MSEFCU | Y o u n g A d u l t s

You'll Earn a Fortune in Your Lifetime | Time is Crucial | What is Compounding Interest? | The Rule of 72

Investing small amounts each month may not seem like a lot, but if you start socki

ng it away early, let's say when you're in your twenties, it will translate into big dollars down the road.
A key reason: Your earnings have time to compound over the years.
For example, let's say you invest $2,000 a year starting at age 25 in a tax-deferred account which earns a 10% average annual return. At age 65, you'll have accumulated a total of $885,000. Compare this to if you had waited to begin saving until age 35: Your nest egg would total only about $329,000. That $20,000 you didn't save between the ages of 24 and 35 ends up costing you $556,000!!

Most of us can not understand that we will earn a fortune in our lifetime. No matter your annual income, a tremendous amount of money will pass through your hands in your lifetime.
For example if you:
Average $15,000 per year for 40 years = $600,000
Average $25,000 per year for 40 years = $1 million
Average $30,000 per year for 40 years = $1.2 million
Pretty amazing!!
However, it's not how much money you earn that counts, but how much you keep, that matters.

One common misconception about saving money is that you have to make a lot of money to save a lot of money. The reality is that having a substantial sum of money requires only 2 things - Time and the discipline to consistently work toward a goal.
The importance of time can't be underestimated. It's one of the most important elements in your financial plan. Suppose you are 25 and have a goal of $100,000 cash at retirement age. You could accomplish this by saving only $10.22 per month at 12% interest. Seems amazing doesn't it? Let's say you wait until you're 55 and set the same goal -- $100,000 at age 65. You would need to save a whopping $446.36 a month.
(the rate of 12% is used for illustration. Actual rates at the time of your investment may be lower or higher.)

: so you want to save 100,000 by the time you are 65? (@12% interest)

Age 25 Age 35 Age 45 Age 55

$10.22 $32.46 $108.71 $446.36

Why does time play a difference? Compounding interest. Many people believe that the interest rate of an investment is pretty simple. You invest your money at 5% and get X amount returned. If you had invested the same amount at 10% then the X amount would be doubled. Right? Not exactly, there is something called compounded interest.

If you invested $1,000 once in a lump sum

20 Years 30 Years 40 Years 50 Years 60 Years

5% $2,653 $4,321 $7,039 $11,467 $18,679

10% 6,727 $17,449 $45,259 $117,390 $304,481

So as you can see, it's not just the amount that you save that counts, it's also the length of time you are able to save.

Your money will "double" at an exact point by dividing 72 by the % of interest
72 / 1% interest = 72 years
72/ 3% interest = 24 years
72/ 6% interest = 12 years

What's it worth?

Do you know how much your stuff is worth? That's right, besides collecting "dust value" in your room, your old toys may be valuable or worth keeping until they are valuable. Take a look at the value of the toys that your folks might still have sitting around. See if it's worth you keeping yours.