People in their early twenties are quick to dismiss planning for the future because they have ample time to do so in the future. Typically, this can be witnessed by their lack of estate and retirement planning. However, when someone gets older and realizes the importance of having both, they may contact an estate planning attorney and a financial advisor. After they have created an estate plan, they may have a will, a trust, or both. When these documents are in place, they are covered in the event of incapacity or death. Though they waited to establish their estate plan, they still reap the benefits of their efforts.
The same cannot be said for retirement planning. Anyone with experience with it will explain that young people have the massive advantage of time. Financial planners and your friends and family will tell you to make your money work for you and use compound interest to your advantage. Our purpose today is to explain these expressions and how accurate they are.
The Importance of Compounding Interest
Before we show you how vital compound interest is, we will address one of the most common reasons why many young people avoid creating a retirement plan: They don’t have enough money. There are too many bills, and any money that comes in goes out just as quickly. As a young person, you are less likely to have a family and a mortgage. You won’t have many liabilities besides your student loans and car payments. Although we understand that the pressure of paying your bills and building your assets is essential, don’t overlook the gift of time.
Whatever you do have, put it toward your retirement. To show you how feasible this is, we will use the following numbers:
The first number ($500) is your initial investment. It’s likely slightly higher than your car payment (hopefully). Our point still stands even if you can’t afford to invest $500 right now. The next number ($50) is your monthly contribution. You can get an extra $50 simply by eating out one less time a month. When you see what this $50 can do for you, you will quickly see that the benefits significantly outweigh your sacrifices. The last number (5%) is your annual interest rate. (A typical 401(k) usually has a 5-8% return.) If you put in $500 initially and contribute only $50 a month at a rate of 5%, how much money will you have in 45 years? $100,312.60. (At 8%, the amount jumps to $247,863.60!)
Begin Planning Alongside Worth Advisors, LLC
Get started today. Our financial advisors will meet you where you are because we believe that our services are for everyone, regardless of your assets and liabilities. Tomorrow can be better than today, and we want to help guide you. Use the time to your advantage and begin for the future. Contact our office to schedule a meeting with one of the experienced and compassionate financial advisors committed to serving you.