Compound Interest – A Millennial’s Best Friend

It’s commonly thrown around that time and compound interest are a young person’s best friend when preparing for retirement.

The results really do back this claim up. Check out the example below to see just how powerful compound interest is:

So what is compound interest? If you want a detailed explanation with some math stuff, go here. If you want my dumbed down version, continue on!

Compound interest is when your money is earning interest on money that has already earned interest. This means that for each subsequent time period in which interest is earned, you earn more interest!

Put differently… Your money is making money on money that’s already made money. If you let this happen for a lot of years, it ends up being a lot of money!

Still not clear? That’s okay. All we really care about is HOW DO WE START EARNING COMPOUND INTEREST?!

Well, good news! It’s easy.

Your standard retirement accounts have investment options that will earn compound interest. Think accounts like:

  • 401(k)
  • 403(b)
  • IRA
  • Brokerage Account
  • High Yield Savings Account
  • Heck, your regular savings account can have compound interest even though it’s minimal!

My go to for a specific investment is always an index fund that tracks the S&P and recommend this for any millennial but definitely do research and choose the best option for you!

But don’t wait!

The longer amount of time you let investments grow with compounding interest, the more significantly the growth is! Hence, the compounding part

The #1 financial regret for Americans is not saving for retirement earlier in life (check this out for more deets like this)!

Even if you feel like you don’t have any money to start investing to the accounts mentioned above, try to find a way ASAP! You’re future self will thank you.

If you need a strategy to start saving even just 1% of your monthly pay, I highly recommend checking out Paula Pant’s 1% Savings Challenge

$10, $25, $50, $100 per month, whatever it is, it will make a HUGE difference in 20-30 years.

The important thing is that you start today ASAP.

A little bit of effort today could mean hundreds of thousands of extra dollars down the road.

Don’t regret not saving and taking advantage of compound interest earlier in your life!

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