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Elegant
Simplicity "Understanding
The
Power of Compounding Money" |
Money,
invested earlier, is worth more over time than more money invested later. Now,
looking back at a potential financial situation at the age of 21 versus my financial
situation from investing from the age of 29 it is possible to see how much more money I would have at the age of 65
(normal retirement by current standards) had I started investing $2,000 a year a
the age of 21, my first year out of college.
The
following chart shows how investing earlier in life pays off later in life:
The compounding value of money over time:
|
Saving |
|
|
|
Spending Sam |
|
|
Investing at age 21 |
|
|
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Investing at age 31 |
|
|
(10% Annual Return) |
|
|
|
(10% Annual Return) |
|
|
|
|
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| Age |
Investment |
Total Value |
|
Age |
Investment |
Total Value |
| 21 |
$2,000 |
$2,200 |
|
21 |
0 |
|
| 22 |
$2,000 |
$4,620 |
|
22 |
0 |
|
| 23 |
$2,000 |
$7,282 |
|
23 |
0 |
|
| 24 |
$2,000 |
$10,210 |
|
24 |
0 |
|
| 25 |
$2,000 |
$13,431 |
|
25 |
0 |
|
| 26 |
$2,000 |
$16,974 |
|
26 |
0 |
|
| 27 |
$2,000 |
$20,871 |
|
27 |
0 |
|
| 28 |
$2,000 |
$25,158 |
|
28 |
0 |
|
| 29 |
0 |
$27,674 |
|
29 |
$2,000 |
$2,200 |
| 30 |
|
$30,442 |
|
30 |
$2,000 |
$4,620 |
| 31 |
|
$33,486 |
|
31 |
$2,000 |
$7,282 |
| 32 |
|
$36,834 |
|
32 |
$2,000 |
$10,210 |
| 33 |
|
$40,518 |
|
33 |
$2,000 |
$13,431 |
| 34 |
|
$44,570 |
|
34 |
$2,000 |
$16,974 |
| 35 |
|
$48,027 |
|
35 |
$2,000 |
$20,871 |
| 40 |
|
$78,958 |
|
40 |
$2,000 |
$47,768 |
| 45 |
|
$127,163 |
|
45 |
$2,000 |
$89,198 |
| 50 |
|
$204,798 |
|
50 |
$2,000 |
$157,086 |
| 55 |
|
$329,830 |
|
55 |
$2,000 |
$266,419 |
| 60 |
|
$531,194 |
|
60 |
$2,000 |
$442,503 |
| 65 |
|
$855,494 |
|
65 |
$2,000 |
$726,086 |
It
is amazing to see the difference. We earn over $125K
more money from investing earlier while only investing 1/5 of the
money!
Money
is a form of energy. When seen this way, we can visualize ourselves in
piles of money and create a natural sense of money flowing to us. Or we
can visualize opening checks with lots of money in them. If you are under
65, a great way to put your visualizations into practice is to invest.
This turns the visualization into action. This action then creates the
flow of more money coming to you.
There
are several rules when talking about money. But this is the most
important:
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Money Invested Well + Time = Considerably More Money! |
Hopefully,
you are reading this when you are 21, so you don't make the same mistake I
did. However, if you are older, there is one piece of sage wisdom to leave
with: it is never too late to start investing.
One
trick to investing I utilize is to buy the market leading stock in terms of
performance, growth, and profit. These companies are recognizable;
for example,
IBM, Cisco, Exodus or Intel. I remember a business teacher who used to taut Exxon,
the oil conglomerate who used to be a huge growth stock prior to the Valdez oil
spill public relations nightmare. So, another key is recognizing the end
of a trend and when to sell.
A
couple of good books on investing and financial planning are:
The
Gorilla Game, by Geoffrey Moore
Smart
Women Finish Rich, by David Bach
I
do not claim to be an expert regarding investing money. However, I can
report growth in my personal funds of over 190% last year due to good investment
decisions and a nice Bull ride on the Nasdaq exchange.
Not
every year is a banner year, but statistics show that money invested today will
reap the benefits tomorrow.
See
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