I was reading this article on MSN Money on how much money a person would need to save daily to become a millionaire at age 67 years old. It is an interesting lesson in time and compounding. It is really sad that we don’t educate our youngest generation to fully understand its importance. Instead, we teach debt. We talk about student loans and credit cards to this generation until it is time to go to work and they can’t afford to save because of their debt payments. The interest they should be earning is being earned by the banks and lending institutions that gave them the student loans and credit cards in the name of education. At what cost? Let’s take this example.

If we take two investors at two different ages. Let’s call them “Larry” and “Jerry”. Larry is a 20 year old investor of $100 per month or $1,200 per year and Jerry is a 30 year old investor of $100 per month or $1,200 per year. For example purposes let’s use the Rule of 72 and calculate our long term interest rate at 7.2%. This means both men’s money will double every 10 years which is fairly conservative over time according to our Rule of 72. Both men will contribute this set amount every year until their retirement at age 70. Jerry will contribute $48,000 over his 40 years and his investment will grow to just under $290,000. However, Larry contributed $60,000 and his investment grew to just under $599,000. Larry’s advantage of investing 10 years earlier than Jerry allows his money to double one more time and he was able to add an additional $12,000. So Larry added 25% more money than Jerry but his investment grew to 207% more than Jerry’s investment. There is no way to make up for the lost time of compounding.

As the MSN Money article states just waiting 12 years from age 23 to age 35 to begin saving for retirement requires an increase of over double from just $14.00 per day at age 23 to $30.00 per day at age 35. Not understanding time and compounding Is one of the biggest mistakes a young person will make in their life time. If you are older than 20 years old, you have already wasted time. You must start today setting aside retirement money. First, we must live within our means. Pay off our debts; stop borrowing money for every little thing. Second, we must become habitual savers. Most Americans think that it takes large sums of money to start a retirement fund. This is a myth fabricated by Wall Street. It just simply takes a system of discipline to pay you first. Here is a free e-book I wrote back in 2014 called the Minimum Wage Millionaire. It is a simple 50 page guide to self-financial planning.

To save $100 per month or $25 per week or $3.57 per day or about .60 cents per hour if you work on clock wages takes discipline, but it is not impossible. Start the habit of saving today. Just start saving and perhaps you will save a million dollars.

“…compound interest the eighth wonder of the world and mankind’s greatest invention because it is the mightiest force ever unleashed for the amassing of wealth” — Albert Einstein

Image by Nerd Wallet Via MSN Money

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Tim Wilhoit is owner/principal of Your Friend 4 Life Insurance Agency in Nashville, TN. He is a family man, father of 3, grandfather of 2, entrepreneur, insurance agent, life insurance broker, employee benefit specialist, salesman, sales trainer, recruiter, public speaker, blogger, author and team leader with over 30 years of experience in sales and marketing in the insurance and beverage industries.