By Miles Clyne
Of all the pieces of the puzzle that are needed to be successful, starting sooner rather than later can make one of the biggest differences.
There are two good reasons for this: you get more time for growth and more time to figure out if you are doing something wrong and should change course. This applies to far more than investing; delaying beginning any productive activity will cost you.
The graph below shows two people - Sue and Liz. Sue starts investing at age 25 and invests $1,000 a year for 30 years. Liz does the same, but starts 10 years later. They both invest exactly the same amount and get the same rate of return on their money. At age 65, Sue ends up with over 80% more money than Liz! Crazy, but this is how time works for you.
All things being equal, it’s hard to catch up. Fortunately, there are lots of things you can do to make sure you are maximizing all of your potential. Clearly, having and adding to your savings is a big part of what contributes to your financial success. Debt is also a major contributor or detractor, i.e.: how much or little you have of it, and if you are borrowing to buy investments that have the potential to appreciate or depreciate. Hopefully big ticket items like our homes over time appreciate and you have value to show for the cost of borrowing. But not many vehicles or trendy gizmos have the likelihood of appreciation over time. So the more you spend on assets that depreciate, the harder it will be to succeed financially. If you have borrowed to buy the depreciating item, the challenge is even greater.
Like any goal, regardless of your age or stage in life, break it down.
$1000 a year = about $83.00 per month, about $20 per week, or about $3 per day. Likely you don’t have to look very far to start with the focus of saving $3 per day. Once you figure out the $3.00 per day, find the next $3.00. Maybe you have to find a better job to take it to the next level financially, maybe this requires a bit more education. The whole key to success in any area of our lives is to just start. One little step repeated again and again gets you closer and closer to where you need to be.
Recently I got together with a small group who wanted to find out about how to go about investing. These were relatively young professionals. One in the group was a real champion of getting going. When I showed the chart above, he told a story that went something like this: “I was on a bus in Mexico with my family, sitting beside a friend of the family who was a financial planner. I was 14 then and he told me to start investing, and to do it regularly, regardless of how much I could afford.” It made sense and I remember his advice as clear as though it was yesterday. The funny thing is, I’m 28 now and still haven’t started.”
There are many universal truths out there. Starting early is one of them. Yet why do we delay? The consequences of delaying are very real. Just start, then keep taking more small steps. You will be surprised in a few short years at how big the steps are you are taking.
You may think this only applies to the young. Consider a study done by HSBC in 2013. Almost 50% of Canadian’s between the ages of 55 & 64 have never saved for retirement. This message is for everyone. Hope isn’t a strategy at any age.