though they only contributed $14,000 to the investment account, Person #1 has more money available than Person #2 who contributed $56,000!
| Person 1 |
|
Person 2 |
| Invested |
Balance |
Year |
Invested |
Balance |
| $2,000.00 |
$2,200.00 |
1 |
$0.00 |
$0.00 |
| $2,000.00 |
$4,620.00 |
2 |
$0.00 |
$0.00 |
| $2,000.00 |
$7,282.00 |
3 |
$0.00 |
$0.00 |
| $2,000.00 |
$10,210.20 |
4 |
$0.00 |
$0.00 |
| $2,000.00 |
$13,431.22 |
5 |
$0.00 |
$0.00 |
| $2,000.00 |
$16,974.34 |
6 |
$0.00 |
$0.00 |
| $2,000.00 |
$20,871.78 |
7 |
$0.00 |
$0.00 |
| $0.00 |
$22,958.95 |
8 |
$2,000.00 |
$2,200.00 |
| $0.00 |
$25,254.85 |
9 |
$2,000.00 |
$4,620.00 |
| $0.00 |
$27,780.33 |
10 |
$2,000.00 |
$7,282.00 |
| $0.00 |
$30,558.37 |
11 |
$2,000.00 |
$10,210.20 |
| $0.00 |
$33,614.20 |
12 |
$2,000.00 |
$13,431.22 |
| $0.00 |
$36,975.62 |
13 |
$2,000.00 |
$16,974.34 |
| $0.00 |
$40,673.19 |
14 |
$2,000.00 |
$20,871.78 |
| $0.00 |
$44,740.51 |
15 |
$2,000.00 |
$25,158.95 |
| $0.00 |
$49,214.56 |
16 |
$2,000.00 |
$29,874.85 |
| $0.00 |
$54,136.01 |
17 |
$2,000.00 |
$35,062.33 |
| $0.00 |
$59,549.61 |
18 |
$2,000.00 |
$40,768.57 |
| $0.00 |
$65,504.57 |
19 |
$2,000.00 |
$47,045.42 |
| $0.00 |
$72,055.03 |
20 |
$2,000.00 |
$53,949.97 |
| $0.00 |
$79,260.54 |
21 |
$2,000.00 |
$61,544.96 |
| $0.00 |
$87,186.59 |
22 |
$2,000.00 |
$69,899.46 |
| $0.00 |
$95,905.25 |
23 |
$2,000.00 |
$79,089.41 |
| $0.00 |
$105,495.77 |
24 |
$2,000.00 |
$89,198.35 |
| $0.00 |
$116,045.35 |
25 |
$2,000.00 |
$100,318.18 |
| $0.00 |
$127,649.88 |
26 |
$2,000.00 |
$112,550.00 |
| $0.00 |
$140,414.87 |
27 |
$2,000.00 |
$126,005.00 |
| $0.00 |
$154,456.36 |
28 |
$2,000.00 |
$140,805.50 |
| $0.00 |
$169,902.00 |
29 |
$2,000.00 |
$157,086.05 |
| $0.00 |
$186,892.20 |
30 |
$2,000.00 |
$174,994.65 |
| $0.00 |
$205,581.42 |
31 |
$2,000.00 |
$194,694.12 |
| $0.00 |
$226,139.56 |
32 |
$2,000.00 |
$216,363.53 |
| $0.00 |
$248,753.51 |
33 |
$2,000.00 |
$240,199.88 |
| $0.00 |
$273,628.86 |
34 |
$2,000.00 |
$266,419.87 |
| $0.00 |
$300,991.75 |
35 |
$2,000.00 |
$295,261.86 |
| For illustrative purposes only. Not indicative of individual results. Assumes reinvestment of dividends and no effects of fees and taxes. |
WHAT HAPPENED?
Person #1 started earlier.
Therefore, we need to realize that procrastination is the silent killer of success. If you've been putting off saving, you may want to start now.
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