Time…Friend or Foe
When it comes to financial planning one of the biggest detriments to meeting a financial goal is time. When it comes to financial planning one of the biggest aids to meeting a financial goal is time. Wait, can those two sentences make sense? Absolutely, allow me to explain.
Time is one of the most valuable resources we all have. It is the great equalizer as it is the same for everyone. When used properly time can be one of your greatest attributes. When ignored and delayed time can also be one of your largest obstacles. In financial planning, time is one of the key factors in determining your chances for success. Let’s use retirement as an example.
Someone decides they want to retire at 65 with $1 million in their 401k. We will use pre-tax contributions in order to simplify for taxes. (show projection for 10 years of saving, 20 years of saving and 30 years of saving)
If someone starts with $10,000 and investments $800 a month with a rate of return of 7%, then that person will accumulate over $1,000,000. So imagine someone who is 30 years old, has saved some money into their 401k, but are now looking to buckle down in order to retire at 60. They now have a plan in place to grow their wealth to that amount.
Now let us say that same person decides to wait 10 years to invest in a disciplined manner until they are 40 and still want to have $1,000,000 at the age of 60. In that scenario, that person would have to contribute $2,000 a month and earn the same rate of return of 7% in order to achieve $1,000,000 in their 401k.
Lastly, let’s examine what happens if that same person decides to wait until age 50 to begin a disciplined saving process. If they start with a balance of $10,000 they will have to contribute $6,000 per month in order to reach that goal of $1,000,000.
I hope this illustration is driving home the point that time can be your friend. If you have a goal, the sooner you get started on that goal, the better your chance of success.
The only question is do you want time to be your friend…or your foe?