Ah summer, you can hear the birds chirping, the bees buzzing, fresh cut grass, and the shopping malls a callin’. The sweet freedom of summer. Hold up. That last part, the shopping malls a callin’. While your favorite retailer is probably hoping you’ll be more than ready to drop that hard earned cash this summer in their store, did you know that with a little planning, there could be an even better use for that money? Compound interest. Read on to find out more.
Perhaps you have never stepped foot in your local bank or credit union, or on the flip side, maybe you are actively saving and investing for your future. Regardless, remember with little effort and patience, there’s something you may have heard of before that can help you better utilize that cash called compound interest.
Compound Interest - Saving Your Way to Millions
Compound interest - probably sounds complicated on the surface, right? Guess what though? Compound interest is what is going to help you get on the fast track to being a millionaire. It’s actually free money! Still not sure what to think? Just check out this example of Ben and Arthur via DaveRamsey.com to get just how much compound interest can help you in your savings journey for your summer job this year and go forward.
Ben and Arthur were friends who grew up together. They both knew they needed to start thinking about the future. At age 19, Ben decided to invest $2,000 every year for eight years. He picked investment funds that averaged a 12% interest rate. Then, at age 26, Ben stopped putting money into his investments. So he put a total of $16,000 into his investment funds.
Now Arthur didn’t start investing until age 27. Just like Ben, he put $2,000 into his investment funds every year until he turned 65. He got the same 12% interest rate as Ben, but he invested for 31 more years than Ben did. So Arthur invested a total of $78,000 over 39 years.
When both Ben and Arthur turned 65, they decided to compare their investment accounts. Who do you think had more? Ben, with his total of $16,000 invested over eight years, or Arthur, who invested $78,000 over 39 years?
Believe it or not, Ben came out ahead . . . $700,000 ahead! Arthur had a total of $1,532,166 while Ben had a total of $2,288,996. How did he do it? Starting early is the key. He put in less money but started eight years earlier. That’s compound interest for you! It turns $16,000 into almost $2.3 million! Since Ben invested earlier, the interest kicked in sooner.
Pretty sweet, eh?
So here’s what you can do now. Your goal is to get going AS SOON AS POSSIBLE. If you need help, reach out to your parents or teachers about how you can open a long-term investment account so you can get on your way to being a millionaire, too! Finally, remember, the longer you wait, the less money there will be waiting for you at the finish line, so get rolling!