Time is Money: Part 3
So far, we’ve talked about the three most common aspects of automating your investing:
Start saving early
Save regularly
Increase those contributions as often as you can
When you first start investing, your situation might be a perfect mix for maximizing the effects of compounding.
Maybe you just got out of school, aren’t married, don’t have kids, and live with your parents. If that’s the case, you can probably afford to put much more aside today than you will in the future.
What kind of impact could that have?
Let’s look at a slightly different scenario:
Start investing at 30
Invest $1000 per month for the first 5 years
Drop down to $225 per month after that (where you would have been in Time is Money: Part 2)
Increase by $25 every year after 35
6% compound rate of return
In our previous scenario, you would end up with $544,951.92.
In this case, you end up with $903,373.38.
That’s $358,421.46 more and all you had to invest was an additional $51,000.
It’s pretty simple, those early contributions work longer for you, so the power of compounding is even greater.