Here’s How Much Money You Lose By Not Investing
Investing is an essential part of any financial plan. Unfortunately, many people don’t invest their savings, offering a wide range of excuses for keeping their money out of the market. This can be crippling to your long-term financial health. To better understand why, let’s take a look at some numbers so you can see exactly what you lose by not investing.
You Will Need Funds in Retirement
Before we get into the details of what you lose by not investing, it is important to understand your needs in the future. For most people, the biggest financial milestone is the day you walk out of work and don’t return. But from that day forward, you are still responsible to pay your expenses, even though your salary has finished.
Pensions should not be fading into memory, but most Millennials have never had one. Social Security is great, but hardly covers the basics needs of many retirees, particularly if you want to maintain anywhere near the same standard of living in retirement that you had before.
When you retire, you will still have to pay for food, clothing, and any other living expenses, but likely on a smaller budget. To make up the difference in income, you will need a retirement fund. And without investing, that retirement fund almost certainly won’t grow enough to support your retirement income needs.
The Cost of Not Investing $20 Per Month
Many people say they don’t have enough money to invest, but you don’t need to save hundreds or thousands of dollars per month to make it worthwhile. Just saving a little bit adds up. Let’s look at what $20 becomes over time if you were to invest it.
Before interest, $20 per month adds up to $240 per year. Over 25 years, that is $6,000. That alone is a nice little bit of cash, but thanks to the power of the stock market it can be worth quite a bit more.
If you were to invest the $240 at the end of every year for 25 years and earn 10% — roughly the annual return of the S&P 500 over time — you would have $23,603 at the end. If you were to invest the $20 automatically every month instead of at the end of the year, you would have $26,537 at the end of 25 years. The cost of not investing $20 per month over the course of your career is over $20,000! This is not an insignificant amount! Imagine how far $20,000 goes in retirement?
Even if you put your money in a savings account, you are losing out compared to investing in the markets. The best savings account interest rates today are around 1%; at the end of 25 years saving $20 per month at the beginning of every month, you would have $6,819.08. That is only $800 more than just stuffing it under the mattress, but still five figures short of what you’d get by investing in the markets.
Still, even that $26,000 will only go so far in retirement. So let’s see what happens when you’re investing more than $20 a month.
The Cost of Not Investing Grows With Your Ability to Save
Odds are you spend at least $70 per month on something you don’t really need. I used to get cable TV, for example, but then decided it wasn’t worth it. If you were to cancel cable and invest $70 per month, you would end 25 years of investing with $92,878 — again, assuming an average annual return of 10% per year, compounded monthly.
Of course, inflation means that that $92,878 won’t go nearly as far in 25 years’ time as it does today. So let’s take it even further. If you were to invest $211 per month in a Pension. Invest that $5,500 per year for 25 years at the average return of the S&P 500, and you would have $608,131.98. Now we’re talking! This is still below what many people need to retire, but it puts you well on the way.
Don’t Lose Out by Ignoring the Power of Investing
Even Warren Buffet started with his first investment. You can come up with a laundry list of reasons not to invest, but I can give you 20,000 reasons you should start investing at least $20 per month—and even more reasons to invest even more.
Every day you wait to invest, you are losing out. Stop losing and start making. Your money won’t earn you anything unless you put it to work. There is nothing to gain by delaying, as the problem will not go away, only get bigger as time goes by.
Investing for 10 years, and then stopping and leaving that money to grow for the next 20 years, will require someone who waits those 10 years before starting, AND who then invests for the next full 20 years (so the same money for twice as long), to get roughly the same amount at the end! You have to give the “miracle” of compounding interest a chance to work in YOUR favour, not have a “short term” outlook like too many people today, it seems. You will be old soon enough and then what? The difference between and “old” man, and a “gentle” man is money………
Calling all Millennials! And others! When are YOU going to start? I am here to help you now……..