Layout:
Home > It is NOT just about compounding.

It is NOT just about compounding.

August 15th, 2011 at 10:13 pm

One of the major arguments for starting to invest early is the power of compounding interest. But we have heard that 1000 times.
There is another point, more simple and more human ones that gets overlooked.

Many working, middle class people tend to think, when faced with such huge undertaking as retirement planning that "right now we don't have that much to spare, and it is tough. So we'll do it after we get a raise, renovate the bathroom, be in a better financial position, etc...

What they miss is that it DOES NOT become easier with age and all the milestones. Even if your salary goes up...

1. When you buy a house, you'll have less money, not more.
2. When a baby is born, you'll have less money to invest, not more.
3. As that baby grows up, you'll need to pay for his education and activities, you'll have less money to play with, not more.

That is why one should start before all these things and take it a year at a time.

We started as soon as we got a job, thinking that once we face these milestones it will be tougher and we may even cut down or stop retirement savings.
But so far we managed to continue. A year at a time.

And if at some point we just have to stop for a while, at least we would have had a good start already. And won't do it thoughtlessly because it is the easiest thing to cut (because the consequences are far delayed but not any less serious).

2 Responses to “It is NOT just about compounding. ”

  1. MonkeyMama Says:
    1313443853

    So true. It might *get easier* for some, and it may *get easier* over time. For most people I know, it gets harder until your kids are grown and out of college. By then you are practically retired (it's a little late to START Saving).

    Though I think compounding is really important, the truth is the last decade sucked investment-wise. We have a decent nest egg started because we made it a priority, and contribute to it no matter what. Maybe in the future we will actually get to witness it compound, too!

  2. creditcardfree Says:
    1313453441

    Good points!

Leave a Reply

(Note: If you were logged in, we could automatically fill in these fields for you.)
*
Will not be published.
   

* Please spell out the number 4.  [ Why? ]

vB Code: You can use these tags: [b] [i] [u] [url] [email]