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Opportunity Cost – Why is Time so Important?

Blog & Social Media   |   Investing   |   Opportunity Cost – Why is Time so Important?

Opportunity Cost – Why is Time so Important?

In the battle to save enough for retirement, the greatest weapon may be time. Chances are, you’ve heard that before. So what’s the big deal about time? In two words: compound interest. Check out the graphic below, which we borrowed from J.P. Morgan’s 2014 Guide to Retirement1 and which illustrates 3 hypothetical investors who start investing $5,000 at different ages in life and for different time periods. The power of starting early is clear in the comparison between Susan, who invests $5,000 per year for 10 years, and Bill, who invests $5,000 per year for 30 years.

OppCost

Here’s the greatest tip we can offer: Every Dollar and Every Day Counts. Can’t start investing $5,000 every year as the chart shows? Don’t let that stop you from investing what you can, starting now. If it’s only $25 each month, get started anyway. The second part of the recipe for success? Incremental increases. Each year, increase your savings rate by $50, 5%, or whatever you can afford. Inflation increases each year – so should the amount you’re saving. When raises occur, save the difference between the old amount and the new amount. When the last car payment is made, start saving the same amount as though the car payment still exists. Get creative with your saving strategy and find a system that works for you.

Love a good calculator? The National Endowment for Financial Education has terrific resources on their website, www.SmartAboutMoney.org. One of our favorites is the calculator that helps you see the impact of increasing your retirement plan contribution rate. Try it here.

Have you found a creative way to start saving or increased the amount you’re able to save? We’d love to hear about it! Leave a comment on our blog or send us a message at [email protected]. We’ll share in the joy of your success!
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[1] Source: J.P. Morgan Asset Management 2014 Guide to Retirement. Chart illustrates a hypothetical 7% annual return.

 

Filed Under: Investing

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Wisdom Wealth Strategies, LLC is an SEC-registered investment adviser. Our firm is notice filed in Colorado and Texas, and may be exempt from notice-filing in other jurisdictions where we serve our clients.


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