Not Saving Enough for Retirement or
Starting Too Late
When you're in your 20s and
30s, it's easy to think you have all the time in the world to accumulate wealth
and save for retirement. But that is absolutely WRONG!
The truth is, you'll have
to save a lot less if you start now and give your earnings time to compound. If
you're over 40 and you're behind on your retirement savings, you'll have to
save much larger sums to ever catch up to where you could and should be.
The most powerful financial
invention of all times is compound interest. And that’s exactly what builds
wealth over time. And the more time you have, the better!
Compound interest is the method in which an investment (or even debts) grows over- proportionately with time. Each year your total investment grows by adding the interest rate on top of the interest paid on all previous years.
Example:
Say you invest $100 this year at an interest rate of 10%. At the end of the year you’ll then have $110. The next year the 10% interest will be calculated not only on your initial investment of $100, but on top of the 10% i.e. $10 you’ve made the previous year.
So you’ll end up having $121 ‘cos 10% of $110 = $11.
$11 + $110 = $121.
In a nutshell; compound interest is interest ON interest!
With compound interest, the frequency of compounding influences the total amount of interest paid over the life of the loan or investment. The accumulation function for compound interest is an exponential function in terms of time.
One of many secrets of creating wealth is: Pay Yourself First!
So start saving as early as possible and save at least 10 to 15% of your income, and you'll be well on your way to accumulating wealth.
My next post will be mistake No.6: Cashing in Retirement Funds.
Loads of financial success!
Ricky Schmidt
www.stockbreakthroughs.com