The Benefits of Investing Early
Have you ever experienced this situation? You have a school or work project that is due in a few days. You know you should start working on it, but you keep putting it off. You tell yourself you have plenty of time, or you have more important things to do, or you work better under pressure. You end up doing everything else except the project.
Then, the deadline arrives. You realize you have not done enough research, or you have not written a single word, or you have not prepared your presentation. You panic and try to finish the project in a hurry, but you know it is too late. You have missed the deadline.
You have just faced one of the consequences of procrastination. Procrastination is the act of delaying or avoiding a task that needs to be done—putting off until tomorrow what could be done today. Procrastinators often harm themselves by creating unnecessary problems and obstacles. They may also choose actions that negatively affect their performance.
Procrastination is such a common issue that there is a whole industry of books, articles, workshops, videos, and other products designed to help people overcome it. There are many theories about why people procrastinate, but regardless of the psychological reasons, procrastination can cost money—especially when it comes to investing and financial planning.
If you have been meaning to take care of some aspect of your financial future, maybe it’s time to take action. Don’t let procrastination stop you from achieving your financial goals.
The Power of Compounding
Let’s compare the cases of Alice and Bob, who each invest $100,000.
Alice starts investing right away, putting $10,000 a year into an account that earns a 6% rate of return. After 10 years, she stops making deposits. This leaves her with $286,968.57.
Bob waits 10 years before he begins investing. He then invests $10,000 a year for 10 years into an account that also earns a 6% rate of return. This leaves him with $197,392.85, $89,575.72 less than Alice.
Alice and Bob have both invested the same amount of money: $100,000. However, Alice’s balance is higher at the end of 20 years because her account has more time to benefit from compounding. Compounding is the process of earning interest on interest, which makes your money grow faster over time. This shows how starting to invest earlier can make a significant difference in the long run.
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