By Shad Lamm
September 2018
After more than 17 years in the financial services industry, I’ve come across many pieces of sound financial advice. You’ve probably heard some of them as well, such as the importance of living within your means, managing risk, and maximizing your 401(k) contributions. You would do well to follow any of those lessons, but if I could give just one piece of financial advice, it would be to start saving and investing early. That’s due to two of the most powerful words in the financial world: compound interest.
One of the most significant benefits of saving early and often is the power of compound interest. Compound interest helps the money you put away grow faster due to interest building upon itself. It means that not only do you earn interest on your principal, but on the interest you’ve already earned as well, so you are earning interest on interest. You can make your money work smarter rather than harder to pursue your goals.
If you procrastinate and don’t prioritize saving, you not only lose out on your money working for you, but you’ll also have less time on your side. For every year you delay in saving, you’ll have to contribute exponentially more to reach your savings goals because of compound interest. If you start saving $400 per month at age 25, you would have $1 million saved by age 65 (assuming a hypothetical 7% annual investment return). If you don’t start until age 35, you’ll have to save around twice as much to reach $1 million by age 65.
If compound interest is so powerful, why don’t more people take advantage of it? Over 46% of Americans are putting less than 5% of their income into long-term savings. Even those who are saving 5% are still not saving enough.[1] We live in an instant gratification society that struggles to sacrifice short-term pleasures for long-term gain. Our culture tells us to work hard so we can buy the things we want. We trade our time for money, then trade that money for things that will supposedly make us feel good, like a new pair of shoes or the latest cell phone. But little by little those trades add up, and we end up in debt because of our daily habits and desires for the latest toys. Case in point: the average American household has $16,883 in credit card debt.[2]
Even if you don’t earn a lot of money, you can still buck the trend and give your money a purpose. Be aware of where every dollar goes. Budgeting may seem stressful or boring, but you will be amazed at the power and freedom you obtain when you are in control of your finances. Find ways to make it fun and personal, and reward yourself in small ways for reaching significant goals. Whether retirement is on the horizon or several decades away, it’s important to start saving as early as possible. Make saving for retirement a top priority that gets funded at the cost of other expenses, like dining out, vacations, and hobbies. Resolve to save any extra income that comes your way, whether from a bonus, an inheritance, or a raise.
It may feel like you will never have enough “extra” money to save. The cost of living keeps rising and there will always be things to spend your money on. But if you create the habit and discipline of saving early and often, you won’t even think about spending that money. Do your future self a favor by saving your money from a young age, and you will give yourself financial peace of mind for the rest of your life.
If the idea of saving regularly and reaping the benefits of compound interest seems overwhelming or impossible, reach out to us. We at Cypress Wealth Services can help you make the most of your money and get you closer to your ideal Second Growth phase of life. Contact one of our offices or call 866.888.6563 today for a no-obligation, no-cost consultation.
About Cypress Wealth Services
Cypress Wealth Services (CWS) is an independent Registered Investment Advisory (RIA) firm that provides proactive financial advice and investment management for high net worth families, business owners, and institutions. Cypress Wealth Services is comprised of professionals with diverse backgrounds and extensive experience, qualifications and is uniquely qualified to serve a broad range of client needs. CWS’s experience and expertise have been the foundation for their proactive client service process and client Standard of Care. CWS’s multi-generational approach focuses on efficiently protecting and growing wealth while providing proactive financial advice as a client moves through each new stage of life. With offices in Palm Desert, CA and Anchorage, AK, the firm serves clients across the country. For more information: visit www.CypressWS.com or call 760.834.7250.
