There have been countless studies and you can find various examples on the internet of how your nest egg can grow by a substantial amount depending on how many years you save. The bottom-line for every single calculator is Start Early. Your returns compound over the years and have a snowballing effect. As a simple example:
Lets say you invest $5,000 every year and manage to get a 8% return on your investments. If you start at the age of 25, you end up with $615,580 at the age of 60. If you start at the age of 35 instead, you end up with $431,754 at the age of 60. That amounts to a whopping $183,826.
That being said, here are a few considerations to keep in mind:
- Rank and pay down the high interest debt: It is highly unlikely you will be able to invest and get better returns than the interest rates charged by the credit card companies, which are normally at 18-20%. So, first things first – get rid of your bad debt.
- Analyze & Re-Analyze Goals: Each person’s investment goals are different. You need to analyze and annually re-analyze your goals to make sure your savings, debt payments (mortgage, car loan etc) and investments are matching your goals.
- Save consistently: Consistent monthly savings (using automatic transfer programs) is an important part of investing. Most people who say “I will to save and transfer whatever is left at the end of the month” seldom have a healthy financial future. The old adage of ‘Pay yourself first‘ is popular for a reason. If you treat your savings like a bill payment, where you periodically and automatically save, you can build on your nest egg.
- Invest consistently: It is a fools game to try and time the stock market. Consistently investing by finding the best available value at the time almost always provides better results. If you feel that one method of investing suits your needs and you are happy with the risk vs. reward balance, stick to it. If you ever feel the need to gamble and have some extra money, open a new account for it without taking anything out of your retirement fund.
Disclaimer: The information provided here is for educational purposes only. All opinions here are my personal opinions and should not be taken as financial advice. I am not qualified to be a financial advisor. Always consult with your financial advisor before investing in any of the companies mentioned on this blog.