I've been reading a Motley Fool book "You Have More Than You Think You Have." It's really interesting. The power of compound interest is stunning. I'm learning that can work for you or against you depending on how you manage your money. It's really scary to me that the average American household holds around 7,000 in credit card debt.
The book is really encouraging and gives some practical advice on saving, getting out of debt, following a budget etc. I appreciate that they try to avoid penny pinching and instead work on the larger picture. If anyone is interested in reading it I'd be happy to lend it to you. If you don't live by me you can buy it off Amazon for around 1.50.
I also just caught an article on NPR about savings. Here's a section that has left me thinking:
If you start saving $300 a month — or $3,600 a year — when you're 25, and earn an 8.5 percent annual return and reinvest your earnings, that money will be worth $1,064,457 when you're 65.
But if you wait until you're 35 to start saving the same amount, you'll only have $447, 173. If you wait until you're 45 you'll have even less — $174,000. Think about that. If you start when you're 25, you're saving for just twice as long, but earning more than eight times as much money.
You can read or listen to the rest of the article here.
5 comments:
Isn't compound interest so cool! I have read a book similar called boggle head. We should read a financial book for one of our book club nights. I find this topic interesting.
Jess
Sign me up! (for the book)
It's hard to find $350 to set aside each month, but even $100/month consistently saved over time can make a big difference.
Ahhhh! I turn 25 in 2 months! I need to start saving!
Time is so important when it comes to saving for the future.
If you assume a 4% interest rate for inflation the $1,064,457 is $221,714 in today's dollars. Tweaking the interest rate has a big impact on these calculations. So you assume that you are earning more on your investments than inflation -- thus using a different interest rate for your investments as the interest rate used for the conversion to "today's money" but inflation is still something to consider. $100 in the future will buy less than what it does today.
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