One of the first key concepts and one of the big drivers of investing is starting.Importance of starting early invest in 2023. I mean just getting started in general in particular there’s great advantages if we start early. So we’re going to really look at this idea of starting early and investing even when he may not have much to invest if you’re a younger or newer investor but also looking at the leader in the lifecycle to he may be a little bit older and maybe you’re trying to catch up or you’re trying to get maybe started or more with investing as well.
Can you do it and how do you do it. So we’re going to look at that whole concept of starting early and then also look at. And that’s really hopefully never too late for you depending on what your goals are. Now if we look at like Albert Einstein Neal equals MCs where Guy theory relativity and all that. But one of his most famous quotes from Albert Einstein is that the most powerful force in the universe is compound interest.
Importance of starting early invest in 2023. Maybe you’ve heard of this before it’s not necessarily a new concept goes back even before Einstein. But he framed it real well. Here’s a person who talks about you know the universe and all that and he and he’s saying that compound interest is all powerful and it is and it’s all about that for us the personal investors the folks are investing for maybe retirement financial independence college whatever it might be. You know these goals that we have and compounding is what helps us to get there. But to take advantage of compounding we got to start. Right.
And the earlier start the bigger the advantage of compounding will be for you and I’ll demonstrate this.
He can see how this works here.
But I understand that as your investor the compound is going to work for you but also it can work against you because this thing called inflation right. Inflation being prices are always going up. I mean if you bought a gallon of milk today with a lot lot more expensive you bought a gallon of milk 50 years ago or 50 years before that that’s inflation prices rising so we need our investments to continue to rise faster than inflation and compound at a faster rate too. And that’s how we can be successful.
Importance of starting early invest in 2023. So let’s see the power of compounding in action right. And the advantages of starting early. Ok I’m in a part of the Internet here I went to a site called Money Champine Minicom has some nice interesting calculators you can use to calculate different things on investing you can see on the right here side we’re looking at compound interest and that’s why we’re going to look at what they can do you know present value going into retirement vesting mortgages all sorts of stuff.
But one that’s probably used the most is their compound interest calculator you can find the UP of money from Time.com calculate compound interest or if you just search money chimp compound interest or compound interest calculator you’ll find it. And this is a nice really easy tool to really look at the advantages and the impact of compounding and starting early and then in our next lesson we talk about how much to invest. We’re going to use this too to show you the impact of increasing your investments even just a little bit.
So we’re going to play some things with this calculator here and see the impact of starting early would be for example and then we’ll look at the all in the same Kelkar about catching up as well.
So let’s say we’re just getting started.
What we’ll do is do this one first as far as the getting started so current principal how much we have invested right now is zero. So you can see it right here in the middle in the calculator and let’s see it every annual addition. Let’s keep it real simple let’s say I’m going to put in an Excuse me I’m going use dollars. You know what I have over 140 different countries for students are from these different countries so if you’re using your Koser or yen or whatever you might be using Croner or whatever it might be just kind of substitute that in for you. Or Rupi to. But I’ll say U.S. dollars because that’s how the calculus happens we set up the annual let’s found just putting in $300 a month so say three $600 a year we can do much better than that but let’s just start small.
We’re getting started.
Maybe we do less than that. Who knows. But let’s start with $300. You can go in and play with these numbers as well on your own. And let’s say we’re 25 years old we’re old college or in university we paid off some loans and we’re getting started investing So let’s say we want to invest for 30 years straight. So they’ll take a stage 55 or starting at 25 and we’ll put a pretty conserv interest rate in here let’s say 6 percent. You know people ever say to you all need to pay 10 percent 12 percent you know. You know that’s not really realistic over a long period of time. I believe it’s the market’s own choice.
But 6 percent is a pretty obtainable number. You can go higher and then if you wanted more or less that’s fine too. So let’s say we’re a 30 year period of getting started early and going for 30 years. I calculate that well that’s 200 $84000 just with $300 a month us that might be a lot that might be a little to get adjusted for your cost of living your expenses and all that too. But we would end up at the bottom there as you see with a little over 200 84000 by doing it over a 30 year period.
So starting early can be real impactful because we started leader with the same numbers let’s say when we had 20 years to grow. Well now instead of 24 we’re down to 132. Just that 10 year less difference made all the difference in the world so we can calculate and calculate at the end here. And I’m just doing this you know this annual calculation is what I’m doing. OK so let’s 20 years now let’s say we went 40 years to age 65 maybe more of the traditional retirement age.
Same six percent interest same $300 a year or $3 a month for $3600 a year. And what do we got now. Well now we’re five hundred fifty seven thousand dollars so you can see starting early it was a difference between 100 know some hundred eighty or 100 some thousand dollars. So today we had 40 here so we’re 5 5 7 versus 20 Scuse me versus 20 you know and then we’re at 132. So that’s turning early can make a big big difference.
And then if you a just a couple of other things so maybe instead of 6 percent we get six and a half percent just a little bit more and maybe we’ve gotten raises or as we go through our current three $600 a year maybe we end up doing let’s say seven thousand dollars a year and we could you maybe you could even do better. That looked like 70000 I would be pretty good. So 7000 a year.
So now what happens a little bit more interest rate. Same long period of time a little bit more each on an annual contribution still starting with zero no inheritance right thing like that. And look now we’re over $1 billion $1.2 billion so you can see how these numbers interact together. But starting out sooner you’ll get that 40 year of compounding is so impactful versus let’s say we only did it for 20 years right now. 1.2 million.
Now we’re at two or in 71000. So you can see graphically or numerically here the importance of starting early. Now let’s say we only have that 20 year time horizon maybe we’re starting in our where 45 years old we’ve got nothing we’re starting there well that’s maybe we can bump this number from 7000 for 40 years old maybe you’re able to earn more money.
It also puts more life be more austere and maybe we’re doing 15000 and you’re really pumping that up. And maybe we do have something we’re four years old so meaning saving zero. Maybe we have already 50000 dollars saved. You know so we are not starting from zero even over 20 percent in 20 year time horizon 15 those years with little bit of money or $50000 more a little you know we’re now at seven fifty eight thousand dollars depending on your pensions so security or other types of pension type things.
Maybe that’s enough on your cost of living to get you there but versus let’s say that doing anything at all. So the key on this and where this Caligari can come in handy is go to money some time don’t go to compound interest calculator and then you put your numbers that you have right now and put those numbers to see you know what you really have so it’s more realistic for you.
The key takeaway from this is the longer the time horizon you know the more impactful it is. I mean if I just add five more years of this one example you know of up to 25 years or so. Then what happens. My 750 eight now becomes you know over a million dollars again. So play with this calculator and really understand the importance and I start early but just getting
started just getting started. All is very very impactful.
OK so time can really be on your side right. You know have that long time horizon now you know how do you how do you find the money to kind of do that right. I mean what about existing debt and things out there. Should I pay off my debt first and all. Well my recommendation is to get money into the investment cycle to get used to that get into that habit or behavior. Next lesson we’ll talk about how much but getting in there is very very important.
Now you know if you look at from a mathematical standpoint from a an interest rate standpoint all that you want to pay off some of that debt pay particular say I got high interest credit card which can be really exorbitant interest rates versus maybe a very low interest rate on maybe a mortgage on a home or home mortgage that may even have some tax advantages to it as well and paying off your car and paying off student loans all of those things and building up an emergency fund.
All those things are very critical. But the key part on this first key principle is to get started even if it’s a small amount even if it’s a hundred dollars a month or whatever to get started and have that compounding work for you. Now let’s talk about how much to invest or know how do we get going with the amount of money to invest.
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