Time is Money, & Not All Dollars Are Equal

Suppose you save and invest $4,000 at the beginning of each year, starting at age 20 and continuing until age 59, for a total of 40 years. In other words, every 10 years, you add $40,000 to your investments.

Guess what happens?

If your investments grow at an average rate of 8% each year, the ultimate value of your first 10 years of savings will be much greater than the value of the $40,000 that you add in any of the other 10-year periods.

“What do you mean?” you wonder. Well, to be more specific, check out how these numbers work out:

• Your first $40,000 (the money you save from age 20 to 29) multiplies to $629,741 by your 60^th birthday.
• Your second $40,000 (the savings in your 30s) grows to $291,692.
• Your third $40,000 (the savings in your 40s) grows to $135,110.
• Finally, your last $40,000 (the savings in your 50s) grows to only $62,582.

Now, in this scenario, you actually end up becoming a millionaire, with $1,119,124 at age 60–which, no doubt, is a fantastic accomplishment. But do you know what the most fascinating part about all of this is?

The majority of this money, or 56% of it, came as a direct result of your first decade of savings. In fact, for every dollar that you saved during that period, you received $15 in return.

Now, to compare, let’s contrast that with these other numbers:

Only 26% of your million dollars came from the $40,000 you invested in your 30s. For every dollar that you saved during that period, you received $7 in return.

Just 12% of your million dollars came from the $40,000 you invested in your 40s. For every dollar that you saved during that period, you received $3 in return.

And finally, only 6% of your million dollars came from the final $40,000 you invested in your 50s. For every dollar that you saved during that period, you received under $2 in return.

To put it another way, the boost to your wealth that you get from saving earlier is tremendous. So, do yourself a favor and put time on your side, even if you have to start small. You won’t be sorry, because your future self will thank you.