The importance of investing early.
One of the things I tell myself and others, is that if you can invest $1000/month between the ages of 22 and 25 you will have saved enough for retirement. Nothings guaranteed and I wouldn’t stop at 25, but the math works out: At 25 you will have ~$40,000, 36,000 saved +8% return gives 40,500. We are estimating anyways. Historically the S&P 500 gives 12% returns, but the math is easier at 10%. By the rule of 72 this means that your money will double every 7 years. So
32: $80,000
39: $160,000
46: $320,000
53: $640,000
60: $1,280,000
67: $2,560,000.
But mechanical finance, what about inflation, what about unexcpected bills, what about... Yes, the future isn’t predictable, and worry is a permanent issue. Perhaps it’s better to worry about what happens if you wait.
You can think about this in reverse. How long do you have to save at $1000/month to catch up if you start older, well here’s the answer
22: 3 years
27: 5.5 years
33: 9 years
35: 18 years
36: 24 years
37: 30 years
38: you can’t catch up.
Why can’t you catch up? Because at 38 your investments (~$150,000) are returning back to you $1000/month and so your savings rate has to increase just to make back what you would be making passively in the stock market, if you had started early.
So if you’re young, work overtime, work a second job, be frugal and get that initial capitol working for you. Then once you have that nest egg, you can begin to live bigger, take more risks.
Remember, the alternatively to poverty is superior.
