At age 20, John begins to save $2,000 per year and he does this for a period of ten years at which time he stops. He leaves his investment alone and allows it grow at a hypothetical return of 10%. When he is age 65 that account would be worth almost $900,000! His $20,000 investment grew 45-fold.

Fred decides that he’s having too much fun right now and decides to put off investing. He waits until he is 30. But, he figures, he’ll do one better than John and he will invest $2,000 per year until he is 65 for a total investment of $70,000. Now, it stands to reason that Fred would have much more money than John because he is going to invest a great deal more. But, not so fast. Fred ends up with a measly $550,000. As a matter of fact, Fred would have to invest over $3,300 per year at 10% for the 30 year period to catch up with John. That’s a total investment of almost $100,000. 

Note:  this is a mathematical illustration and is not based on any investment portfolio. Past performance is not a guarantee of future results. 

Time is your greatest advocate when it comes to saving money. It allows the compounding effect to pay off for you.

These are just two of the basic principles we should all understand. If you master these you will be well on your way to financial freedom.

Riddle answer: You have a quarter and a nickel. The quarter is one of the coins that is not a nickel.

1 Source – www.cnnfn.com.  December 14, 2003.  “Has your debt taken over your life?”


Steve Scalici is the Vice President of Treasure Coast Financial, a financial planning firm in Stuart, FL. He is co-host of God's Money which can be heard weekdays at www.oneplace.com. He can also be reached at his website www.tcfin.com.