The $863,386.55 Mistake You’re Making At Age 30
If you’re 30, 40 or even 50, you’re going to learn from this mistake. It’s a mistake that millions of people make every year and it keeps them from achieving their financial goals and dreams. So what is it??
Failure To Launch
Do you remember in grade school when someone was in class and they mentioned something about compound interest? Yea, me neither. Perhaps by the time you are age 30 you have heard what compound interest is or maybe you’re even so sophisticated that you could define it. But are you using it?
The failure to take advantage of compound interest is one of the greatest mistakes you can make in your lifetime.
The IRA Scenario
Sometimes in my free time I sit and wonder about compound interest and what it would look like using different amounts and different returns. Nerd Alert! I have already explained why I believe the Roth IRA is The Greatest Thing Since Sliced Bread. What if you agreed with me and started to contribute and invest at age 30? What if you didn’t? What if you waited until age 40 or even age 50? How does that affect your outcomes?
Below is an excel spreadsheet showing what a possible simple scenario might look like. Say you started investing $5000 in a Roth IRA every year from age 30 to 65. Let’s also say you were able to earn a 10% return on your investment. Take a look at the account balance at the end of 35 years in this scenario. Next look to the right and see what happens if you waited until age 40 or 50, shortening the time available for compound interest to work it’s magic.
Wow, what a difference 10 years can make! In fact, waiting in this example until age 40 to start costs you $863,386.55 on the back-end at age 65. Obviously there aren’t any guarantees that you’ll earn a straight 10% interest every year but that’s not the point. The point is showing exactly what it could cost you by failing to save and invest ASAP.
How To Get Started
Now there might be an issue to getting started saving this way. Let’s say you wanted to invest the $5000 into a Roth IRA split up evenly every month. That’s roughly $416.67 every month. “But John! I don’t have $416.67 every month to waste on that!” I get it. But do you have a car loan? Do you spend half that or more in gas every month? Do you perhaps spend that much in simply entertaining yourself on a monthly basis? Chances are there is a combination of these things happening. That’s okay, it’s just a matter of priorities.
Could you trim some of the spending off of different areas to come up with the monthly amount? A great way to know is if you have a monthly budget. Have you gotten a raise at your job lately? If so, keep your lifestyle the same and invest the raise. If it has been awhile, perhaps switching companies and negotiating a higher salary is something to look at. What if you were able to snag a $5000 bump in salary, keep your lifestyle and have the possibility of the outcomes in the chart above?
In the end it is up to you to take that first baby step. Make it happen. Your future self will love you for it.
Have Questions? Ready to Get After It?
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Best of Success,
Nothing in this article should be construed as a solicitation or offer, or recommendation, to buy or sell any security. Financial advisory services are only provided to investors who become Vision Wealth Partners clients. Past performance is no guarantee of future results.
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