The best years of your life are when you’re young. At least, they’re the best years for saving money. The sooner you start, the more time your savings have to grow.
Typically, young people turn a deaf ear. "I’m too broke," they say. "I’ll save when I’m older." But later money won’t earn you nearly the return that early money does.
You want proof? Take a look at the startling table below, prepared by the late Professor Emeritus Richard L. D. Morse of Kansas State University. It compares early savers with savers who start late.
The Early Saver deposits $1,000 a year for 15 years at 5 percent compounded daily. Then she stops. Having put in a total of $15,000, she leaves her stash alone to build.
All during that time, the Late Saver spends every dollar he earns. In the sixteenth year, he gets religion and starts saving $1,000 a year, also at 5 percent. Forty years later, he has put up a total of $40,000. But he hasn’t caught up with the Early Saver—and never will! He can go on depositing $1,000 a year until the fourth millennium. At 5 percent interest, the Early Saver (although still deposit¬ing no more money) pulls further ahead of the Late Saver every year.
If the Early Saver’s money compounds at 8 percent, thanks to a growing stock market, the gap grows even larger. It pays to start saving at any age, but young is best.
How Long Does It Take to Double Your Money?
For a close estimate, use the rule of 72s. Divide 72 by the yield you expect to earn. The result is how long it will take for your money to double. At 5 percent, your money will double in roughly 14.4 years. At 8 percent, it takes 9 years.
From MAKING THE MOST OF YOUR MONEY NOW by Jane Bryant Quinn. Copyright © 1991, 1997, 2009 by Berrybrook Publishing, Inc. Reprinted by permission of Simon & Schuster, Inc.