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The Power Of The Penny | Dr. Timothy Lawler

The Power Of The Penny

The Power Of The PennySo we have all heard it from the time we started working, “You need to be saving for retirement!”  Our mothers, fathers, friends, and co-workers have always said it.  But who ever shows us how to do it? 

Well, the sad truth is that nobody really does.  But that can’t be an excuse for you to keep putting it off time and time again.  Actually, that is about the worst thing you can do because of a little thing called compound interest

Now again, when I first started to research how to begin investing in my retirement, this two-word phrase kept coming up over and over again.   Basically, the power of compound interest is that given enough time and having your money in a place where it can’t be touched, your pile of money will start to grow….and after awhile, it will really freakin’ grow.

Yet, the important thing here is time.  This is what got me all up in a whirl when I first started to invest.  For the first 20-30 years or so, it just seems as if you are putting away a measly amount of dough for what is supposed to be your income from the time you retire until you die.   But the earlier you start to invest, the bigger your pile of money will be at that ripe old age of 65.

To illustrate this point, I turn to my mentor and coach who I have learned a ton from, named David Bach.  If you haven’t heard of him, that is quite alright, but now you will know.  He has been on the Today show numerous times and is a writer for Yahoo Finance.  He has a series of financial books called The Finish Rich Series, and I recommend you read each and every one of them. 

Anyways, in one of his books, he throws out a nice comparison chart  between several people and the ages at which they start to invest.    Let’s say one person’s named is Jim and the other is Jessica.  With an average annual return of 10% (which is pretty typical rate of return for a retirement investment over time), Jim starts to invest $2,000/yr from the ages of 19 to 26 for a total of $16,000…..and then he just quits.  He never again invests a single dime. 

Then we take Jessica who had a little later start in her investing career.  She starts at age 27 and invests $2,000 every year until she is 65 for a total of $78,000. 

And who do you think wins?  JIM WITH ONLY A $16,000 TOTAL INVESTMENT!  And why do you think he wins?!?!?….yup, we already said it, TIME!  After their initial investments, Jim would make $1,019,148 at age 65 and Jessica would make $805,185. 

That’s a difference of $213,963 just for starting 7 years earlier!

That is the really cool thing about compound interest.  It might seem boring or bland, but it will get you there with some BIG results.   Those extra cents and pennies put into your retirement do make a difference, and the earlier you start, the better. 

Ok guys, I hope this helped.  Until next time…..

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