One of the recurring themes clients often tell us is that they wished they would have started saving money earlier in their lives, even if it was putting a small portion of their paycheck away during their summer jobs when they were teenagers.
I have yet to have a client tell me they saved up too much money for their goals; only that they would have chosen to act sooner and take advantage of precious time if they had known how to get started when they were younger. Time is one resource we can never get back, so the earlier people start thinking of their financial future, the better prepared they will be for life’s big moments and unexpected turns.
Financial planning is like getting in shape; the hardest part is getting started, but once you have a plan in place, it’s easier to stay financially fit.That’s where our financial advisors at TruStone Wealth Management come in. Think of us like “financial coaches” that work with you to help achieve your financial goals, and the earlier we get started, the sooner you will begin to see results.
Most of these goals involve putting money aside and investing it to help make the goal a reality. However, many people hear the word “investing” and immediately break into a cold sweat. If you are like me, when things get overwhelming you tend to put off tasks you don’t understand or know how to do until a later date. Sometimes the task gets pushed out of your mind altogether, because at the time, avoiding the task was more comfortable than addressing it right away. Often, the task turns out to be a lot less scary than the monster our minds made it out to be.
When this procrastination game involves investing and saving, putting off small investments can mean a huge difference in achieving your financial goals. Why? Two words: Compound interest. Albert Einstein is famous for stating, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” When we save sooner in our careers and invest wisely, compound interest allows time to work this “wonder.”
People often think they can invest more money later to “catch up” on their goals or to make up for not starting as early as they should have. Although it may be true that people typically have more money later in life, this mindset is not feasible when you miss the opportunity to accrue compound interest.
To put it simply, compound interest involves earning interest on top of the interest we already earned in the past (hence the word “compound”). Saving a small amount now with time on your side will help you accumulate more than investing larger amounts later in life.
The best advice we can offer to achieving these savings goals is to start as early as you can, with whatever amount you can – even if it’s funds that are lying around in an old piggy bank that your grandma gave you when you were little. Instead of letting it continue to lie around and take up space, you can put the money to work for you through investments that accrue compound interest.
The next step after your initial investment is to gradually increase the monthly or annual amount you save. Whether it’s a raise, a bonus, or a tax refund, adding this amount (or a portion of this amount) to your savings goal, in small but consistent increments, will make the process simpler and more beneficial for your family in the long run. Think of these small payments as bricks that pave the road to home ownership, a college education for your children, retirement, or other financial goals that you want to achieve.
Another helpful metaphor for financial planning is planting a tree. Even the tallest, oldest, thickest redwood tree in a forest in Oregon started out as a tiny seed that was planted in healthy soil and watered over the course of many years.
The best time to plant a tree is 20 years ago, but the next best time is today. Working with an experienced financial advisor (like myself or any of my highly qualified colleagues at TruStone Wealth Management) will help provide a solid financial foundation for your investments to build upon, while giving you access to a professional that always has your back, even during times of uncertainty.
Once you have personally experienced the wonder of compounding interest, you may even inspire your kids and grandkids to get a head start on their financial futures. Yes, money from their lemonade stands this summer counts!
Together, we can work to keep you on-track towards your financial goals.
Request a consultation with me to learn more.
Read more articles by Mark Presteng