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How To Start Investing Early in Your Career
You’re
young, you just landed a new job and you’re going
to be getting a decent paycheck. You also have bills
to pay and there are also a few items that you’ve
always wanted so now you can finally afford them.
Investing for your retirement may be the last thing
on your mind at the start of a new career. Take some
advice from those with a little more experience: Start
investing early in your career. Start from day one and
you will never miss that money you’re setting aside.
If your company has available a 401-K or a TSP program,
jump on the band wagon immediately. If you don’t
have these programs at your disposal, you can still
start an IRA and the concepts stated here are applicable
as well.
It
really does it make a difference when you start contributing.
It is important to invest in your retirement account
early in your career for two reasons. First, if you’re
fortunate to receive matching contributions, you don't
want to miss out on those added contributions that are
a significant part of your retirement benefit. Second,
the longer contributions stay in your account, the more
you stand to gain. Your money makes money in the form
of earnings, and those earnings in turn make money,
and so on. This is what is known as the "miracle
of compounding." As money grows in your account
over time, the proportion resulting from earnings will
become larger compared to the proportion resulting from
contributions.
The
size of your account balance is going to depend on how
much you (and your company if they match funds up to
a certain percentage) contribute to your account and
how your account grows as a result of earnings on your
investments. To get an idea of what your retirement
account could be in the future, look at the following
projections.
Assume
that you are an employee eligible for organizational
contributions, that you are earning $28,000 each year,
and that you receive no future salary increases. You
choose to save 5 percent of basic pay each pay period;
therefore you receive total organizational contributions
of 5 percent. The growth projections below are for an
assumed annual rate of return of 7 percent on your investments.
After
five years your account balance would be almost $17,000;
after ten years your balance would increase to $40,000;
and after contributing for twenty years, your account
would have a balance of $122,000. Clearly your balance
would continue to increase each year. If you contributed
for forty years, which is fathomable if you start a
job at 23 and want to retire at age 63, your account
balance would be $615,000. That’s over half a million
dollars folks! Just from contributing 5% of your income
from the day you start work!
Looking
at the numbers, it’s hard to imagine why someone
wouldn’t start investing immediately!
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