Everybody knows that the best way to create a secure financial future is to save money for retirement- everyone agrees that they would like to be able to settle down at some point in their lives without having to work. What some people may not realize is that the best way to do this is to start as early as possible. Since I am currently in college, I have the opportunity to hear what the general mindset of many people my age is. Many college students are under the impression that when they graduate, their dream job will fall right into their lap, and then once they are making a steady income it will be the right time to start taking their finances seriously. It is very important not to think like this and to understand that life has many twists and turns and will most likely not work out how you might like it to, which is where saving money comes in.
One great way to start saving and growing your money is through a Roth IRA. I am going to use a Roth IRA to illustrate the importance saving early. I will use two different scenarios, both of which will have a growth rate of 8%. In scenario 1, I will contribute $2,000 a year for 10 years at age 25, so that by the time I am 35 I will have contributed $20,000 in total. In scenario 2, I will contribute $2,000 a year for 30 years at age 35, so that by the time I am 65, I will have contributed $60,000 in total. If you were to guess, you would probably think that since I contributed $40,000 more in scenario 2, that the balance of the Roth IRA at age 65 would be higher in that scenario. The balance in scenario 1 ($330,000) actually ends up being around $75,000 greater than the balance in scenario 2 ($255,000). This is because the money in scenario 1 had more time to grow-t his is a great way to see the true power of compounding.
It may sound weird, but time is your greatest asset when it comes to saving money. Through my time as a college student and my time here with the Chestnut team, this concept has become much clearer to me. Even if you are only contributing small amounts of money each time, anything will help and you will thank yourself later when you start to see your wealth grow, especially when it has 45-50 years to do so. Planning for retirement may be daunting to think about at my age and it is certainly not easy, but starting early is an excellent way to help facilitate the process later on. If you’re not currently my age, I ask you to pass this on to your children and grandchildren…a short lesson from you now may make a serious dent in their future retirement