Financing for the Future: The Power of Compound Interest
Written by Joseph Regan on October 28, 2015.
There are many studies which show a significant number of Americans are ill-prepared for retirement. Numbers vary anywhere from one-third to one-half of the appropriate population, but according to a May Reuters report, data from the Fed's 2014 Survey of Household Economics and Decision-making found that, ‘Thirty-one percent of non-retirees have no retirement savings or pension, including nearly a quarter of those older than 45."
Americans aren’t the only neglectful retirement planners. If we look at the Natixis Global Asset Management Global Retirement Index (2015), we see that countries such as the UK (22nd place), Italy (29th place) and Slovenia (20th place) all rank worse than the US (19th place) in terms of the people’s preparedness for retirement, while France is nearly tied with the US at 18th place.
I don’t know about you, but this is horrifying! How are citizens of some of the world’s most developed nations so unprepared to live their golden years? Additionally, how can you be ready to finance your children’s college tuitions and even have a little extra spending money for leisure activities, if you don’t even have enough to survive after age 65???
To further complicate matters, if you’re an expat living abroad, as I and so many others are in today’s globalized world, you may not be entitled to certain retirement/social health benefits that your home country provides. This puts you at an even greater disadvantage than your peers back home.
After realizing years ago that I myself was not financially prepared for the future, I took action. By investing just a few hundred dollars a month, I’m now well on my way to building a retirement pot and even have a head start on providing for my future kids’ college education. I gained a sense of pride knowing that I was in control of my own destiny, and this encouraged me so much that I wanted to go out and help others do the same. And that’s what opened the door for me becoming a financial adviser at Infinity Financial Solutions.
Nowadays I meet numerous expats who (like me years ago) aren’t prepared to reach their future financial goals. The reason is because many just haven’t put much thought into the matter, they see 20, 30 and 40 years into the future as such a long time from now that they delay and procrastinate.
But time isn’t our enemy, it’s our friend.
We can use time on our side to take advantage of compound interest to build a healthy savings pot and even have money left over for adventure and entertainment. In retrospect, compound interest makes investing cheap and easy.
Take a look at the chart below, and you’ll see why Albert Einstein called compound interest, ‘the greatest mathematical discovery of all time’ and why he also declared that ‘compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.’
The moral of the story is this: procrastinating will only make you pay more money in the long run.
Why pay more when you don’t have to?
The sooner you start the better and cheaper, launching you light years ahead of your friends and colleagues who haven’t taken any action at all. Do you and your family a favor and listen to Albert Einstein, because if not, certainly you will be the one paying it and not earning it!