Hi. It’s me again. The one who keeps telling you to do all this adult stuff like pre-registering to vote and do college stuff. Unfortunately, I have more adult stuff to tell you.
Let’s talk about investing, don’t worry, I took a personal finance class so I’m qualified. Investing is something they never tell you about, but it’s more important then ever to start it right now then later on in life. Let’s do some math ok?
So, a woman, let’s call her Ms. Early, starts investing at age 15. Her savings account has an APY (annual percentage yeild) of 11.25%. She is putting $500 in her savings every year until she is 65.
A man, we can call him Mr. Late, starts investing at 45. His savings account also has an APY of 11.25%. He is putting in $10,000 in his savings every year until he is also 65.
Kind of seems like a no-brainier right? The one who is putting more money in their account has the most money by the time they are 65. Well, you’d be wrong. Very wrong actually. While Mr. Late is putting in $10,000 a year, hes only doing it for 20 years, while Ms. Early would have been putting money in for about 50 years. Does the amount of time they have been saving matter? Actually yes.
APY is the amount of money you earn in interest every year. So with a 11.25% APY, Ms. Early in her first year would have made $56.25 in interest at the end of the year. So now she has $556.25 in her bank. That money plus the $500 she is putting in savings becomes $1,556.25 at the end of the year. Since the amount of money is higher, she earns more interest, about $118.83, making her total for the end of the year $1,175.08. See where I’m getting at here? So by the time Ms. Early is 65, with interest and consistent savings, she will have $1,131,160.64. That is a lot of money dude.
For Mr. Late, while yes he is putting in a lot more money, he has less time for interest to accrue. By the time he is 65, he will have $828,897.31 in his savings, which is a lot, but not as much Ms. Early has at 65.
Do you see the importance of investing early? For Ms. Early and Mr. Late, it’s a difference of $300,000. You could do a lot with that money. So please people, start now. Even if you can only put in $100 a year to start, it’s going to add up, and your future self will definitely thank you.