Read one article about personal finance and you know that compound interest is one of the most important reasons to start saving and investing early. Well, in theory. You’ve heard that if you start investing in your 20s, you’ll have a bajillion dollars more than you will if you start in your 30s. Or something like that.
It is true that starting early helps build more money. Take this simplified example:
Let’s say you’re 25 and you start putting $3000 annually into an account for the next 40 years, with a seven per cent annual return. You’d contribute a total of $120,000 by the time you’re 65—but your account will have ballooned to almost $700,000.
Now let’s say you wait until you’re 35. Even if you contributed $5500 per year, rather than $3000, until you’re 65 with seven per cent annual returns, you’d end with just under $600,000.
Start early, put away less each year, and you end up with $100,000 more. Not bad.
OK, that’s all well and good, but what does that actually look like? The video below will help you visualise the difference. We’ve laid out the steps for the best ways to save and benefit from compound interest so that by the time you retire, you could be a millionaire. It’s not a bajillion dollars, but it’s not half bad.