Why You Should Start Saving - Yesterday!

Attributed to http://www.seniorliving.org/

Attributed to http://www.seniorliving.org/

The most important component of a wealth building project? Time!  Let me illustrate with the following retirement-planning example: 

  • If you invest $1500 when you are 15 and never put another dime into it.
  • If you invest $1500 per year starting at age 50.

Assuming a retirement age of 65 and an annualized return of 8% (I'm being conservative here as the annualized return for the S&P 500 from 1871-2014 was 9.11% unadjusted for inflation), who do you think will end up with more money by retirement?

  • The 15 year old who goes through his/her entire working life without saving another penny will end up with $70,352.
  • The 50 year old who puts away $1500 each year for 15 years will end up with $48,745.

Such is the power of the Time Value of Money (TVM).  Whether you're saving for college, a car, retirement or anything else, the most important factor is starting early. (Barring windfalls such as winning the lottery of course).  I hope this post gets you thinking about saving if you haven't already started and wets your appetite for my next post: "ROTH IRA - the Cadillac of Retirement Vehicles."

Future Proof, MD

Dr. Bo Liu is an aspiring radiologist-in-training and the founder and editor of the White Coat Money Blog.  He has an interest in interventional radiology and helping his medical colleagues get ahead in this mad world of medicine and money.  When he's not crushing the list at the PACS station or typing up your next favorite blog post, you can usually find him at the local badminton club, movie theater or the most recently opened restaurant.