The power of time in investing
Assume two people have 30 years to invest.
Person number 1 gets started right away by putting $3, 000 a year in an investment that notionally earns 10% / year and invests for 8 years and then stops investing but leaves the money where it is earning 10% (that person has invested $24, 000).
Person number 2 delays starting to save to buy some “essentials” like a sports car and doesn’t start investing until person number 1 stops. Person number 2 invests $3, 000 / year for the next 22 years at the same 10% / year return (Invests a total of $66, 000) which person will have more money after 30 years?
Person number 1 will have $307, 201
Person number 2 will have $235,629
Person number 1 invests less, ends up with more!
Some Basic Lessons On Setting Financial Goals
Goals help guide behavior. Goals put a “stake in the ground” toward which to navigate in life both near and on the horizon.
Developing meaningful goals for our financial life will take work . . . and they will need to be periodically reviewed and updated.
Values based – goals should not be “plucked out of thin air” they should be developed. Properly developed, they will be based on what we value in life.
Goals characteristics: specific, measurable, understandable, achievable. Without goals, life (including the financial aspect) very often will be nothing more than aimless wandering.
A budget helps put goals in proper perspective (reality).
Contributed by Ed Baker
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