Just Get Started: The Case of Compounding Interest

You’ve heard the classic story of the tortoise and hare. The hare challenges the tortoise to a race, and after taking a commanding lead, he realized he can mess around in the meadow and even takes a nap. After waking up from the nap, the hare races to the finish lane and sees the tortoise awaiting his arrival.

The moral of the story is that life is a long race and all you need to do is keep putting one foot in front of the other in order to reach your goals. There’s also the version where the tortoise cheats to win. Forget that version. You’ll go to jail if you cheat. We’re talking about the completely legal way of helping you put one foot in front of another. Enter compounding interest.

Check out this fancy chart I made detailing compounding interest assuming a 5% return rate:

Initial Investment Age Started Ending Amount at Age 65
$10,000 25 $70,399.89
35 $43,219.42
45 $26,532.98
55 $16,288.95

$17,000. You would be better off by $17,000 if you started 10 years earlier. You’d be able to upgrade from box wine during retirement with that difference. No matter how good Bota Box is.

Now, check out this fancy chart I made detailing compounding interest, assuming a 5% return rate, and adding an additional $100 each month:

Initial Investment Age Started Ending Amount at Age 65
$10,000 25 $226,186.19
35 $127,903.31
45 $68,229.77
55 $31,998.32

That’s a difference of almost $100,000 if you start at age 25 instead of age 35, while only adding an additional $12,000 over the 10 years. Lastly, check out this fancy chart I made which details a 25 year old making monthly additions of $100 for 10 years vs. a 35 year old making monthly additions of $100 for 30 years.

Scenario 1 Scenario 2
Age 25 35
Initial Investment $50,000 $50,000
Monthly Addition 100 100
Years of Monthly Addition 10 30
Annualized Rate 5% 5%
Retirement Age 65 65
Total Dollars Invested $62,000 $86,000
Assets at 65  $        423,306  $        306,960

By starting 10 years earlier and investing 24,000 less dollars, you would end up with approximately 115,000 more dollars at age 65.

As you can see by all my super fancy charts, the key theme is, get started early. Allow compounding interest help you put one step in front of another to reach your financial goals.

If you don’t know how to get started, go to the contact page and email me and we can discuss further.

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