For Compound Interest to work, Time is Important!

Let us have another example of compound interest along with the power of time. We have two friends, Mike and Rey are two close friends of the same age. Mike, being taught the virtue of savings sooner, started saving $3000 every year with 10% annual interest at the age of 18. He stopped saving at the age of 26 but left his savings intact. Rey, however, started saving $3000 a year at the age of 26 and invested it with 10% annual interest until he retired at the age of 65. After retirement, it’s surprising to see who has more money.

Mike, saving from 18-26 has invested only $24,000 by saving $3,000 yearly for 8 years. He allowed his money to grow for a total of about 48 years. Rey, on the other hand, invested a total of $120,000 saving from the age of 26 till retirement at 65. He also left his savings remain intact in all those years.

Upon retirement, Mike would actually have more money than Rey. He would have a total of $1,707,994 while Rey would only have a total of $1,460,555! But, didn’t Rey save about 5 TIMES MORE that Mike? Well, the key here is that Mike saved EARLIER. Time, it may seem, is a really important part of investing in compound interest. It is not about how much you save but when you save that matters! TIME is more important than the AMOUNT!

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