Saving Money is the Best Way to Reach Your Financial Goals
The whole point of an investment program is to accumulate sufficient funds to meet your financial goals. So what is the most fundamental investment principle: selecting the proper investments, accumulating the correct combination of assets, or timing the market to avoid corrections? Actually, the principle may not even sound like an investment principle at all. To help ensure you meet your financial goals, you must save significant sums of money on a consistent basis. That one habit will do more to help you reach your financial goals than anything else. The sooner you start this habit, the less you need to save. Consider the following example.
Fresh out of college and 25 years old, you decide you'll need $1,000,000 when you retire at age 65. You can save on a tax-deferred basis through your employer's 401(k) plan and expect to earn 8% compounded annually. If you start at age 25, you'll need to invest $3,860 a year for 40 years to reach your goal. However, you decide to wait 10 years. At age 35, you now need to invest $8,827 per year for 30 years. Still seems like too much? Consider that at age 45, you need to invest $21,852 annually. The really bad news is that someone waiting until age 55 will need to invest $69,029 annually to reach that goal. By postponing investing, you lose time and with it, the ability for compounding returns on your contributions to perform much of the work of attaining your goals.*
Let time work for you instead of against you. To calculate how much money you need to save for your retirement go to the ManagingMoney.com Retirement Planning Calculator.
* This example is for illustrative purposes only and is not intended to project the performance of a specific investment. It does not consider the payment of income taxes. Keep in mind that a plan of regular investing does not assure a profit or protect against loss in declining markets.
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