CULTIVATED INFLUENCE

Alec Fetterer is a Financial Analyst at Passage Global Capital Management and is looking to help educate the younger demographic with occasional posts on why it’s never too early to start being money smart and how to set yourself up well for the future. Without further ado, the rest of the words are his… -SG

Financial success is a goal that we all desire to achieve as young adults. There are many avenues to this destination. One that many of our peers shy away from is investing the money we earn at a young age.

Don’t let anyone tell you that investing is too complex for us “regular” people.

A few unwritten rules.

One: It all starts with saving. The secret to getting rich slowly, but surely, is compound interest.

Scenario:

Exhibit 1: John is 65 years old. Forty-five years ago, when John was 20 he started an investment account, putting $4,000 in the stock market at the beginning of each year. After 20 years of contributions totaling, $80,000, he stopped making new investments but left the accumulated contributions he made each year in his account. The investment earned 10% per year, tax free.

Exhibit 2: Jack is 65 years old. And starts his investment account at age 40, and deposited $4,000 per year for the next 25 years for a total investment of $100,000.

When the two retired who do you think had more money?

John’s account was worth almost $2,500,000 while Jack’s is worth less than $400,000

The moral of the story is you can accumulate much more money by starting earlier and taking greater advantage of compound interest.

Malkiel, Burton (2010) Elements of Investing, Hoboken, NJ: Wiley.

Two: Never take on credit card debt.

If you don’t pay your bills in time, you’ll soon be paying interest on interest. This is the opposite of smart investing.

Three: Ask your employer to help you save by adding more to your 401(k), which is a tax-advantaged investment account.

If you pay yourself first, you’ll pay less in tax and be less likely to spend every penny you earn.

Even if you failed to save enough on a regular schedule thus far in life, the first fundamental rule for achieving financial success is that it is never too late to start!

Be on the lookout for more business and finance knowledge at cultivatedinfluence.net. If you like what you see, follow me on Twitter (@AlecFetterer) or connect with me via LinkedIn.

-Money Never Sleeps