Fundamentals Retirement Personal Financial Planning

Start your retirement planing from today. Don’t waste time by thinking will start saving for retirement after some years.

The goal of this post is not to explain the mechanics of retirement plans. Rather, we want to show you the importance of saving earlier than later.

It all comes down to principle of compound interest. Its power of compounding.

Compound interest occurs when the interest that accrues to an amount of money in turn accrues interest itself. It’s the deceivingly simple force that causes wealth to rapidly snowball. This is why its the concept that is at the core of all finance.

Lets take an example consists of three people who experience the same annual return on their retirement funds:

• Mahesh, invests 20,000 per year only from ages 25 to 35 (10 years)
• Haresh, invests 20,000 per year, from ages 35 to 65 (30 years)
• Hitesh, invests 20,000 per year, from ages 25 to 65 (40 years)

We can see that Hitesh would end up with the most money. But the amount he has saved is astronomically large than the amounts saved by Mahesh or Haresh.

Interestingly, Mahesh, who saved for just 10 years, has more wealth than Haresh, who saved for 30 years.

That discrepancy can be explained by compound interest.

All of the investment returns Mahesh earned in his 10 years of saving. It’s to the point that Haresh can’t catch up even if he saves for an additional 20 years.

Of course, if Mahesh saved like Hitesh. well if you haven’t noticed Hitesh’s savings is just the savings of Mahesh and Haresh combined.

Mahesh get the benefits of the incredible power of compound interest.

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