I'd like to talk about the compound interest in today's post. Investopedia defines compound interest as "Interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan."
My definition of compound interest is "Making some major bank that seemingly comes out of nowhere."
What this means is that when you diligently put money in your retirement account every month and assume a 7% annual return (which, according to Warren Buffett, a pretty smart guy by all accounts, is a rate that will hold up over the years), you see your money increase exponentially.
Let's take a look at the picture above courtesy of JP Morgan Asset Management and pretend that you are Chris. Setting aside $5000 a year means setting aside $416.67 every month. That is not an entirely unreasonable amount of money. If you are able to do so, what would you be willing to give up that costs $416.67 every month? Think about it. And then think about coming into a $1.1 million windfall in your mid-60s.
Bottom line - it helps to think about the long-term. Try to see if you can set aside small amounts of money every month and put that into your retirement account. Your future self will thank your present self. And your present self will thank your past self (from five minutes ago when you read this article) for taking compound interest seriously.
What is this?
An anthropological look at how people think about money. Created and edited by Star Li.