The Financial Advantage of Youth

Photo by Luma Pimentel on Unsplash

If you start investing when you’re young, your money has more time to grow.  Heck, is you’re 20 years old and you invest $167 a month, roughly $2,000 a year, at 6% for 45 years, by the time you’re 65 you will have $460,251.

If you were to wait and started investing the $167 a month seven years later, at 6% and you kept investing the $2,000 until you reached 65, you would have $291,291. This is what I call the financial advantage of youth. Compounding interest works better the earlier you start. Don’t wait. Our 20-year-old’s interest, kept earning interest on the interest for a longer period of time. The 27-year-old will have $168,960 less than the 20-year-old. You can retire well by starting early.

If you are older, this doesn’t mean you need to give up. You can still save and earn interest. Being old doesn’t mean you give up. Start where you’re at. The key is to get going. Don’t let moss grow under you.

We know that doubling the interest rate doesn’t equate to a doubling of your money. We went from 6% to 12% on our $150 savings and our money went from $298,724 to $1,764,716. What happens if we average 18%? After 40 years, we would have $12,686,975! That’s when invest $150 a month for 40 years. Amazing right?

Yes, I know that currently we don’t earn 18%. However, do you realize that you are giving your credit card companies this rate of return and even higher rates of return? They’re making almost $13 million dollars. When you borrow money on your credit cards and you don’t pay the full balance off when the bill is due, you are giving the credit card company a return of anywhere from 18% to 28%. Are you kidding me? Why are you paying out more money in interest than you are earning? Let’s earn the higher rates ourselves and perform plastic surgery.

Cut-up the credit cards. When you don’t pay out the 18%, it’s just like receiving 18%. I’ll talk more about credit cards later on. If you know how to handle them, then you should keep one card.

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