You might have heard an absurd-sounding parable that often makes the rounds on personal finance blogs. This story is about two siblings who want to have a comfortable retirement — let’s make them sisters for this article’s purposes.
The first sister starts saving in her 20s and manages to save $100,000 by the time she turns 30, but then never puts another dollar towards her retirement. The second sister waits until she’s 30 in order to start saving for retirement and then puts away $10,000 every year until she turns 65.
The story is meant to showcase the power of compound interest and saving early for retirement.
It sounds pretty incredulous but the math works out. If you assume the sisters invest at a 7% rate of return, the younger sister is going to have $1,150,615.18 when she retires while the older sister will have $1,065,601.21.
It’s a nice story.
But nowadays with so many 20-somethings drowning in student loan debt and having a hard time finding a job, it might sound impossible to them to save $100,000 by the time they’re 30. That doesn’t mean the story doesn’t apply to them!
You don’t have to reach that magic number in retirement savings by your 30th birthday. After all, this parable is meant to inspire people to start saving as much as possible as early as possible.
So, let’s say you do want to try to save $20,000, or $50,000 or even $100,000 by your 30th birthday? Here are some tips to do it.
Source: USA Today | Amanda Reaume, Credit.com